I have a small business and I'm trying to understand how bad debts affect taxable income. I am using accrual method of accounting.
Let's say in the year 2008, I sent an invoice 101 to a client for $50k CAD. My revenue for the year of 2008 is $50k because I only had that one client and that one project. My guess is that my taxable revenue for the year 2008 is $50k. Is this correct?
Let's say in the year 2018 (ten years later), I realize my client still hasn't paid my invoice 101. I receive a letter in the mail from an insolvency agency that my client has declared bankruptcy, with only $100k worth of assets and over $50M worth of debt to creditors ($100k out of the $50M debt is to the government and banks). I doubt I will get even a penny for my invoice 101. So I go into QuickBooks and create a credit memo to my invoice 101 and assign it as bad debt. I made no sales in 2018 because I decided not to do any work.
Is my taxable revenue for the year 2018 -$50k because I discovered the bad debt in 2018? Or is my taxable revenue for the year of 2018 only $0? If it is the latter question, do I have to pay my accountant to adjust my tax filing in 2008? So that my taxable income in 2008 is $0, and my taxable income in 2018 is also $0?
Does the outcome/impact change if invoice 101 was sent in 2017 instead of 2008?