We had an invoice that we weren't sure it would be paid, and I set up an allowance, ex DR Bad Debt Expense 4000, CR Allowance 4000  (I didn't touch the AR).

We sent it to collections to see if they had better luck than we did.  The collection agency sent us a cheque minus their commission.  How do I enter this? Example, client paid $300, collection agency kept $150.  I would assume I'd need to apply the full $300 to the AR, with the $150 as a service fee.  How do we enter this in the AR Receipt Batch module? We tried entering the receipt amount as the net $150.  We then amended the amount to be applied to the invoice as $300, then did an adjustment in that module of $150 to Service Charges.  We kept getting a message that says "Cheque/Receipt Overapplied".  Suggestions?  If it goes as planned, there should be more cheques to come.

Also at year end, would I adjust Dr the Allowance and Cr Bad Debt expense for the amount we've collected for the balance of the year?

Thanks!!