Many QuickBooks users face a common issue known as Bad Debts in their accounts. Bad debt is an expense that arises when a customer’s payback (after credit has been granted) is no longer considered collectible. In other words, bad debt is a receivable that cannot be recovered. In other words, bad debt is a receivable amount that a customer owes you, but you can not collect it. Bad debts are a part of business, and luckily there is an option to Write off Bad debt in QuickBooks Online & Desktop.
For those who don’t know, any firm that extends credit to its customers must account for the danger of bad debt, as your customer’s circumstances may change, and they will be unable to make the agreed-upon payment. And when any invoice you send in QB becomes uncollectible, you need to record them as a bad debt in your account and write them off. It is important you write off bad debt in accounts receivable to ensure your accounts receivable and net income stay up to date. So read the blog to know how to write off bad debt in QuickBooks.
Looking for the best way to write off bad debt in QuickBooks Desktop or Online? Safeguard your valuable data and avoid any potential loss by reaching out to our Data Service Helpline team at toll-free +1-(855)-955-1942.
Step-by-Step Process to Write Off Bad Debts in QuickBooks Online
The process to write off bad debt in QuickBooks online includes examining your account receivable aging report and then generating bad debt items under a bad debt account, following by the steps to write it off.
Step 1: Review Account Receivable Aging Detail Report
Using the Accounts Receivable Aging Detail report, look for invoices or receivables that should be considered bad debt so that you can write them off later on.
- Click on the Reports menu.
- Look for the Accounts Receivable Aging Detail report and open it.
- Examine which accounts receivables should be written off.
Step 2: Create a Bad Debt Item under Bad Debt Account
In case you don’t already have one, you need to create a separate bad debt expense account in your QuickBooks online to keep all the bad debt items in one place. After that, create a non-inventory item as a placeholder for the bad debt. This isn’t an actual item, it’s merely to keep the accounting balanced.
- Under the Settings menu, Select Chart of Accounts.
- Go to the upper right corner and Click on New in order to create a new account.
- Now Go to Account Type and choose Expenses.
- Select Bad Debts from the Detail Type dropdown.
- Enter Bad debts in the Name field.
- Choose Save and Close.
- Now, Select Products and Services from the Settings menu.
- Select New from the upper right, then Non-inventory.
- Enter Bad debts in the Name field.
- Select Bad Debts from the Income account dropdown menu.
- Choose Save and Close.
Step 3: Credit Memo for the Bad Debt
After creating the non-inventory item for bad debts, you need to create a credit memo for bad debts, which we will apply to the invoices later on.
- Select +New.
- Choose a Credit memo.
- Choose a customer from the customer dropdown menu.
- Select Bad Debts in the Product/Service section.
- Enter the amount you wish to write off in the Amount Column.
- Enter Bad Debt in the Message displaced on the statement box.
- Choose Save and Close.
Step 4: Apply a Credit Memo to the Invoice
- Select +New
- Select Receive Payment under the customer section.
- Choose appropriate customers from the Customer Dropdown menu
- Select the invoice from the Outstanding Transactions section
- Select Credit memo from the Credits section
- Select Save and Close
The uncollectible receivable will now appear in your Profit and Loss report section under the Bad Debts expense account.
Step 5: Run a Bad Debt Report
You can now look at all the things you have marked as bad debts by running an Account QuickReport. In order to do so-
- Tap on settings.
- Choose Charts of Accounts.
- Now Select the Action column of the bad debts account, and choose Run report.
Note- By adding a comment to their name, you may distinguish a bad-debt entity from your other customers:
- Go to the Get Paid & Pay option and then select the Customers option.
- Now, select the customer’s name.
- Then, from the upper right corner, click Edit.
- Now, in the Display Name field, enter the word Bad Debt or No Credit after the name of the customer.
- Then select the Save option.
Steps on How to Write off Bad Debt in QuickBooks Desktop?
QuickBooks Desktop is an application that helps you store data on your computer system. Writing off bad debts in QuickBooks Desktop is easy as you need to create an expense account to track bad debts and then close all the unpaid invoices.
Tip: With the Accounts Receivable Aging Detail report, you can keep track of your client’s open balances.
Step 1: Add an Expense Account in order to track Bad Debts
- Select Chart of Account from the Lists menu.
- Select New from the Account menu.
- Select Expense and then Continue.
- Enter an Account name such as Bad Debts.
- Tap on Save and Close.
Step 2- Close Down the Unpaid Invoices
- Select Receive Payments from the Customer menu.
- In the Received From field, type the customer’s name.
- In Payments Amount, type $0.00.
- Choose Discounts and Credits.
- Enter the amount you’d like to write off in the Amount of Discount field.
- Select the Account you added in step 1 for Discount Account and Click Done.
- Choose Save and Close.
Also Read: Quick Guide to Reconcile a Bank Account in QuickBooks
Get Help to Write Off Bad Debt in QuickBooks!
If you are still not able to write off bad debt in QuickBooks, get in touch with our QuickBooks professionals by placing a call on QuickBooks Data Service Solutions Helpline Number +1(855)-955-1942.
Frequently Asked Questions
Ans: To write off overpayments in QB Desktop, do the following:
1. From the customer’s menu, choose Create Invoices.
2. Then click on the customer name from the Customer section.
3. After that, in the field of Item, select the minor charge off and then enter the amount of overpayment.
Then, hit Apply Credits.
Ans: Bad debt is shown as an expense on the balance sheet in QuickBooks, and the result of this is an asset reduction, which is the same as the amount of debt.
Ans: No, cash-basis taxpayers are not eligible to write off the bad debt deduction for the uncollectible amount.
