A bad debt is a debt that is no longer considered recoverable. In other words, bad debt is an amount receivable from a customer that you cannot collect. You should write off bad debt in QuickBooks to acknowledge your losses and avoid tax complications. This ensures that your accounts receivable and net income are up to date. Any firm that extends credit to its customers must account for the risk of bad debt, as customers’ circumstances may change, and they may be unable to make the agreed-upon payment. To learn how to write off bad debts, go through this comprehensive guide and learn a quick way to record them.
Incorrectly writing bad debts can directly impact a company’s financial statements and total income. Therefore, to avoid this, you must get in touch with an accounting expert at +1(855)955-1942 and let them handle this task on your behalf
Step-by-Step Process to Write Off Bad Invoice 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, followed by the steps to write it off.
Step 1: Review Account Receivable Aging Detail Report
Using the Accounts Receivable Aging Detail report, review invoices or receivables that should be considered bad debt so that you can write them off later on.
- Go to the Reports menu at the top.
- Look for the Accounts Receivable Aging Detail report and open it.
- Examine which outstanding accounts receivables should be written off.
Step 2: Create an Account for Bad Debts Expense
If you haven’t already, you should create a separate bad debt expense account in your QuickBooks Online to keep all the bad debt items organized in one place.
- Click the Settings icon from the right pane of your screen and then choose Chart of Accounts.
- Select New in the upper right corner to create a new account.
- From the Account Type dropdown, choose Expense.
- Further, select Bad Debts from the Detail Type dropdown.
- Enter Bad debts in the Name field.
- Finally, click Save and Close to save these changes.
Step 3: Creating an Item for Bad Debt
To balance the accounting, create a non-inventory item as a placeholder for the bad debt. Follow the below steps to create this unreal item.
- Go to Settings and then choose Products & Services.
- From the upper right corner, select New and then click on Non-inventory.
- Enter Bad debts in the Name field.
- Choose Bad Debts from the Income account dropdown .
- Lastly, click Save and Close.
Step 4: Create a Bad Debt Credit Memo
After creating the non-inventory item for bad debts, you need to create a credit memo for them.
- To create a new Credit Memo, click +New.
- Choose the Credit Memo option and then select a customer from the Customer dropdown menu.
- Move to the Product/Service section and then choose Bad Debts.
- Further, enter the amount you wish to write off in the Amount column.
- In the Message displayed on the statement box, write Bad Debts.
- Finally, click Save and Close to save these changes.
Step 5: Apply the Credit Memo to the Invoices
After creating the credit memo, we need to apply them to the bad debt invoices; here’s how to do it.
- Click +New and then select Receive Payment under Customers.
- Choose an appropriate customer from the Customer dropdown menu.
- From the Outstanding Transactions section, choose the bad debt invoice.
- Select a credit memo from the Credits section.
- Now, click Save and Close.
After applying the credit memo to the invoices, the uncollectible receivable will now appear in your Profit and Loss report section under the Bad Debts expense account.
Step 6: Run a Report for Bad Debts
Finally, you need to run an Account Quick Report to review all the receivables you tagged as a bad debt. Follow the below steps to run the report.
- Go to Settings in the right corner of your screen and then choose Charts of Accounts.
- Move to the Action column of the bad debts account and select Run Report.
Note: You may distinguish a bad-debt entity from your other customers by adding a note to their name;
- Go to the Sales menu and then choose Customers.
- Choose the customer’s name for which you want to write the bad debt.
- Click Edit from the upper right corner.
- Enter Bad Debt or No Credit after the customer’s name In the Display Name as field.
- Finally, click Save.
Learn How to Write Off Unpaid Invoices in QuickBooks Desktop
Writing off bad debts in QuickBooks Desktop is easy as all you need to do is create an expense account to track bad debts and then close all the unpaid invoices. Let’s write off unrecoverable incomes by following the below steps:
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
To track bad debts, you first need to add an expense account to the Charts of Accounts; here’s how to do it.
- Go to the Lists menu at the top and then select Charts of Accounts.
- Choose the Account menu from the left pane and then click New.
- Further, select Expense and then click Continue.
- Enter an Account name such as Bad Debt.
- Finally, click Save and Close.
Step 2: Closing Out the Unpaid Invoices or Bad Debts
Let’s move out the bad debt from the current tab to label it as closed.
- Select Receive Payments from the Customer menu.
- In the Received From field, type the customer’s name.
- Type $0.00 in Payment Amount.
- Further, 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.
- Lastly, choose Save and Close.
Also Read: Quick Guide to Reconcile a Bank Account in QuickBooks
Summary
After following this guide, you should be able to write off bad debt in QuickBooks Desktop and Online. However, there may be situations where you find it difficult to follow the instructions or require professional help. In such cases, you should contact the accounting experts at +1(855)-955-1942 and discuss the issues you are facing with them. You can also hand over this task to our team of professionals to avoid any issues when writing off unpaid invoices.
Frequently Asked Questions
Answer: Here’s how to undo write-off invoices in QB Online:
a. Select Customer Center from the Customers menu.
b. Choose the specific customer for whom you want to undo the bad debt, look for the bad debt transaction (shown as a discount), and then open it.
c. Finally, click the Delete option from the upper section and select Save & Close.
Answer: Bad debt is shown as an expense on QuickBooks’ income statement. On the balance sheet, it appears under current assets, reducing the total accounts receivable. This results in an asset reduction equivalent to the amount of the debt.
Answer: Yes, cash-based taxpayers can write off bad debt in QuickBooks by recording it as an expense when it becomes uncollectible. This is typically done by creating a journal entry to debit the bad debt expense account and credit the accounts receivable account.
