how to write off bad debt in quickbooks : Complete Guide 2021

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Bad debt is the amount that a business or a company is unable to recover from the debtor in case the borrower has gone bankrupt or is unable to pay the debt for some reasons. Debt issues can severely affect the profit and loss reports while reconciling the accounts in QuickBooks. Bad debt is generally related to account receivables and is also referred to as uncollectible account. The reason why having a bad debt account and writing off bad debts is essential is to avoid discrepancies in sales and income statement and profit and loss reports. The following article will guide you through the steps of writing off bad debts in QuickBooks Desktop.

Why Writing off Bad Debt is Important?

Businesses that often make sales on credits like finance companies which require managing a separate bad debt account to write off the bad debts that can’t be collected. By writing off bad debts in QuickBooks, you can clear the invoices from the account receivables that help you get the correct net profit amount in QuickBooks.

Examine the A/R Aging Report

  1. From the left side panel in QuickBooks click Reports.
  2. Search for Account Receivable Aging from the search bar at the top.QuickBooks Accounts Receivable Aging Detail Report
  3. Now to view your outstanding account receivable click the Accounts Receivable Aging Detail Report.

Create the Bad Debt Account in QuickBooks

  1. Click the Gear icon and from My Company section and choose Chart of Accounts.QuickBooks Online Your Company Menu
  2. Now choose the option to create a new account.
  3. Select Expenses from the Account Type drop-down list.QuickBooks Online Create Bad Debt Account
  4. Now select Bad Debts from the Detail Type drop-down list and enter Bad Debt in the Name field.
  5. Click Save and Close.

Set up a Service / Product Bad Debt Item

  1. Click the Gear icon and select Product and Services from under the Lists section.QuickBooks Online Product and Services
  2. Choose the Product and Services option from under the List section.
  3. Click New and then from the Product / Service Information section click Non-Inventory.
  4. Type Bad Debt inside the Name text box.QuickBooks Online Bad Debt for Product and Service
  5. Now choose the Bad Debt expenditure that you have created in the Income Account section.
  6. Now uncheck the Is Taxable check-box.
  7. Click Save and Close.

Set up a Credit Memo for the Bad Debt

  1. Click the Plus icon at the top of your QuickBooks dashboard.
  2. Hit Credit Memo under the Customers section.QuickBooks Online Create Credit Memo
  3. Now select the customer from the Customer drop down list.
  4. Now choose the item that you have created for the bad debt in the Product / Service field.
  5. Type the amount of the bad debt / unpaid invoices with positive values.
  6. Type the amount of bad debt in the Memo text box.
  7. Click Save and Close.

Implement the Credit Memo to Apply Credits

  1. Hit the Plus icon at the top of the screen and then select Receive Payment from the Customers section.
  2. Now select the customer from the Customer drop down list.QuickBooks Online Receive Payment from the Customers
  3. Choose the invoice that you want to write off from the Outstanding Transactions menu.
  4. Choose the credit memo that you have created from under the Credits section.
  5. Verify that the amount appearing there is $0.00.
  6. Click Save and Close.

Once you are done with setting up bad debt account in QuickBooks, you can efficiently run reports and view all the bad debts and unpaid invoices. To run the bad debt report, click the Gear icon and from under the Your Company section select Chart of Accounts, search for Bad Debt and from the Action drop down click Run Report. In case if you are still facing issues writing off bad debts in QuickBooks or simply need the help of an expert to resolve any issue that you are facing you can contact Support .

Write Off Bad Debt in QuickBooks Online

Unfortunately, there may be a time when a customer does not pay you for your services and you need to write off their outstanding invoice. The following information will help you write off the bad debt.

If you don’t already have a Bad Debt expense account set up, here’s how to create one:

  • Click on the Gear icon and select Chart of Accounts.
  • Click on New.
  • Select Expenses as the Account Type and type in Bad Debt in the Name field and choose Bad Debts as the Detail Type.

You will need to create a credit memo to apply the outstanding invoice.

  • Click on the Plus icon and select Credit Memo underneath the Customers column.
  • Select the customer
  • Use the current date for the Credit Memo Date. Note: credit memos should not be dated with prior year’s date as it will affect past financials and filed tax returns.
  • Select the Bad Debt item. If you do not already have a Bad Debt item set up, click on Add New and Service for the type. Type Bad Debt in the Name field and select the Bad Debt expense account for the Income account. Click Save and close. You can type in Bad Debt and a descriptive reason in the Description field.
    Enter in the amount of the outstanding invoice as the amount of the credit memo.
    Click on the Sales menu on the left-hand side and then the Customers menu at the top. Find the customer, and you will notice that QuickBooks automatically applied the credit memo to the invoice.

How to Write Down Bad Debts in QuickBooks

When a customer doesn’t pay a debt owed to your company, the original invoice goes unpaid. The bad debt makes it difficult to reconcile your accounts and run accurate reports. Before recording a bad debt, you should create an account for the purpose of tracking such transactions. By doing so, you can use the Discounts and Credits option within QuickBooks to record the debt while keeping the debt organized in a separate register for tax purposes. Recording bad debts into your regular customer register can make it more difficult to track the debt.

Create Bad Debt Account

1

Click the “Company” menu and select “Chart of Accounts.”

2

Select the “Account” button. Click “New.”

3

Choose “Expense” as the account type. Click “Continue.”

4

Click the “Number” text field and enter the account number, if applicable. Select the “Account Name” field and type “Bad Debt” into the text area. Click “OK.”

Record Bad Debt

1

Click the “Customers” menu and select “Receive Payments” from the drop-down list.

2

Choose the customer with the bad debt from the customer list.

3

Select the line item that corresponds to the bad debt.

4

Click “Discounts & Credits.” Select the “Amount of Discount” field and enter the total for the bad debt. Click “Done.”

5

Select “Save & Close” to close the transaction window and finish recording the debt.

Writing off Bad Debt in Accounts Receivable

Occasionally businesses find themselves in the position of writing off client invoices that will never be paid. These instructions will help you do this within QuickBooks Online. These steps are set up and will only be performed once.

Set Up the Item “bad debt” in QuickBooks Online:

  1. Click on accounting on the left side of the screen
  2. Click on chart of accounts
  3. Click on new in the upper right hand corner
  4. Change the account type to income and name the account bad debt
  5. Click save and close
  6. Click on the big gear icon in the upper right hand corner
  7. Click on products and services under the column called lists
  8. Click on new
  9. Click on service
  10. Name this service Bad Debt
  11. Change the income account from income to bad debt
  12. Click save and close

Write Off the Bad Debt in QuickBooks Online

  1. Click on the plus sign (quick create) in the upper right hand corner
  2. Click on credit memo under the column called customers
  3. Select or enter the name of the customer whose invoice(s) is being written off
  4. Choose Bad Debt as the product / service
  5. Enter the amount being written off into the column for rate
  6. Click on save and close
  7. Click on the plus sign (quick create) in the upper right hand corner
  8. Click on receive payment under the customers column
  9. Select or enter the name of the customer whose invoice(s) is being written off
  10. Check the box that corresponds to the invoice(s) being written off
  11. Check the box for the credit memo you just created
  12. Scroll up and confirm the dollar amount in bold is zero, if it is not, change the amount received to zero dollars
  13. Click save and close

How to Write Off Bad Debt in QuickBooks Online & Desktop?

What is Bad Debt in QuickBooks?

When customers owe money to the company but you cannot collect it, here, the customers have debt with you that you will not even get paid. In this scenario, you can mark this as a bad debt and write it off as a deduction.

This can be done in both QuickBooks Online and QuickBooks Desktop. However, the steps would be different. Let’s know further information on how to write off bad debt in QuickBooks cash basis.

How Do You Write Off Bad Debt in QuickBooks Online?

To write the bad debt, you first need to check the invoices that are considered to be a bad debt, set up a bad debt expense account, create items, and then create the credit note in order to run the bad debts report.

The procedure of QuickBooks Online bad debt write off is divided into 5 steps. If you are thinking about how do I write off bad debt in QuickBooks Online, follow these steps to get your answers:

Must Read: How to Add an Account to QuickBooks

Step 1: Review the Ageing Accounts Receivable

In this step, you are required to check the receivable or invoices that are examined as bad debt. This can be done by using your Account Receivable Ageing Detail report. Let’s know how to check the invoices in the following steps:

  • Click on the “Reports” menu.
  • Search and click on the “Accounts Receivable Ageing Detail” report.

At this point, you can check the accounts receivable that you should write off. Once done, move to the next step.

Step 2: Setup a Bad Debts Expense Account

Now, we will create a bad debt expense account. For this, you can go through the steps instructed below:

  • Click on the “Settings” option.
  • Go to the “Chart of Accounts” option.
  • Now, click on the “New” button located on the top right.
  • Hit the “Expenses” button using the “Account Type” dropdown.
  • Using the “Detail Type” dropdown, click on the “Bad debts” button.
  • Now, click the “Save and Close” button.

This way you can create a new account for bad debts. Now you are supposed to create items for this account.

Step 3: Create Items for Bad Debt

You can create the non-inventory(non-inventory) item for the bad debt account. It works as a place holder. Remember that they are not real items but to balance your accounting in QuickBooks. To create items for bad debt, you can pursue these steps:

  • Click on the “Settings” menu.
  • Go to the “Products and services”.
  • Now, click on the “New” button located on the top right.
  • Click on the “Non-inventory” option.
  • Then, enter your “Bad debts” in the “Name” field.
  • Click on the “Bad debts” option using the “Income account” dropdown.
  • Hit the “Save and Close” button.

After following these steps, you can easily create the items for bad debts. Now, you can proceed with the credit note.

Step 4: Create the Credit Note for Bad Debt

In this step, one has to create a note for the bad debt so that you can apply this credit note to your invoice. To make this credit note, you can follow these steps:

  • Click on the “+New” button.
  • Go to the “Give credit” or “Credit note”.
  • Now, choose your customer using the “Customer” dropdown menu.
  • Click on the “Bad debts” located in the “Product and Service” section.
  • Input the amount that you prefer to write off in the “Amount” section.
  • Now, enter “Bad Debt” in the “message displayed on statement” option.
  • Click the “Save and Close” button.

This is how you can create a credit note. Once done with this, you can go to apply this note to your invoice so that you can run the bad debts reports.

Step 5: Apply Credit Note to Your Invoice

Since you have created the credit note, you can use it for your invoice. Doing so the uncollectible receivable will display on the Profit and Loss report. Here is what you have to do for the applying credit note:

  • Click on the “+New” button.
  • Choose the “Receive invoice payment” or “Receive payment” option under the “Customers” section.
  • Now, choose your customer using the “Customer” dropdown menu.
  • Select your invoice from the “Outstanding Transactions” section.
  • Pick a credit note from the “Amount” section.
  • Click the “Save and Close” button.

Once you are done following these steps, you will see the uncollectible receivable on the Profit and Loss report located in the Bad Debt expense account.

Step 6: Run the Bad Debts Report

This is the last step where we will finally run the Account QuickReport. This will check all the invoices you have marked as bad debt. To do so, you can do the following:

  • Click on the “Settings” option.
  • Then, go to the “Chart of Accounts” option.
  • Now, click on the “Run report” in the “Action” column.

This is how you can run the report to check bad debts. Apart from the other customers, you can even tell the bad debt entity just by saving a note to the customer’s name. Here is how you can do that:

  • Click on the “Sales” menu.
  • Choose the “Customers” option.
  • Click on the name of the customer.
  • Then, go to the “Edit” button located on the top right.
  • Now, in the “Display Name as” section, add “No Credit” or “Bad Debt” next to the customer’s name.
  • Hit the “Save” button.

These are all the steps for how to write off a bad debt in QuickBooks Online. All you have to do is check the invoices that are considered to be bad debt then you can proceed with other steps such as setting up a bad debt expense account, creating items, creating the credit note in order to run the bad debts report.

How Do I Write Off Bad Debt in QuickBooks Desktop?

Bad debt can also be tagged in the QuickBooks Desktop version too. If the invoices that you send via QuickBooks Desktop go uncollectible then one has to record it as bad debt and write it off.

To get this job done, you should first add the expense accounts so that you can track your bad debt in QuickBooks Desktop. Later, you can close the invoices that are unpaid. Let’s understand in more detail.

Step 1: Add the Expense Account to Track Your Bad Debt

To add the expense account, you can go through the tools and create an account for tracking bad debt. You can follow these steps to understand better:

  • Click on the “Lists” menu.
  • Go to the “Chart of Accounts” option.
  • Click on the “Expense” button.
  • Hit the “Continue” button.
  • Now, you can enter the name of your account such as Bad Debt.
  • Click on the “Save and Close” button.

Once you follow these steps, the account would have been set up. Now, you can track the bad debts and close the unpaid invoices.

Step 2: Close Unpaid Invoices

In this step, we will select the account that was just created and close the unpaid invoices. Here is how to do that:

  • Click on the “Customers” menu.
  • Then, go to the “Receive Payments” option.
  • In the “Received from” section, type the customer’s name.
  • Now, add $0.00 for your “Payment amount”.
  • Click on the “Discounts and credits” option.
  • Then, add the amount that you prefer to write off in the “Amount of Discount” section.
  • Now, pick that account you created in Step 1 for “Discount Account”.
  • Hit the “Done” button.
  • Click on the “Save and Close” button.

This way you can add the expense account and write off the amount as a deduction in QuickBooks Desktop. This is the best way to write off bad debt in QuickBooks Desktop.

To Wrap Up

To write off the bad debt keeps your net income updated and account receivable. Whether you are using QuickBooks Online or QuickBooks Desktop, we have discussed the procedure for both of them.

For QuickBooks Online, you first need to check the invoices that are considered to be a bad debt, set up a bad debt expense account, create items, and then create the credit note in order to run the bad debts report.

Whereas for the QuickBooks Desktop, you should first add the expense accounts so that you can track your bad debt in QuickBooks Desktop. Later, you can close the invoices that are unpaid.

If you are having any issues related to QuickBooks software such as your QuickBooks has stopped working then read this guide to find effective solutions.

How to Write Off Bad Debt in QuickBooks?

A bad debt is an amount that a business or a company is unable to recover from the debtor in case the borrower has gone bankrupt or is unable to pay the debt for some reasons. Debt issues can severely affect the profit and loss reports while reconciling the accounts in QuickBooks. Bad debt is generally related to account receivables and is also referred to as non-collectible account. The reason why having a bad debt account and writing off bad debts is essential is to avoid discrepancies in the income statement and profit and loss reports. That is why it is very important for businesses to write off bad debt in QuickBooks Online that often make sales on credits like finance companies require managing a separate bad debt account to write off the bad debts that can’t be collected. By writing off bad debts in QuickBooks, you can clear the invoices from the account receivables that help you get the correct net profit amount in QuickBooks. Now you might be wondering how to write off bad debt in QuickBooks?

Well, this blog will provide you with the required information and steps to help you write off bad debt in QuickBooks Online. However, before we go through the steps of writing off bad debt, we must first learn how to write down and record them.

Steps to Write Off Bad Debt in QuickBooks 

The following are the steps that will clear your “how to write off bad debt in QuickBooks Online” queries:

Examine the A/R Aging Report

  • First, you will need to click on the ‘Reports’ section from the left side panel in QuickBooks.
  • Then, you will have to search for the Account Receivable Aging report from the search bar at the top.
  • Now to view your outstanding receivable account, you must click on the Accounts Receivable Aging Detail report.

Also Read: Transferring Chart of Accounts to a New QuickBooks File

Create the Bad Debt Account in QuickBooks 

  • Firstly, click on the Gear icon from the Company section and choose the Chart of Accounts option.
  • Now, you will need to select the option to create a new account.
  • Next, you must click on the Expenses option from the Account Type drop-down list.
  • Then,  select all your Bad Debts from the Detail Type drop-down list and type in Bad Debt in the Name field.
  • Finally, click on Save and Close to end this procedure.

Set up a Service / Product Bad Debt Item

  • First, click on the Gear icon and select Product and Services from under the Lists section.
  • Second, you must choose the option of Product and Services from under the List section.
  • Then, click on the new product and then from the Product / Service Information section click on the Non-Inventory option.
  • Next, you will have to type Bad Debt inside the Name text box.
  • Now, select the Bad Debt expenditure that you have created in the Income Account section.
  • After that, unmark the “Is Taxable” check-box.
  • Finally, you will need to click on the Save and Close option.

Set up a Credit Memo for the Bad Debt

  • For the first step, click on the plus icon at the top of your QuickBooks dashboard.
  • Then, you will need to select the Credit Memo under the Customers section.
  • Next, you will have to select the customer from the Customer drop-down list.
  • After that, choose the item that you have created for the bad debt in the Product / Service field.
  • Now, type in the amount of bad debt / unpaid invoices with positive values.
  • Navigate to the memo text box and type in the amount of bad debt in there.
  • Finally, click on the Save and Close option to end complete this step.

Implement the Credit Memo to Apply for Credits

  • Start this process off by clicking on the plus icon located at the top of the screen and then navigate to the “Receive Payment from the Customers” section.
  • Next, you will need to select the customer from the Customer drop-down list.
  • Then, select the invoice that you want to write off from the Outstanding Transactions menu.
  • After that, you will have to select the credit memo that you have created from under the Credits section.
  • Run a check and affirm that the amount reflecting in that section is $0.00.
  • Finally, you must click on the Save and Close option to end this procedure.

Once you are done with setting up bad debt account in QuickBooks, you can efficiently run reports and view all the bad debts and unpaid invoices. To run the bad debt report, click the Gear icon and from under the Your Company section select Chart of Accounts, search for Bad Debt and from the Action drop-down click on Run Report. 

In Conclusion

The reason why it’s so important to remove and write off bad debts is to avoid any sort of fiscal disparities. Following the aforementioned steps will help you in writing off bad debts in your QuickBooks software. These steps will guide you in examining, creating, setting up and implementing your debt-related data.

We hope that this blog taught you how to write off bad debt in QuickBooks Online. In case you are still facing issues with writing off bad debts in QuickBooks or simply are seeking the aid of an expert technician to resolve any QuickBooks related issue that you might be experiencing.

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