How To Write Off Bad Debt On Quickbooks | Loans and Write-Offs in QuickBooks

Errors Problem Solutions Quickbooks Errors Solution

When a customer is unable to pay a debt owed to your business, the original invoice will not be paid. Bad debt is a debt which cannot be recovered over a specific period. Some of the reasons for bad debts are; death of debtor, insanity, bankruptcy, etc.
It will be very hard to reconcile your accounts and carry out accurate financial reports due to bad debt. Before accounting for bad debt, an account should be opened for the purpose of tracking such transactions. When this is done, you can record debt using the Discounts and Credits option within QuickBooks while keeping the debt organized in a separate book for tax purposes.
QuickBooks is one of the world’s leading accounting software for small businesses which is recommended by accounting professionals across the globe.

In this article, we will discuss on how to write off bad debt on quickbooks, which will be broken down into steps.
It will be more difficult to track bad debts if you record the debts into your regular customer register. Some companies, especially big ones make provisions for bad debts which will be recorded as expenses in the income statement and subtracted from debtors in the balance sheet.
The steps on how to write off bad debt on quickbooks are set up and will be performed just once.
Set Up the Item “bad debt” in QuickBooks Online:

  1. On the left side of the screen, click on accounting
  2. Then you 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 on 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 customer’s name 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, change the amount received to zero dollars if it is not.
  13. Click save and close

This is how to write off bad debt on quickbooks, you just have to follow the exact steps so as to get the required result.
Also Read: How To Forecast Cash Flow In QuickBooks
Free Tip!
It is recommended that you double check your work so as to avoid errors. Double checking is a great way to ensure you wrote off your bad debt correctly.
View your Open Invoices report again (step 1). The bad debt you just wrote off should no longer appear on the Open Invoices report.
Your Accounts Receivable in the balance sheet will be reduced by the exactly the amount of uncollectible invoice you just wrote off.
Your Income Statement (profit and loss account) will report an Bad Debt as an expenses. This expense (bad debt) should equal the amount of your uncollectible invoice and subtracted from the gross profit alongside other expenses.

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

In QuickBooks, if the invoices you share become uncollectible, they should be marked as a bad debt and then write them off. By doing so, you can make sure that your account is receivable and the net income remains updated. If you are concerned about how to write off bad debt in QuickBooks Online and Desktop then don’t worry, we will enlighten you.

The guide explains step by step how to write off a bad debt in QuickBooks Online as well as in QuickBooks 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.

Writing off an Invoice to Bad Debt in Quickbooks Online

As an owner of a bookkeeping firm, I come across questions from clients and other small business owners all the time. One question I get often is, how do I write off an invoice to bad debt in Quickbooks Online? The answer is pretty simple and this video will teach you step by step how to write off an invoice to bad debt in Quickbooks Online.https://www.youtube.com/embed/qpjkBVqTzbM?feature=oembed

We are going to use the Quickbooks Sample company file today to walk you through writing off an invoice to bad debt. In this scenario, we have invoiced Geeta Kalapatapu for a custom designed rock fountain. The job has been completed and Geeta has been invoiced for the work performed. After many attempts at collections, we find out that Geeta is no able to pay her balance due to personal reasons. We have decided that since her open balance in uncollectable, we will have to write off her invoice to bad debt.

There is a Simple 2 Step Method that you can use to write off the invoice to bad debt.

However, there are 2 set up steps that you will need to accomplish first before you can use the simple 2 step method.

First step in the setup, if you have not created the account already, you will need to create the “Bad Debt” expense account.

To do this step, you will need to click on “Accounting” then click on “Chart of Accounts

Next you will click on the green “New” button near the top right of the screen

Under account type, you will select “Expense

Under detail type, you will select “Bad Debts

Finally, click on the green button “Save and Close

Next step in the set up process, we are going to create the bad debt line item under the product and services section.

Click on “Sales” then click on “Products and Services

Next, click on the green “New” button near the top right of the screen

Select“Service

Under Name, enter “Bad Debt

Under Income account, select the “Bad Debt” expense account we just created from the step above

Finally, click on the green button “Save and Close

Now you are ready to follow the Simple 2 Step Method in writing the invoice off to bad debt.

Step 1: Create a credit memo for the customer

Click on the “ +New” button near the top left of the screen

Click on “Credit Memo”

Enter the “Customer” name that you are writing the invoice off for

Enter “Todays” date for the credit memo date

Under the “Product/Service column”, you will select the newly created “Bad Debt” service

In the description column you can enter any details you need as a reminder as to why the invoice is being written off in case you need to reference this again.

Enter the “Amount” of the invoice you are writing off

If this item is subject to sales tax, make sure the box is checked under “Tax

If it doesn’t fill in for you, make sure you select the proper sales tax rate

Once your credit memo balance matches the outstanding balance owed plus tax then

Click the green button “Save and Close

Step 2: Apply Credit memo against customer invoice to close out balance owed

Click on the “ +New” button near the top left of the screen

Click on “Receive payment”

Enter the “Customers Name” to bring the open invoice and credit memo forward

Check the box next to the invoice as well as the credit memo

Make sure the balance is zero

Click the green button “Save and Close

For those of you that are writing off a balance that contains sales tax, following these steps will credit/reduce the balance owed to your state sales tax agency in the month you wrote off the invoice.

For your knowledge, I wanted to show you the result in writing off the invoice for Geeta Kalapatapu in March and the corresponding reduction in sales tax since her invoice balance was not collected. Since we invoiced her in the same month we wrote off the invoice, both transactions take place in the same month. If you were to invoice in one month and pay sales tax on that invoice, then wrote off the invoice in the following months, you will see a credit/reduction of sales tax in the month the invoice was written off.

 I hope this video was helpful in teaching you the step by step process in writing off an invoice to bad debt.

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 Debts in QuickBooks Desktop – Explained

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.

QuickBooks Experts Team is Just a Phone Call Away! Call Support Number 1.800.579.0391 and get in Touch with Certified Experts Now

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.

Writing off Bad Debt in Accounts Receivable (QuickBooks Online)

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

Loans and Write-Offs in QuickBooks

QuickBooks is a versatile and flexible software that allows you to accomplish most major accounting tasks whether you have lots of experience or are a first-time business owner doing everything yourself. 

However, some of QuickBooks’s tutorials can be a bit tricky to grasp, especially when it comes to entering loans and making payments or writing off bad business debt.

With this in mind, the below guide will break down why you should enter loans and write off bad debt using QuickBooks, plus go over how to do both processes in detail.

Why Enter Loans in QuickBooks? 

All businesses occasionally need to borrow money, whether it’s for expansion, paying off earlier debt, or preparing for a big marketing push. You should enter any loan your business takes out as a liability in your accounts, plus record the loan payments you make to reduce that liability.

This helps you to keep better track of your business expenses and ensures you can keep your debt payments on track relative to the rest of your business budget. It’s just good accounting and one of the primary things QuickBooks was made for the first place.

QuickBooks has slightly different loan entering processes depending on whether you use the online or desktop version of the software.

How to Enter Loans in QuickBooks Online

To enter a loan using QuickBooks Online, you’ll need to set up a liability account to track the loan’s progress.

  1. Choose “Settings” and “Chart of Accounts.” Then select “New” to make a new account
  2. Choose “Long Term Liabilities” from the “Account Type” drop-down menu
  3. Choose “Notes Payable” from the “Detail Type” menu
  4. Give the loan account a relevant name. Be as specific as possible, so you always know which account you are dealing with, like, “Marketing Loan”
  5. In the “Balance” field, enter the total amount in the account, as well as the “As Of” date. The As Of date tells QuickBooks when you want to start tracking the loan
  6. Enter your loan’s full amount as a negative amount, which sets up a liability account with the full total of the loan in question
  7. Choose “Save and Close”

If you want to record loan payments, you can follow these steps for accurate recording:

  1. Choose “+New” then “Check”
  2. If you plan to send a physical check to pay off some or all of the loan, add a relevant check number
  3. If you want to use a direct withdrawal or an ETF, enter either of those options in the check number field instead
  4. Then put the liability amount for your loan from the category drop-down menu and enter the payment amount
  5. Choose the expense account for the interest from the same category drop-down menu and enter the interest amount
  6. You can also add any additional fees that may apply
  7. Choose “Save and Close” when you’re done

Entering Loans in QuickBooks Desktop

Entering loans in QuickBooks Desktop is very similar. You’ll need to make a loan account as described above, then follow a slightly different process:

  1. Click “Banking” and “Write Checks” in the contextual menu
  2. You can then enter the payee name and repayment amount in the applicable fields
  3. Don’t forget to assign the interest element for your loan repayment
  4. You can tell QuickBooks to enter the payment automatically at regular intervals (such as for monthly payments) if you click “Edit” and “Memorize Check”
  5. Click “Save and Close” when you’re done

Best Small Business Loans Of 2020 – Get Between $5,000 And $500,000

How much money does your business need?$0 – $10,000$10,000 – $50,000$50,000 – $100,000$100,000 – $200,000$200,000 – $500,000$500,000+See Funding Options

Why Write Off Debt in QuickBooks? 

From time to time, a business may end up taking on so-called “bad debt.” Bad debt is any debt that a customer legally owes you but can’t pay. If you can’t collect this debt, it represents a drag on your bottom line and can impact your profitability when you enter it into your accounting software.

However, your business may also use the accrual method of accounting. With accrual method accounting, your business will report any income and expenses for both completed and pending transactions (i.e., you report your transactions in both accounts payable and accounts receivable). QuickBooks allows you to use the accrual method with its versatile tools.

If this is the case, you can write off bad debt as deductions on your taxes in many cases, so you end up owing the federal government less money than you would otherwise.

But in order to take advantage of this tax write-off, you have to record the invoices you send in QuickBooks as “uncollectible”. This helps your net income stay up-to-date and balances your accounts receivable.

As with writing loans using QuickBooks, there are two different processes in which to write off debt: one process for desktop users and one for QuickBooks Online users. 

Write-Offs Using QuickBooks Desktop

  1. First, go to “Lists” and select “Chart of Accounts”
  2. Choose “Account,” then “New”
  3. Choose “Expense, then “Continue”
  4. Enter a new account name. To keep things simple, named this something applicable like “Bad Debt” or “Debt Write-Offs”
  5. Select “Save and Close”

At this point, you have added a new expense account to track all bad debt for your business. Now you need to close the unpaid invoices recorded in your QuickBooks account.

  1. Go to “Customers” and choose “Receive Payments”
  2. Enter the names of customers who aren’t paying you in the “Received From” field
  3. Then enter the payment amount. Since you aren’t collecting any money, this has to be $0.00
  4. Choose “Discounts and Credits”
  5. Enter the amount you want to write off in the “Amount of Discount” field
  6. Choose the account that you added in the first step of this process in the “Discount Account”
  7. Choose “Done,” then “Save and Close”

There you have it! You’ve made a new account to handle any unpaid debts and have recorded the transactions as uncollectible in your QuickBooks account.

Write-Offs Using QuickBooks Online

QuickBooks Online has a similar process to the one you’d use with the desktop version of the software. You’ll have to review the receivables or invoices that you want to consider as bad debt to start.

  1. Go to “Reports”
  2. Open an “Accounts Receivable Aging Detail” report
  3. A list of outstanding Accounts Receivable will be there. Choose which ones you want to write off

You should create a bad debt expense account as detailed in the desktop version of the process above. For QuickBooks Online, the buttons you need to press should be the same as desktop.

Once you have created a bad debts-specific expense account, you can create a new and non-inventory item to be a placeholder for your bad debt. This doesn’t count as a true item in your business’s inventory but is needed to balance the accounting process.

  1. Go to “Settings” and choose “Products and Services”
  2. Choose “New” and “Non-Inventory” in the upper right-hand corner of the screen
  3. Enter “Bad Debts” in the name field
  4. Choose “Bad Debts” from the income account drop-down menu
  5. Choose “Save and Close”

At this point, you now need to create a credit memo for the bad debt, so it is recorded correctly.

  1. Pick “+New,” then “Credit Memo”
  2. Choose the customer from the customer drop-down menu
  3. Choose “Bad Debts” from the “Product/Service” selection menu
  4. Enter the amount you want to write off in the “Amount” column
  5. Enter “Bad Debt” in the “message displayed on statement” box, then click “Save and Close”

Now that you’ve created a credit memo for the bad debt, you can apply the memo to the invoice(s) in question.

  1. Select “New+”
  2. Choose “receive payment” under the “Customers” drop-down menu, then choose the appropriate customer from the same menu
  3. Choose the invoice you want to mark as bad debt from the “Outstanding Transactions” section
  4. Choose the bad debt credit memo from the “Credits” section
  5. Choose “Save and Close”

Your uncollectible payment receivable should now appear under the Profit and Loss Report for your Bad Debts expense account.

Want to review all of the receivables you’ve marked as a bad debt so far? You can do this using QuickBooks Online by going to “Settings,” then “Chart of Accounts,” then selecting “Run Report” in the “Action” column of your bad debts account. 

Summary

Even though it can get a bit complex from time to time, QuickBooks’s loan entering and debt write-off processes are useful and pretty quick to perform once you get the hang of them. Of course, the more you use QuickBooks, the more comfortable you’ll be with its controls and the easier it’ll be to keep track of your expenses.

At Seek Capital’s blog, you can find a variety of other QuickBooks guides, plus learn how to secure financing for your business

Contact us today and see how we can help you accomplish your goals!

How to Write Off an Invoice in QuickBooks

Sometimes, you have to remove uncollectible invoice amounts from your books. Here’s how to do it in QuickBooks.

Uncollectible invoices are an unfortunate reality for many businesses. Although most customers enter into a business relationship intending to pay in full and on time, sometimes they are unable to make their payments as promised. And sometimes they cannot make a payment at all.

When this happens, it becomes necessary to write off the uncollectible invoice. There are a number of ways to remove uncollectible invoice amounts from your accounting books. In this article, we’ll look at the best ways to write off an invoice in QuickBooks.

Reasons to write off an invoice

There are a couple of reasons why you might want to write off an invoice in QuickBooks:

  • Bad debt. Sometimes, a customer is unable to pay an invoice due to financial circumstances beyond their control. Less frequently, a customer chooses not to pay for other reasons. In either case, if a customer defaults on a payment, it’s important to recognize this default properly in your books by writing off the invoice.
  • Underpayment. Maybe your customer has made a payment on your invoice, but there is still a balance due on it. This is usually due to a clerical error on the customer’s end. In cases of underpayment, the amount is often too small — sometimes only pennies — to warrant reaching out to the customer for the remainder of the payment.

 Back to top

Mistakes to avoid

You may think the easiest way to write off an invoice in QuickBooks is to simply delete the invoice. However, this is a mistake. Deleting the invoice rather than properly writing it off can have the following impacts on your business’s bookkeeping:

  • You lose valuable information. If you write off an invoice for a customer due to bad debt, you will want to retain this information so you don’t sell to that customer on credit again. If you delete the invoice, you will lose this information. Similarly, you need to be able to tell what percentage of your invoices you write off. This is a valuable business metric that will help you manage your business more effectively and profitably.
  • You could overpay your sales tax obligations. If you simply delete an invoice in QuickBooks, you run the risk of skewing your sales tax payable liability account. This could result in you remitting sales taxes you never actually collected.
  • Items on the deleted invoice will be marked unbilled. Deleting an invoice in QuickBooks will make all the items on that invoice show up as not billed. If you continue to do business with the customer whose invoice you wrote off, these items will show up each time you attempt to invoice the customer, causing confusion and clutter in your books.

 Back to top

If you’re a cash basis taxpayer

If you’re a cash basis taxpayer, you don’t technically have accounts receivable from a tax perspective. However, you run your business on at least a modified accrual basis if you invoice customers, meaning you need to maintain accounts receivable.

» MORE: NerdWallet’s picks for best accounting software

Some accountants and bookkeepers will advise you to simply delete bad debt invoices if you are a cash basis taxpayer. Others will recommend you issue a credit memo using the same items you used on the original invoice instead of using a bad debt expense item, which has the impact of reducing your total sales for those items. Both of these methods can cause the same issues mentioned in the previous section.

Even if you’re a cash basis taxpayer, you should properly write off your invoices in order to keep your QuickBooks file in good order. Back to top

How to write off a bad debt invoice in QuickBooks

The best way to write off an invoice in QuickBooks — whether you are using QuickBooks Desktop or QuickBooks Online — is to use the credit memo feature. Using a credit memo with a bad debt expense item will keep your sales tax liability account pristine, meaning you never have to worry about overpaying your sales tax obligation.

1. Open the invoice you are writing off. You will want to refer to the invoice as you proceed through the following steps. To find the invoice:

  • a. In QuickBooks Desktop: Navigate to the Customer Center, enter the customer’s name and click on the invoice from the list to open the invoice.
QuickBooks Customer Center
QuickBooks Customer Center
  • b. In QuickBooks Online: Click on Sales and then Customers, then enter the customer’s name and click on the invoice from the list to open the invoice.
Company profile

2. Create a new credit memo. You can find the credit memo feature under the Customers tab in QuickBooks Desktop. In QuickBooks Online, you’ll want to first duplicate the browser tab by right-clicking on it. Then click on the “+” sign in the new tab to create a new transaction and select Credit Memo from the menu that appears.

QuickBooks Desktop

QuickBooks

QuickBooks Online

QuickBooks

3. Enter identifying information for the credit memo. Enter your customer’s name and the date you are writing off the bad debt. You will notice QuickBooks automatically enters a credit memo number. We recommend not changing this, as it could lead to later problems with your invoice and credit memo numbering.

QuickBooks Desktop

QuickBooks

QuickBooks Online

QuickBooks

4. Create the bad debt expense item. In both QuickBooks Desktop and QuickBooks Online, you can enter Items on the fly. If you don’t already have a “bad debt” expense item in your item drop-down list, you will want to create one.

  • a. In QuickBooks Desktop: Click into the Item field and then click Add New. Select Other Charge as the type from the drop-down box, and then enter Bad Debt in the Item Name/Number field. For Account, you’ll want to select your bad debt expense account (if you don’t have one, you can create it on the fly, too.)
QuickBooks
QuickBooks
  • b. In QuickBooks Online: Click into the Product/Service field and then click Add new. You’ll want to choose the Service product type. Name the item Bad Debt, and choose your bad debt expense account for the income account type. As in QuickBooks Desktop, you can create this account on the fly. We recommend changing the sales tax category to Nontaxable. You can adjust this on each individual credit memo.
QuickBooks
QuickBooks

5. Fill out the credit memo. In this step, you’re basically going to duplicate the invoice you are writing off in the credit memo screen. But instead of using the original product/service or item you used in the invoice, you’ll use the “bad debt” item you created in the previous step. Make sure to mark items “taxable” as you go along. You will know you’ve done it right if your credit memo amount equals the amount remaining on the invoice you are writing off.

If the invoice you are writing off has all taxable or all nontaxable items, your credit memo only needs one line using the item “bad debt.” Enter the full, pretax amount of the invoice you are writing off on this line. Then, if the invoice was taxable, apply sales tax to the credit memo.

QuickBooks Desktop

QuickBooks

QuickBooks Online

QuickBooks

6. Apply the credit memo to the invoice. If you skip this step, your accounts receivable balance will still be correct, but the invoice you created the credit memo for will still appear on your Open Invoice report.

  • a. In QuickBooks Desktop: Click the “Use credit to apply to invoice” option at the top of the credit memo window.
  • b. In QuickBooks Online: Click on the invoice you are writing off, then click on Receive Payment. On the next screen, you’ll have the option to select the outstanding credit memo as part of your payment. The amount of the payment after the credit memo is applied should be $0. This will result in a $0 transaction in your check register, which you can clear the next time you reconcile the bank account.

 Back to top

The problem of overstated income

When you write off an invoice in the manner outlined above, the invoice will show as “paid” after the credit memo is applied to it. This means your income will increase by the amount of the invoice on your cash basis profit and loss statement. However, there will also be an offsetting amount in the “bad debt” expense account, which means the effect on your net income will be $0.

In most states, this is good enough to ensure you aren’t paying more income tax than necessary. However, if you live in a state with gross receipts tax, you will need to ensure your accountant deducts the bad debt expense amount from your total income prior to filing your tax return. Otherwise, you will pay taxes on money you never collected. Back to top

Small amount write-offs

If you are writing off the remaining balance on an invoice that has been mostly paid, you will follow the same method outlined above. You could choose to use an expense account other than bad debt expense for this, but doing so could clutter your chart of accounts and is unnecessary, since small amount write-offs are rare and typically do not amount to a large dollar amount over the course of the year. Back to top

Write-offs: The right way to record bad debt

There are a number of ways you can remove bad debt and other uncollectible amounts from your accounting records. Although it’s more cumbersome than simply deleting the invoice or issuing a credit memo that reverses the invoice, the method outlined in this article will help you keep your records intact from a managerial perspective. This means you can use your financial statements to more effectively run your business, while still providing your tax professional with the information they need to file your tax return quickly and accurately.

Also Read :: What is the length of Qutub Minar? | kutub minar ki lambai kitni hai

Leave a Reply

Your email address will not be published. Required fields are marked *