Write off Bad Debt in QuickBooks

How to Write off Bad Debt in QuickBooks, QB Desktop & Online?

A company needs to write off its bad debts when it knows about the invoices that are not going to be returned/submitted by customers. In such cases, the software, QuickBooks, provides the users with an option of writing off bad debt in QuickBooks. Companies can perform the procedure on the different versions of the accounting software that they are using. You can write the debts off by using the Chart of Accounts option or through the Report button. The COA tab is also required while writing them off in QuickBooks Desktop and QuickBooks Online software. 

How to write off bad debt in QuickBooks is focused more on in this post. Along with this, the readers can see various reasons to write it off. Along with this, you can find assistance for writing off invoices to these debts in the software.

What does Writing off Bad Debt in QuickBooks Mean?

At times, when sent invoices cannot be collected due to bankruptcy of a customer or other reasons, a company is required to record them in the category of bad debts. Then the company writes them off in QB. When the company writes off bad debt in QuickBooks, the net income and the accounts receivable can stay up to date in its records.  

Why Do You Write off Bad Debts in QuickBooks?

There can be several times when a company might face issues with its debts. These debts can even affect the profit and loss statements of the company. The income statements also see an impact if the debts are not written off. So, the users are required to write off bad debt in QuickBooks Online/Desktop. As a result of this, the invoices get cleared in the records which in turn provide the company with the accurate profits it has created.

How to Write off Bad Debt in QuickBooks?

Users can write off bad debts in QB by going to the Chart of Accounts option. Then, on heading to the Account tab, the further process can be done. Additionally, you can even write off the debts through the Report button available in the QB software. This is the best way to write off bad debt in QuickBooks as the procedure can be simply understood.

Method 1: Through the Chart of Accounts

The Chart of Accounts can carry the details of a company’s accounts. That is why it can help you to write off bad debt in QuickBooks. Initially, you need to choose Company in the menu of QB. Then tap on the Chart of Accounts option. Next, tap on the Account button and move to New. Go for Expense in the drop-down list of Account Type. 

Keep reading the remaining steps to write the debts off in the software.

  • Go to “QuickBooks”.
  • Select “Company” from the menu.
  • Tap on the “Chart of Accounts” option.
  • Tap on “Account”.
  • Choose the “New” option.
  • From the “Account Type” drop-down, opt for “Expense”.
  • Hit “Continue”.
  • Press “Number” and then start typing in the account digits in the provided field, if asked for.
  • Next, pick the field of “Account Type”.
  • Enter “Bad Debt” in the text box.
  • Head to “Ok”.
  • This will create the “Bad Debt” account in QuickBooks.
  • Now to record it, visit “Customers” on the homepage.
  • You need to go for “Receive Payments” from the drop-down options.
  • Among the “Customer List” items, opt for your customer whose bad debt you want to write off.
  • Tap on the items on the same line corresponding with the bad debt. 
  • Then you are required to press the “Discounts & Credits” button.
  • Pick the “Amount of Discount” tab.
  • Fill in the bad debt total.
  • After you have completed, move to “Done”.
  • Click on “Save and Close” to finish the process. 

Method 2: Via Report

The users of QuickBooks can easily write off the debts if they proceed by the Report tab. For commencing the procedure, visit your QuickBooks account and look for the Report button. By pressing the Account Receivable Aging Detail Report, you will be able to check the Outstanding Receivable Account. 

The given directions will teach you how to write off bad debt in QuickBooks:

  • Run your “QuickBooks” homepage.
  • Look for “Report” towards the left.
  • Tap on “Accounts Receivable Aging Detail Report” to know “Outstanding Receivable Account”.
  • Push the “Gear” tab.
  • Then find “Chart of Accounts”.
  • Selecting the option for creating a fresh account is needed.
  • Press the drop-down of “Account Type”.
  • Among the items, choose “Expense”.
  • In the “Detail Type” drop-down menu, go for all the bad debts.
  • Then mention “Bad Debt” in the “Name” box.
  • Tap on “Save and Close”.
  • Pick the “Gear” button from the menu.
  • Go to “Lists”.
  • Choose “Product and Services”.
  • Opt for “Non-Inventory” given in the “Information” field.
  • State “Bad Debt” in the section for “Name”.
  • Also, the user will have to choose the “Bad Debt” option in the section for “Income Account”.
  • Remove the mark from the “Taxable” checkbox.
  • Move to “Save and Close”.
  • Tap on the “+” tab.
  • From the “Customers” area, select “Credit Memo”.
  • Then you need to pick your customer via the list available in the given drop-down of “Customer”.
  • Choose the items that were formed for the “Bad Debt Product/Service” section.
  • On the memo box for text, fill in the amount of the bad debt.
  • Hop on to the “Save and Close” button.
Credit Memo
  • Moving to the “+” symbol will lead you to the “Customers” drop-down.
  • Next head to “Receive Payments”.
  • Select your customer through the given drop-down list of “Customer”.
  • In the “Outstanding Transaction” feature, tap on the invoice which is to be written off.
  • You need to tap that credit memo which you had made in “Credits”.
  • Ensure that the amount results in “$0”.
  • Tap on “Save and Close”.

How Do I Write off Bad Debt on QuickBooks Desktop?

In several versions of QB, the Chart of Accounts helps to write off bad debts. QBDT is one of these versions. You will have to open your accounting software and then head to Lists to write off bad debt in QuickBooks Desktop. After that, you can select the Chart of Accounts button. Once done, reach the Account option and choose Expense. 

The remaining procedure is as discussed below.

  • Visit your “QBDT” account.
  • Click on “Lists”.
  • Pick the “Chart of Accounts” option.
  • Press “Account”.
  • Now select “New”.
  • Opt for “Expense”.
  • Next, go to “Continue”.
  • Type in “Account Name” in the required field.
  • Hit “Save and Close”.
  • Your expense account will be added to keep a track of the bad debt. Please wait for a while.
  • For closing out the invoices that are unpaid, select “Customers”.
  • Then tap on “Receive Payments”.
  • You will have to fill up the customer’s name in the field of “Receive From”.
  • In the “Payment Amount” field, type “$0.00”.
  • Pick the “Discounts and Credits” option.
  • You will have to mention that amount that is to be written off in the field of “Amount of Discount”.
  • In the “Discount Account” section, you are required to decide the account that was added in the earlier steps.
  • Press “Done”.
  • Look for the “Save and Close” tab.
  • Give it some time and the bad debt will be written off.

How Do You Write off Bad Debt in QuickBooks Online?

QuickBooks Online lets you write off bad debt in the software by using its Chart of Accounts option. Choose the Report feature from the QBO menu. Then go to the Accounts Receivable Aging Detail Report option. Pick the Outstanding Accounts Receivable that you need to write off. Soon, the debt will have been written off.

Keep following the steps to understand how to write off bad debts in QuickBooks Online:

  • Select the “Report” menu in “QBO”.
  • Look for “Accounts Receivable Aging Detail Report”.
  • Choose the “Outstanding Accounts Receivable” that is to be written off.
  • Click on“Settings”.
  • Opt for “Chart of Accounts”.
  • Tap on “New”.
  • In the drop-down menu of “Account Type”, pick “Expenses”.
  • You will find a drop-down named “Detail Type”.
  • From here, press “Bad Debts”.
  • Type “Bad Debts” in the field of “Name”.
  • Press the “Save and Close” button.
  • Visit “Settings”.
  • Then press on the “Product and Services” tab.
  • Now, head to “New” and choose “Non-Inventory”.
  • Fill in “Bad Debts” in the “Name” box.
  • Pick “Bad Debts” from the available drop-down of “Income Account”.
  • Go to “Save and Close”.
  • After tapping on the “+New” option, you will have to opt for “Credit Memo”.
  • In this step, you are required to choose your customer in the drop-down menu for “Customer”.
  • Go ahead to the “Product/Service” area.
  • Then find “Bad Debts”.
  • Mention that amount that you need to write off in the column for “Amounts”.
  • Also, type in “Bad Debt” in the field of “Message Displayed on Statement”.
  • Hit the “Save and Close” tab.
  • Then go to the “+New” menu.
  • Below the “Customer” drop-down, you will find “Receive Payment”.
  • Choose your particular customer from the drop-down menu of “Customer”.
  • In the section of “Outstanding Transactions”, you need to pick the invoice.
  • From the section of “Credits”, look after a credit memo.
  • Press “Save and Close”.
  • Head to “Settings”.
  • Tap “Chart of Accounts”.
  • Click on “Run Report” from the “Action Column of the Bad Debts Account”.

Process to Write off an Invoice to Bad Debt in QuickBooks 

QuickBooks users can write off their invoices to bad debt on their Desktop or the Online version. If you are using the Desktop version, then it is necessary to use the Customer Center menu. Then you will be able to write off the bad debts in QuickBooks Desktop from the invoice. Users of QBO will have to utilize the Sales option present on their window and then go to the Customer button. 

The below-shared methods will direct you for the process to write off the invoice to bad debt. 

Option 1: In QuickBooks Desktop

Users of the QuickBooks Desktop software need to avail their Customer Center feature for writing off invoices to bad debts. You are required to initiate the procedure by reaching the Customer Center button in your QBDT account. Then fill in the customer’s name. Tap on the Invoice option to open your invoice. Further, press the Create Credits/Memos Refund button on the Customer drop-down list.

Move forward with the rest of the process to know how to write off bad debt in QuickBooks from invoices.

  • Move to your QBDT window.
  • Click on “Customer Center” from the menu at the top.
  • Type the customer’s name.
  • For opening the invoice, select the “Invoice” option present in the list.
Invoice
  • Below the “Customers” button, “Create Credit Memos/Refunds” will be situated. Find the same.
Create Credit Memos/Refunds
  • Mention the name of the Customer.
  • Then choose the date on which you want to write off the debt.
  • A number of the credit memo will be created automatically.

Important: Do not change this credit memo number that has been generated. This will create problems during the numbering of credit memos and invoices.

choose the date
  • Select “Item”.
  • Press the “Add New” feature.
  • From the “Type” drop-down, click on “Other Charge”.
  • Type “Bad Debt” in the field of “Item Name/Number”.
  • Choose “Bad Debt” among the drop-down options of “Account”. 
  • Press “Ok”.
  • Pick “Bad Debt” from the “Item” drop-down.
  • Also, verify the items as taxable.

Tip: You may want to check whether you are proceeding in the correct way. Look if the amount of this credit memo and the remaining amount of that invoice that will be written off are equal or not. Should they match, then you are in the accurate direction.

  • Once done, the sales tax will have to be applied to this credit memo.
  • Tap on “Use the Credit to Apply to Invoice”.
  • Then press “Save and New”.
Use the Credit to Apply to Invoice

Option 2: In QuickBooks Online

The users who are using the online version of QuickBooks are guided to follow the Sales when bad debts have to be written off. Proceed by navigating yourself to QBO and then going to the Sales option. After this, go for the Customers tab. Mention the customer’s name in the provided field. You also need to press on the Customers menu and find the Invoices option.  

Scrolling down the steps will guide you on how to write off bad debt in QuickBooks Online.

  • Launch QBO.
  • Select “Sales”.
  • Choose the “Customers” option.
  • Fill up the name of the customer in the box provided.
  • Then tap on the “Invoices” button from the same list of “Customers”.
  • This will open up the invoice.
  • Right-clicking on the “Browser” button is the next step.
  • Tap on “+New”.
  • Pick the “Credit Memos” option among the drop-down items.
  • Select the name of the customer along with the date on which you will write off.
  • Do not change the number of the memo. Let it be as it is.
  • Move to “Product/Service”.
  • Tap on the “Add New” feature.
  • Change the “Product Type” to “Service”.
  • In the “Name” field, type “Bad Debt”.
  • Also, choose “Bad Debt” among the options in the “Category” as well as in the “Income Account” section.
  • Then switch the “Sales Tax Category” to “Nontaxable”.
  • Check mark on the items as taxable. 
  • Also, match the amount of the memo with that of that invoice that is remaining.
  • After that, you will have to apply the sales tax on the memo.
  • Put a tick against that invoice that is going to be written off.
  • Choose a credit memo that is outstanding.
  • Make sure to check the payment amount after applying the memo is “$0”.

In Essence

Writing off bad debts can be essential for a company to find its actual income, profit, and loss statements. The blog briefly explained the bad debts and also mentioned some of the need to write them off. We also outlined the steps to write off bad debt in QuickBooks and its versions. Moreover, we talked regarding the methods to write invoices to bad debts in QBDT and QBO.

To learn about how to record a loan payment in QuickBooks, tap here. Also, read our other blog on QuickBooks Memorized Transactions.

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