How to write off bad debt in QuickBooks Online & Desktop?

In simple words, bad debt is the amount that the Customer owes you and you fail to collect it. In that case, they have a debt with you, and you know that you are not going to get that money back. Similarly, when you don’t get paid for an invoice and you are not going to receive it back, then it is recorded as write-off bad debt in QuickBooks Online. As a result, it will make sure that your accounts receivable and net income remain updated. Furthermore, read this post carefully to understand how to write off bad debt in QuickBooks Online & Desktop

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Write Off Bad Debts in QuickBooks Online With Easy Steps

Whenever the invoices you send to QuickBooks can’t be received, all you need to do is record them as bad debt and write them off. As a result, it will ensure that your accounts receivable and net income stay up-to-date.

First Step: Verify Your Aging Accounts Receivable

Verify that other invoices or Receivables that must be considered as bad debt by running the Accounts Receivable Aging Detail Report.

Primarily, start looking and launch an Accounts Receivable Aging Detail Report.
Check which outstanding accounts receivable should be written off.

Second Step: Establish a Bad Debts Expense Account

If you haven’t already created one, then prepare a bad debts expense account.

From the upper right corner, hit the New tab to construct a new account.
After this, click the Account Type drop-down arrow to choose the Expenses tab.
Thereon, head to the Bad Debts option from the Detail Type drop-down arrow.
Now, when you are in the Name field and mention Bad Debts.
At last, hit the Save and then Close tab to save the necessary changes.

Third Step: Construct a Bad Debt Item

If you have not previously created a bad debt item, generate an inventory item as a placeholder for the bad debt. You will notice that it isn’t a real item; you only have to balance the accounting.

Initially, tap on New, and then the Non-inventory option from the top right corner.
After this, within the text box of the Name field, enter “Bad debts.”
Now, simply tap on the Income account drop-down arrow to choose Bad debts.
Thereon, pick the “I sell this product/service to my customers” checkbox.
When you are done making all the necessary changes, hit the Save and then the Close option.

Fourth Step: Establish a Credit Memo For the Bad Debt

In the beginning, hit the + New or + Create tab and pick the Credit Memo option.
After this, pick the Customer by tapping on the Customer drop-down arrow.
Now, click on the Customer drop-down arrow and pick the appropriate Customer.
Move to the Product/Service section to pick the Bad Debts option.
Following this, mention the amount that you wish to write off within the Amount column.
Now, when the Message is displayed in the statement box, mention Bad Debt in the search box.
Complete the procedure by hitting the Save and then the Close tab.

Fifth Step: Apply the Credit Memo to the Invoice

In the beginning, hit the + New or + Create tab.
After this, choose the Receive Payment option right beneath the Customers tab.
Thereon, pick the appropriate Customer by tapping on the Customer drop-down arrow.
Now, choose the invoice from the Outstanding Transactions section.
Following this, choose the credit memo from the Credits section.
In the end, hit the Save and Close tab. Then, you will notice that the uncollectible receivables will reflect within the Profit and Loss report beneath the Bad Debts expense account.

Sixth Step: Begin Running a Bad Debts Report

Now, you can run an Account QuickReport to verify all accounts receivable that you highlighted as bad debts. For this, you must perform the steps given below closely.

Firstly, from the Action column of the Bad Debt account, you must choose the Run Report option.
After this, pick the Customer’s name and click the Edit menu from the upper right corner.
Now, include “Bad Debt” or “No Credit” in the Display Name field.
Complete the entire process by hitting the Save tab.

Complete Procedure to Write Off Bad Debt in QuickBooks Desktop

Herein, we have described the complete procedure to write off bad debt in QuickBooks Desktop.

First Step: Include an Expense Account to Monitor the Bad Debt

Initially, move to the Lists menu and pick the Charts of Accounts option.
After this, navigate to the Account menu and hit the New tab.
Now, browse to the Expense and then click the Continue option.
You must provide a suitable Account Name in the respective text field.
In the end, hit the Save and then the Close tab.

Second Step: Exit From the Unpaid Invoices

In the beginning, browse to the Customers menu and pick the Receive Payments tab.
After this, mention the name of the Customer in the Received from field.
Thereon, for the Payment amount, mention $0.00 and click the Discounts & Credits option.
Now, mention the account that you have included in step 1 and then hit the Done option.
When you are done making all the changes, hit the Save and then the Close tab.

Here’s How to Write Off Invoices in QuickBooks Online Accountant

Below, we have described the stepwise instructions to write off invoices in QuickBooks Online Accountant.

First of all, choose a client from whom you wish to write off invoices and move to the Accountant Tools option.
After this, choose the Write off invoices tab and set the Invoice Age, To Date, and Balance less than filters.
Thereon, opt for the Find Invoices tab and check the name within the Customer column.
Now, place a tick mark next to the checkbox for the invoices that you wish to write off.
Afterwards, hit the Write Off tab and pick the account that you use for the bad debts.
At last, choose the Apply tab, and this will save all the necessary changes.

Conclusion

We ensure that by following the above steps, you can easily write off bad debts in QuickBooks Online & Desktop. Thus, it will help you manage your books of accounts smoothly. If you have any trouble, then you can connect with our QB professionals for immediate assistance.

Frequently Asked Questions (FAQ’s):-

Question 1: What should you do to write off negative accounts receivable in QuickBooks?

Ans. If you are having a negative balance in Accounts Receivable (AR), you can resolve the issue by generating a Journal Entry. For this, you have to debit the AR account and credit the Sales Income or any other income account.

Question 2: Why do you need to write off bad debt in QuickBooks?

Ans. You need to write off bad debts in QuickBooks due to the following reasons.

Writing off bad debt will help improve the cash flow forecasting in QuickBooks.
It is a part of the Generally Accepted Accounting Principles (GAAP), which is accepted worldwide.
Also, it is used to reflect the company’s financial records.

Question 3: How to clear negative accounts payable in QuickBooks?

Ans. To write off negative accounts payable in QuickBooks.

Firstly, tap on the + New icon and choose the Pay Bills tab.
Afterwards, place a tick mark next to the vendor’s name in question.
Thereon, you will see that the total payment amount must be zero.
Complete the steps to click the Save and Close tab.

Question 4: How can you adjust accounts payable in QuickBooks with journal entries?

Ans. To adjust accounts payable in QuickBooks with journal entries, perform the following steps.

Firstly, access the Journal Entry section in QuickBooks.
After this, pick an account that you wish to adjust and mention the adjustment amount along with the transaction date.
Within the description date section, write down the original transaction along with the reason for the adjustment.
At last, examine and post the journal entry.

Question 5: Where to record bad debts written off?

Ans. The journal entry for bad debts written off is recorded to the debit side in the bad debt expense account.

About The Author

Jonathan Browns

Jonathan Brown is a trained QuickBooks professional with 10 years of experience in the accounting sector. Moreover, he is passionate about helping businesses reduce the stress of managing accounts. Also, he is proficient in assisting entrepreneurs and small business owners to use QuickBooks and enhance their accounting experience.

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