Learn How to Write Off Bad Debt in QuickBooks Both Desktop & Online

Not every customer invoice gets paid, and keeping those unpaid balances in your books can affect the accuracy of your financial records. When an invoice is no longer collectible, writing it off as bad debt helps clear your accounts receivable and record the amount correctly as an expense.

In this guide, you’ll learn how to write off bad debt in QuickBooks for both QuickBooks Desktop and QuickBooks Online. We’ll also explain what bad debt means, when you should write it off, and answer some common questions to help you keep your books accurate.

Table of Contents

What is a Bad Debt in QuickBooks?

A bad debt in QuickBooks refers to an unpaid customer invoice that is no longer expected to be collected. Instead of leaving the outstanding amount in your accounts receivable, you can write it off as a bad debt to keep your books accurate. Writing off bad debt does not delete the original invoice; it simply records the unpaid balance as an expense and updates your financial records accordingly.

What Does It Mean by Writing Off Bad Debt?

Writing off bad debt means recording an unpaid customer invoice as a loss when you no longer expect to receive the payment. Instead of leaving the amount in your accounts receivable, QuickBooks moves it to a bad debt expense account, keeping your financial records accurate while reflecting the actual amount you expect to collect.

Let’s Write Off Bad Debt in Both QB Desktop and Online

Whether you use QuickBooks Desktop or QuickBooks Online, the process of writing off bad debt is simple once you have identified the unpaid invoice. Follow the steps below to write off bad debt in your QuickBooks version.

Write Off Bad Debt in QuickBooks Desktop

a. Add an expense account to track the bad debt

Create a separate expense account to track bad debts that cannot be recovered.

Open the Lists menu and choose Chart of Accounts.
Click the Account menu and select New.
Choose Expense, then click Continue.
Enter an account name, such as Bad Debt.
Select Save and Close to create the account.

b. Close out the unpaid invoices

After creating the expense account, record a zero-dollar payment to write off the unpaid invoice.

Go to the Customers menu and click Receive Payments.
Choose the customer from the Received From field.
Enter $0.00 in the Payment Amount field.
Select Discounts and Credits.
Enter the write-off amount in the Amount of Discount field.
Under Discount Account, choose the bad debt expense account you created earlier, then click Done.
Select Save and Close to complete the process.

Write Off Bad Debt in QuickBooks Online

a. Review aging receivables

Start by reviewing your outstanding invoices to determine which balances should be treated as bad debt.

Open the Reports menu and select Standard Reports.
Search for and open the Accounts Receivable Aging Detail report.
Review the report to identify unpaid invoices that are no longer expected to be collected.

b. Create a bad debt expense account

Create a dedicated expense account to record invoices that are written off as bad debt.

Go to All Apps, then Accounting, and select Chart of Accounts.
Click New to create a new account.
From the Account Type dropdown, choose Expenses.
Under Detail Type, select Bad Debts.
Enter Bad Debts as the account name.
Click Save and Close to finish creating the account.

c. Create a bad debt item

Create a non-inventory item that links your bad debt expense account to the credit memo.

Go to All Apps, then Sales & Get Paid, and select Products & Services.
Click New and choose Non-inventory.
Enter Bad Debts in the Name field.
From the Income Account dropdown, select the Bad Debts expense account created earlier.
Check the I sell this product/service to my customers option.
Click Save and Close to complete the setup.

d. Create a credit memo for the bad debt

Create a credit memo to record the amount you want to write off as bad debt.

Click + Create and select Credit Memo.
Choose the customer from the Customer dropdown.
In the Product/Service section, select Bad Debts.
Enter the amount to be written off in the Amount column.
Type Bad Debt in the Message displayed on statement field.
Click Save and Close to save the credit memo.

e. Apply the credit memo to the invoice

Apply the credit memo to the unpaid invoice to complete the bad debt write-off:

Click + Create, then select Receive Payment under Customers.
Choose the appropriate customer from the Customer dropdown.
In the Outstanding Transactions section, select the unpaid invoice.
Under Credits, choose the credit memo you created.
Click Save and Close to apply the credit and close the invoice.

If you need assistance with bookkeeping, transaction categorization, or monthly bank reconciliation, consider working with a QuickBooks-certified bookkeeping professional. Expert guidance can help keep your financial records accurate and up to date.

f. Run a bad debts report

You can verify your bad debt entries by running a report for the bad debt expense account.

Go to All Apps, then Accounting, and open Chart of Accounts.
Locate the Bad Debts account and click Run Report under the Action column.

After running the report, all invoices written off as bad debt will appear under the Bad Debts expense account on your Profit and Loss report.

(Optional) Add a distinguishing note

To easily identify customers with unpaid balances, you can add a note to their display name.

Go to All Apps, then Customer Hub, and select Customers & Leads.
Open the customer’s profile and click Edit.
In the Display Name As field, add “Bad Debt” or “No Credit” after the customer’s name.
Click Save to apply the changes.

Summing Up

Writing off bad debt in QuickBooks helps keep your accounts receivable and financial reports accurate by removing invoices that are no longer collectible. Whether you use QuickBooks Online or QuickBooks Desktop, the process is straightforward when the invoice has been identified as uncollectible.

By recording bad debt correctly, you can maintain cleaner books and ensure your financial records reflect the actual amount you expect to receive.

QuickBooks Bad Debt Write-Off Made Simple – Desktop & Online Stuck with errors? Dial +1-866-408-0444 and get expert guidance in minutes.

Frequently Asked Questions

How to do a bad debt write-off in QuickBooks?

To do a bad debt write-off in QuickBooks Online, you must create a bad debt expense account, set up a non-inventory bad debt item, issue a credit memo, and apply it to the unpaid invoice.

How to write off Bad debts?

To write off a bad debt, you remove an uncollectible account receivable from your books by debiting your Bad Debt Expense account and crediting your Accounts Receivable account. This action updates your balance sheet to reflect the true value of your outstanding invoices.

Can a bad debt be written off?

Yes, a bad debt can be written off by removing an uncollectible amount from active accounting records, using either the direct write-off method or the allowance method.

How do you record Bad debts written off?

To record bad debts written off in QuickBooks, create a bad debt expense account, apply a credit memo to the unpaid invoice, and close the outstanding balance. This removes the invoice from accounts receivable while recording the amount as a bad debt expense.

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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