It’s not easy to understand QuickBooks and we understand that. This is why we have come up with the question of how to write off bad debt in QuickBooks (Desktop and Online).
- You’ve called them you’ve emailed them,
- You’ve tried to work out payment plans etc.
And after you know a couple of months or a year you kind of realize they’re not going to pay you’re not going to be able to collect this you can write this bad debt off. This can be easily done by getting them off your books of accounts.
How to Write Off Bad Debt in QuickBooks Desktop
Today we are gonna share a quick tutorial on how to write off bad debt in QuickBooks Desktop.
Step 1: Set up the Bad Debt Expense
- The first thing we’ll do is set up the bad debt expense account by going to the chart of accounts and creating a new account.
- We want to have it be an expense account that we’re gonna call bad debt expense or just bad debt.
Step 2: Item for the Bad Debt
Once that is set up you now need to set up a bad debt item for invoicing and link it to that bad debt expense account.
- So again for the list item let’s create a new item, I like to use all their charge for this one.
- Now give it a name of bed debt write-off and Link it over here to bad debt expense that you just set up.
- Leave the amount blank because that’s always gonna be custom based on what you’re writing off as well.
- In the description, I usually put the invoice number and then write it off there just to leave a paper trail.
- The next thing we’ll do is go find a customer that has an invoice to write off we go to our customer center.
- We are gonna select any customer here with an invoice.
- We’ll go with the first let’s go with these guys here alright this one has let’s say this payment right here $7,500 original invoice number seven fifty-five hundred.
Step 3: Create a Credit Memo for that Customer
Do so if we’re gonna write that off we’re gonna create a credit memo for that customer.
- We’ll just do it with data today items gonna be bad debt that we just set up and get right off-invoice seven for the description fifty-five hundred and now this is important why we use credit memo.
- If it was originally taxed you would select tax here and if not you would select non-taxable that’s why we like the credit memo for writing off bad debt.
- It is because it allows you to adjust the tax liability.
- The sales tax liability do the other alternative method that I’ll show you doesn’t and this is why we prefer the credit memo so if we save that it’s going to give us a couple of options.
Step 4: Offset the Credit Memo
Here retain it as a credit we can offset it later, give a refund, or apply it to an invoice.
- So if we say apply to an invoice and select the one that we want to apply which is this one invoice seven and select done.
- Now you’re all set so that’s the best way the preferred way because again you can adjust the sales tax liability.
How to Write Off Bad Debt in QuickBooks Online
So let’s see how to write off bad debt in QuickBooks Online. Follow these simple steps and you will be able to do that with ease.
Steps:
- Head over to the reports section.
- Click on the customers and receivables tab.
- Open the invoices tab and you will now see all the open invoices within your business. These are all the customers that currently owe you money.
We’re going to look for the one that we want to write off. Now that you have figured out that you are not going to be able to collect on this invoice, e.g. it’s invoice number 148 from ABC Corp, and the amount is $1465 so what we’re going to do is write him off.
- We’re going to come up to the customer’s tab.
- Now create credit memos and refunds and we’re going to enter the company’s name, ABC Corp.
- Put the date when you want to write off bad debt
- Provide the credit number.
- Now choose the item that is set up for bad debt.
- Enter the details and provide the description of which has caused the bad debt.
- Put in the amount that has remained noncollectable. Enter the amount in the bad debt account.
- Since the item that you sold, the amount of which is now not recovered, thus you will have to change the item from taxable to non-taxable.
- This way you won’t have a sales tax liability on you.
- Hit save and close to update the transaction.
- The moment you will do that, you will encounter a pop-up that says “You’ve got a remaining balance on this credit”. What do you want to do with that?
- Since we are writing off Bad Debts, thus you would need to attach the amount to an invoice and click OK.
Congratulations, you have successfully written bad debts. If you followed the steps as it is then you may now know how to write off bad debt in QuickBooks (Desktop and Online). But if you have faced any problems while going through the process above then it’s time that you should connect with QuickBooks consultant at their toll-free number.
