arrow Kick Start Your Accounting Journey, We Help You to Start from Scratch

How to Write Off Bad Debt in Quickbooks?

This tutorial will show you how to write off bad debt in QuickBooks.

Bad debt occurs when a customer owes you money, and you cannot collect it. They owe you money, but you are sure that you’re not getting paid.

If your company employs the accrual method of accounting, you may be able to deduct bad debt.

You must create an account to monitor bad debts before recording them.

You can then utilise QuickBooks’ Discounts, and Credits feature to record the debt while keeping it organised in a separate register for tax purposes.

Bad debts are considered one of the most severe problems that any business faces, and writing off bad debts in QuickBooks can be the answer.

Doing this job quickly makes the overall task easy and with as little fuss as possible.

Read Also: How to Reconcile in Quickbooks Online?

What does it Mean for an Organisation to Write Off  Bad Debts in Quickbooks?

Bad debt occurs when an amount that was in a profitable form and was meant to be received from a client fails to be recovered in any organisation.

For individuals who use QuickBooks Desktop, bad debts are invoices that have become unrecoverable over time.

It is easier for a company to monitor its profitability and average net turnaround when bad debts are written off.

However, if the records are managed and kept directly without the use of accounting software, the process can become rather tiresome.

How to Write Off Bad Debt in Quickbooks?

Here’s how to write off bad debt in Quickbooks –

Step 1: Examine your Past-due Accounts Receivables

  • Use the Accounts Receivable Aging Detail report to look at other invoices or receivables that should be considered bad debt.
  • Select Reports from the Business Overview menu (Take me there).
  • Locate and open a report on Accounts Receivable Aging Detail.

Step 2: Set up an Expenditure Account for Bad Debts

Set a “bad debts” expense account if you haven’t previously.

  • Choose Chart of Accounts from the Settings menu (Take me there).
  • To create a new account, select New in the upper right corner.
  • Next, choose Expenses from the Account Type dropdown.
  • Tap on Bad Debts from the Detail page.
  • Type “Bad debts” in the Name field.
  • Choose Save and Exit.

Step 3: Create a Bad Debt Item

Create a non-inventory item as a placeholder for the bad debt if you haven’t already. This isn’t an actual item; it’s merely to keep the books straight.

  • First, tap on Products and Services from the Settings.
  • In the upper right corner, click New, then Non-inventory.
  • Type “Bad debts” in the Name field.
  • Tap on Bad debts from the Income account dropdown.
  • Choose Save and Exit.

Step 4: For the Bad Debt, Create a Credit Memo

  • Select + New is an option.
  • Click on Credit Memo.
  • From the Customer dropdown, choose the customer.
  • Tap on Bad Debts from the Product/Service column.
  • Enter the amount you want to write off in the Amount field.
  • Type “Bad Debt” in the Message displayed on statement box.
  • Choose Save and Exit.

Step 5: Apply the Credit Memo to the Invoice

  • Choose + New option.
  • Next, go to Receive payment under Customers.
  • Select the relevant customer from the Customer menu.
  • Choose invoice from the Outstanding Transactions column.
  • Select the credit memo from the Credits section.
  • Choose Save and Exit.

The uncollectible receivable is now listed below the Bad Debts expenditure account on your Profit and Loss report.

Get Your Books Completed Correctly 

So that your records are always 100 percent accurate, hire a certified bookkeeper to categorise transactions and reconcile your bank statements every month.

Step 6: Get a Report on Bad Debts

You can check all the receivables you marked as bad debt using an Account QuickReport. To do so, follow these steps:

  • Select Chart of Accounts from the Settings menu.
  • Select Run report from the bad debts account’s Action column.

Note: If you put a note at the end of a bad-debt entity’s name, you can tell it different from your other customers:

  • Select Customers from the Get paid & pay menu.
  • Decide on the name of the consumer.
  • Select Edit in the upper right corner.
  • After the customer’s name, type “Bad Debt” or “No Credit” in the Display Name as field.
  • Click the Save button.

Final Words

So, hopefully, you now understand how to write off bad debts in QuickBooks.

An Account Receivable Aging Detail Report should run regularly. It allows you to keep track of which debtors are about to default.