QuickBooks has become incredibly popular among small and medium-sized businesses due to its extensive range of advanced features and tools. It prioritizes unmatched data security standards, ensuring that the information entered into the software remains completely protected. In this detailed article, our dedicated experts will thoroughly explain the procedure for writing off bad debts in QuickBooks.
Bad debt means that if a QuickBooks customer is not paying the bill, that a customer needs to QuickBooks has a feature to write off the bad debt to this customer, so that the customer appears to be blacklisted, so any company will not entertain that in the future, and has to pay a penalty for the same once the bad debt is written off in QuickBooks.
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Advantages of Write Off Bad Debts in QuickBooks
- You will be able to clear the invoices from the accounts receivable. Due to this, you get the net profit amount.
- You will not have any miscalculations in the income statement and profit and loss reports.
- When you record a bad debt, invoices become collectible.
Things to Do Before Writing Off Bad Debts in QuickBooks
Accountant Must Be Consulted
The accountant must be consulted before writing off the decision because the loss of the customer or the customer himself must not be aware of the same. So they must be told before this happens for bad debt in QuickBooks, which is assumed to be non-tolerance to the companies using QuickBooks.
Allowance Should Not be Used
When the writing-off is performed, then the allowance should not be used, and the gross high percentage is recorded and entered as well. In journal entries, it should also be mentioned if the customer writing off is done so that, in the future or at any moment, the details must be available about the customer to reduce data corruption and data loss.
Feature to Keep the Recording of the Write-off debt
Generally, in QuickBooks Enterprise and QuickBooks Professional, the writing off of bad debt is done, and QuickBooks cash basis also has this feature to keep a record of the write-off debt. The invoices are checked so that the debt which is given has a valid reason by checking all the payments and transactions done by the customer.
How to Set Up a Bad Debt Account in QuickBooks
Before learning the process of writing off bad debt, first, you must have a look at the setup process of the Bad Debt Account in Quickbooks.
To set up a bad debt account in QuickBooks, you need to follow the steps mentioned below:
- Log in to the QuickBooks Dashboard
- Click on the Gear Icon
- Select Chart of Accounts.
- Click on New.
- Select Your Account Type As Expense
- In the Name Field (Type Bad Debt)
- Choose Bad Debt as the Detail Type.
Steps to Write Off Bad Debts in QuickBooks
Verify Aging Report
- Click on Reports: First of all, you need to click on Reports, which is in The Left Side panel in QuickBooks.
- Search for Account Receivable Aging Report: In the Top Search bar section, search for Account Receivable Aging Report.
- Analyze Your Outstanding Receivable Account: To analyze your Outstanding Receivable Account, you need to click on Account Receivable Aging Report details.
Make An Account for Bad Debt Expenses
- Choose Chart of Accounts: Go to Company Section >> Click on Gear Icon >> Choose The Chart of Accounts Option.
- Select Option: Before Moving to Next >> Select The Option
- Click on Expenses Option: Go to Account Type Dropdown List >> Now Click on Expenses Options.
- Give A Name to Bad Debts: From The Drop Down List >> Select All Bad Debts >> Assign Bad Debt in The Name Field.
- Final Step: To end the Procedure,>> Click on Save & Close.
Make A Bad Debt Item
- Select Product & Service: Go to list section >> Click on gear icon >> select product and services >> Choose The Option.
- Click on Non-Inventory Option: Click on New Product >> Click on Non-Inventory Option from Product/Service Information Section.
- Type Bad Debt: Inside the Name Text Box >> Type the Bad Debt.
- Select Bad Debt Expenditure: Now Select The Bad Debt Expenditure that you have created in the Income Account Section.
- Unmark The Check Box: Unmark the “Is Taxable” Check Box.
- Final Step: At Last, you need to click on the Save & Close option.
Set Up The Credit Memo for the bad debt
- Log in to Quickbooks Dashboard >> Click on the Plus Icon
- Go to Customer Section >> Select The Credit Memo
- From the customer drop-down list >> Select Customer
- Select The Item which you have created for the bad debt in the Product & service field.
- With Positive Values, type the amount of bad debt or unpaid invoices.
- Now type the bad debt amount in the memo text box.
- To end this step, click on the Save & Close Option
Access A Bad Debt Report
- Reach to Receive Payments from The Customers: At the top of the screen, click on the + Icon >> Navigate to the Receive Payments from The Customers section.
- Select the Customer: Go to the customer drop-down list >> select customer.
- Select the Invoice: Select the Invoice that you want to write off from the outstanding transactions.
- Select The Credit Memo: Go under the credit section >> Select the Credit Memo.
- Run A Check: Perform a check & confirm >> Reflecting amount in the section must be $0.00
- Final Step: Click on the Save & Close option to end the procedure.
Run a bad debts report
If you want to check all the receivables you tagged as bad debt, you can run an Account QuickReport.
- Select the Chart of Accounts from Settings
- Select Run report from the Action column of the bad debts account.
Note: Bad-debt entities can be distinguished from other customers by adding a note to their name:
- Select Customers under Get paid & pay
- Choose the name of the customer.
- At the upper right, select Edit.
- Enter “Bad Debt” or “No Credit” in the Display Name field.
- Select Save.
How to Write Off Bad Debt in QuickBooks Cash Basis?
If the taxes are filed based on cash, then the best way to get the due and noncollectable amount removed is to either delete or void the open invoices. You can do this because the open invoices are not reported as income.
Deleting or Making the Invoices Void
- Go to the left menu and choose Invoicing or Sales
- Then from the too select Customers
- After that, choose the Customer’s Name
- Then go to the drop-down list and select Open Invoices adjacent to Show
- After that, from the list of drop-downs adjacent to Date, choose the date range
- Then, ensure that every invoice for which you believe that you are not going to receive any payment is selected, and make sure to do so just one at a time
- As soon as the invoice opens up, go to the bottom left and select More, and then Void
- When you see, are you sure you want to void this? Click on Yes
- To make every invoice void, repeat the point from 4-6
Direct Method
In case the writing-off amount is going to have an impact on the amount of your gross sale, then for sure get in touch with your accountant before you make this entry.
- Ensure that the bad debt or uncollectible expense account is already created.
- You can always get in touch with the QuickBooks helpline to know how the expense account is created.
Creating the service/product item named: Noncollectable Debt or Bad Debt:
- Tap on the Gear icon, which is present at the top, and then Products and Services
- Then go to the top right side and select New
- Then choose the template type, service, or non-inventory
- Then write the name
- Then, for the field of Income Account, tap on Uncontrollable Debt or Bad Debt expense account
- Select Save
Issuing the Credit Memo to the client
- Choose the icon depicting Plus (+) present at the top and then select Credit Nemo’s
- After that, use the Uncollectible Debt and Bad Debt item, and after getting the amount entered that you are willing to write off as a positive number
- Now, in the field of Memo, enter the Bad Debt
- After that, select Save
Applying the Adjustment Note or Credit Memo
- Go to the top and choose the icon of Plus (+) and then Receive Payment
- After that, choose the name of the Customer
- All the open transactions could be checked easily below the form. Save it and do not fill in the fields of Receive Payment. If no transactions are present there then select Cancel
Setting the Allowance for the Bad Debt System
To set and start using the allowance method, your tax filing and reporting should be based on an accrual basis.
To get the allowance created for the bad debt account:
- Choose the Gear icon, which is present at the top, and then the Chart of Accounts
- Then, on the right side of the top, choose New
- In Category Type, tap on Current Assets/Other Current Assets
- For the Detail type, you will see Allowance for Bad Debts highlighted
- Then click on Save
Need Professional Help?
There are many more ways to write off bad credit. To know about all of them, you can contact our SMB QuickBooks Helpline. at smbaccountants.com anytime. The SMB QuickBooks tech support team is ready to answer all your queries and concerns 24*7.
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Frequently Asked Questions
How do I write off bad debt in QuickBooks Online?
A quick and easy way to do this is simply to delete the bad debt that you can apply to the invoice. Here’s how to do it with these steps:
💠 Initially, go to Sales that you find on the left navigation menu
💠 Next, click on the Customers tab
💠 Now, choose the customer’s name
💠 After that, select the Credit Memo
💠 Hit more to select the “Delete” option
💠 At last, hit the “Yes” button.
Why Does Bad Debt Occur in QuickBooks Desktop
A bad debt may occur due to several reasons:
💠 The customer endured financial distress or worse, they applied for bankruptcy or creditors’ protection.
💠 Your client believes that the sum of the invoice is too high for the services provided and has only been able to pay a portion of the invoice.
💠 Despite your attempts to reach them, the client has become nonresponsive, and you believe it is no longer worth trying to obtain.
How do I Create a New Account for Bad Debts?
To create a new account, you have to make an expense account:
💠 Go to the Toolbar and select the Gear icon
💠 Next, click on the “Your Company” option
💠 Now, select “Charts of Accounts”
💠 And then hit the “New” button
💠 After that, select Account Type from the Accounts notification
💠 A pop-up menu opens and choose Expenses
💠 Select “Bad Debts” from the Detail type menu
💠 Next, write Bad Debts within the Name field
💠 Finally, click on the “Save” and then the “Close” button.
How do I write off Amounts in QuickBooks Desktop?
💠 Go to the Vendors menu and select Pay Bills.
💠 Choose the bill that you want to write off the balance for.
💠 Select Set Discount.
💠 Click on the Discount tab and enter the amount in the Amount of Discount field.
💠 To close the Pay Bills window, select Pay Selected Bills.
💠 Finally, in the Payment Summary window, select Done.
How Do I Delete a Negative Balance in QuickBooks?
To clear out a negative balance in Undeposited Funds in QuickBooks, follow these steps:
💠 Go to the Lists menu.
💠 Select Chart of Accounts.
💠 Locate and double-click on Undeposited Funds.
💠 Double-click on the Journal Entry (JE) that you want to open, one at a time.
💠 Press Ctrl + D on your keyboard to delete the selected Journal Entry.
