How to Write Off An Invoice in QuickBooks?

Every business has to manage its money effectively, and QuickBooks has become the go-to tool for many. Writing off invoices is one part of financial management. Let’s go through the article and know the process of the QuickBooks invoice writing-off process so you can keep accurate financial records.

Know How to Write Off Invoices in QuickBooks

What do you mean by writing off an Invoice?

It’s a simple concept. By doing this, you are acknowledging that you will not receive payment for them. For example, you may have an outstanding invoice from a business that has closed. You can enter this as a bad debt in QuickBooks. This is a kind of expense account.

You can change your accounts receivable in QuickBooks by writing off an invoice. This is the amount that is owed to your company. Also, your profit and loss report is adjusted based on your net income. This displays the earnings of your company over time. You don't want to count money that you won't receive as income, after all.

Why It’s Necessary to Write Off Invoices

It first maintains the accuracy of your financial records. You will have an excessive amount of accounts receivable if you do not deduct unpaid bills. This does not provide a true financial picture of your company. It also has an impact on your taxes. Bad debts are typically deductible from your taxable income. That means you won't be taxed on money that you never got.

Also, writing off an invoice helps in account management for your customers. You can see the balance for each customer in QuickBooks. All invoices, payments, and credits are included in this. This is where a customer's outstanding balance will appear. You can reduce an invoice's balance by writing it off. This helps in managing your relationships with customers effectively. 

Also, writing off an invoice in QuickBooks is not difficult. For the outstanding balance, a credit memo might be made. Apply this to the original invoice after that. Also, you can just remove the invoice.

For the time being, just keep in mind that writing off bills is an essential component of handling your company's finances. Plus, QuickBooks makes the process simple.

What are the Reasons to Write off an Invoice?

Here are some reasons why you might consider writing off an invoice in QuickBooks:

• Bad Debt: Customers may sometimes find themselves unable to pay an invoice due to circumstances beyond their control. Less commonly, customers may choose not to pay for various reasons. In both scenarios, it is crucial to accurately document a customer's failure to make payment in your financial records by formally writing off the invoice.
• Underpayment: Your customer may have paid a portion of your invoice, leaving a remaining balance. Often, this is due to a clerical oversight on the customer's part. In cases of underpayment, the outstanding amount is often so minimal—sometimes just a matter of cents—that it doesn't warrant requesting the customer to settle the difference.

What are the Mistakes to Avoid?

You might think that simply deleting an invoice is the easiest method to handle it in QuickBooks. However, it's advisable not to take this route. Choosing to delete instead of properly writing off an invoice can have the following implications for your business's accounting:

• You Lose Valuable Information: It's essential to maintain records of any invoices you write off due to a customer's bad debt, ensuring you don't extend credit to that customer in the future. Deleting the invoice erases this crucial information. Additionally, it's beneficial to be aware of the proportion of invoices you've had to write off. By tracking this valuable business metric, you can manage your business more efficiently and profitably.
• The Deleted Invoice’s Items will be listed as Unbilled: When an invoice is deleted in QuickBooks, all its associated items will show up as unbilled. If you continue to do business with the customer whose invoice you've written off, these items will pop up each time you attempt to invoice them, leading to confusion and a messy ledger.
• You Lose Valuable Information: To prevent extending credit to the same customer in the future, it's vital to monitor invoices you've written off due to bad debt. If you choose to delete the invoice, this critical information will be lost. Moreover, it's essential to understand the proportion of bills you've written off. Leveraging this key business metric can help you run your business more efficiently and profitably.

Know How to Prepare to Write Off Invoices in QuickBooks

Assessing Your Unpaid Invoices

In the starting, we are required to assess your unpaid invoices. Using QuickBooks makes this task simple. In your customer's menu, all of your invoices are listed. You may view each customer's account here.

Keep an eye out for past-due bills. This indicates that the customer has missed the payment deadline. There may be a few days delay on some invoices. Some invoices can be a few days late. In any case, these are the bills you haven't paid.

Each invoice's remaining balance is also visible to you. This is the remaining balance that the client owes. The outstanding balance will be less than the amount of the initial invoice if they have made a partial payment. It will be the same as the invoice amount if they haven't made any payment.

Keep in mind about sales tax. In case you charge sales tax, then it is already covered in the invoice amount. The sales tax is also deducted when you write off an invoice.

Setting up your Account for Write-Offs

Let's proceed to prepare your account for write-offs. You require a bad debt expense account in QuickBooks. You keep track of your write-offs here. Such an account is an expense account.

• Begin by going to your chart of accounts. 
• This is a list of every account that your company has.
• Now you have to press the New button. Next,  you have to choose Expense from the list that drops down.
• Select Bad Debts as the detail type after that.
• Now you have to click Save and Close after that.

A bad debt item is also required. This is how an invoice is written off. 

• Access your list of things.
• Press the "New" button.
• Next, choose "Non-Inventory" from the list that drops down.
• Select "Bad Debts" to be the account type.
• Click "Save and Close" after that.

Process of Write Off an Invoice in Quickbooks

Follow the steps given below to write off the invoices:

• If you haven't yet opened the Client Data Review then go to the menu bar and choose Accountant and then Accountant Centre
• Then from the task group of Accounts Receivable choose the Write Off Invoices task
• If a warning pop-up says that one or more than one customer present in the list has available credits then tap on OK to close the pop-up of the message. Make sure that you carefully go through the Open Invoices reports of your clients as recommended previously
• Then go to the drop-down list of Age and choose between the receivable that is shown as aged for over 180 days, aged for over 120 days, custom date, or a review period
• This step is optional. To limit the displayed transactions that are useful, particularly at the time of writing off the small balances, make sure that the amount is entered by you in the box of Balances Due Less Than
• Choose the To Date
• Then go to the drop-down list of Transaction Type and from there select Invoices, All Charges, Statement Charges, or Finance Charges
• Tap on Refresh if the filters are changed
• Then make sure that a checkmark is put in front of every transaction that you are willing to write off the open balance for. (Optional) tap on the Deselect All button or Select All button which is present at the screen's bottom to make the process simple
• Go to the drop-down list and choose Write-Off Date and Write-Off Item. (Optional) you can also choose a Class
• Click on the button Preview & Write-Off. Confirm Write-Off dialog box will be displayed by CDR
• After reviewing all the invoices carefully click on Write Off or you can also click on Cancel
• You will be returned to the dialog box of Write Off Invoices by CDR. Press the Esc key to have a look at the completed details of the Write-Off
• Tap on Save as PDF to get the print of your records

Credit Memo transaction is created by QuickBooks by using the date and item that was selected by you when the write-off was created and then this credit is applied to the original invoice.

Step-by-Step Guide to Write Off Invoices in QuickBooks

Choosing the Correct Invoice

Let's select the appropriate invoice first. It isn't as difficult as you may imagine! 

• You have to go to the QuickBooks Online customer's menu first.
• Find your customer's account from there.
• You are going to see all of their bills.

Check the outstanding invoices now. We are more interested in them. But keep in mind that not every outstanding invoice needs to be written off. When we don't expect an invoice will be paid, we write it off. Therefore, don't write off a customer's invoice just yet if you believe they may still pay.

You should choose a customer's invoice if you are sure they will not pay. Press the button. This will cause QuickBooks to open the invoice.

Applying the write-off

We will create a credit memo to apply the write-off. In QuickBooks, this kind of transaction is unique. We can use it to lower a customer's balance. Return to the customer's menu and choose Create Credit Memo this time. This will bring up a fresh window. 

We'll fill in some important information here.

• Select the name of the customer from the drop-down menu first. 
• Next, select bad debt as the item. 
• Enter the entire amount of the outstanding invoice in the amount field. 
• Click Save and Close after that. 

We have now created a memo on credit.

The unpaid invoice must then be applied to this credit memo. Return to the menu for the consumer. Choose Receive Payments this time. This will cause a new screen to open. Select the name of the client from the menu. The invoice you wish to write off can then be selected in the Outstanding Transactions area. Next, choose the credit memo we just made under the Credits section.

The credit memos and the invoice amounts should match up. This means that there will be no money left on the invoice.  Now click Save and Close. Now, the bill has been written off!

How to Write off the Unpaid Invoice?

When the report is run by you or you try to open any unpaid invoice, the only option you see is the received payment, and enter the monetary amount in the block of the amount paid, before you even get the choice to write off the unpaid balance.

As you believe that you won't be able to receive the unpaid balance, the only option left with you is to show at least payment of 1 cent, and going further the remaining you can write off.

Conclusion

In QuickBooks, writing off invoices is an important part of financial management for your company. It provides an accurate image of your income and helps in maintaining accurate records. Recall that you should follow this process if you are positive that an invoice will not be paid. This article's step-by-step instructions should make the process straightforward to understand. Remember to review your outstanding bills regularly and to write off invoices using QuickBooks' credit memo feature.

Not just the issue written above, you may face other issues as well while writing off the invoices in QuickBooks. Answers to all your queries and concerns lie with the SMB QuickBooks tech support team. Our experienced staff at the SMB QuickBooks tech support helpdesk can be reached at smbaccountants.com.

Frequently Asked Questions

Q 1: Can we write off any invoice in QuickBooks?

No, not all invoices can be written off. An invoice should only be written off if you are sure that it will not be paid. For example, you can write off an outstanding invoice from a customer who closes.

Q 2: Do I have to record it manually in my QuickBooks account?

No, you don’t have to record the writing Off invoices manually as QuickBooks automatically updates your account.

Q 3: Is it possible to reverse a write-off in QuickBooks?

Yes, you can. You have the option to reverse a write-off if a customer pays an invoice that you have written off. Applying a payment to the invoice in the same way as you would for a regular payment accomplishes this.

Q 4: Does writing off an invoice mean I have to open a new bad debt expense account every time?

No, each invoice that you write off does not need you to open a new bad debt expense account. All write-offs can be made using the same bad debt expense account. Simply put, each time you write off an invoice, it gets added to this account as another expense.

Q 5: What occurs to QuickBooks' bad debt?

In QuickBooks, an invoice is recorded as an expense in a particular account called the bad debt expense account when it is written off as bad debt. By doing this, you can maintain accurate financial records.

Q 6: How does deducting an invoice from my profit and loss statement work?