Learn How to Write Off Bad Debts in QuickBooks for Well-Balanced Records

Published by david on Last Updated On :Aug 17, 2023

One of the many challenges that businesses today face is uncollectable invoices. Due to various reasons, customers cannot make timely payments. This is called bad debt, whose accumulation makes account reconciliation very challenging.

When you write off bad debt in QuickBooks, the accounts receivable and net income stay updated in their records. It is critical to write off bad debts if you don’t want to experience their severe effect on the income statement.

You can write off this debt in QuickBooks Online and QuickBooks Desktop. The proper usage of this process will clear the invoices in the records, making your business benefit from accurate profits made during a specific period.

Table of Contents

Methods to Write off Bad Debt in QuickBooks Desktop

There are two major steps in the process of writing off bad debts in QB Desktop. These include creating a bad debts expense account and closing out unpaid invoices.

1. Create a bad debt account to record this debt.

This method consists of creating a bad debt account and then recording it. Follow the points mentioned below.

In QuickBooks Desktop, head to ‘Settings.’
After that, tap ‘Chart of Accounts’ from the options.
At the top-right corner, choose ‘New.’
This will make a new account.
From the Account Type dropdown, select ‘Expense.’
Now, tap ‘Bad Debts’ in the Detail Type dropdown.
After that, click ‘Save and close.’
Launch the ‘Customers’ menu.
Here, select ‘Receive Payments.’
Input the customer’s name in the ‘Received from’ field.
In the ‘Payment’ field, enter 0.00 dollars
Select ‘Discounts and credits.’
Input the amount you want to write off in the ‘Amount of Discount’ field.
Choose the account you added previously for the Discount Account.
Hit ‘Done.’
Lastly, select ‘Save and close.’
Now you know how to write off bad debt in QuickBooks Desktop.

2. Use the Chart of Accounts in QuickBooks

The Chart of Accounts contains all details of your business’s accounts. Use it to write off bad debt in Desktop.

In QuickBooks, choose ‘Company.’
Now, click the ‘Chart of Accounts’ option.
After that, click ‘Account.’
Now, pick the ‘New’ option.
Choose ‘Expense’ from the ‘Account Type’ menu.
Progress further by tapping ‘Continue.’
Hit ‘Number.’
Now, input the account number in its field.
After that, choose the ‘Account Type’ field.
In the box, input ‘Bad debt’ and tap ‘OK.’
A bad debt account in QuickBooks is created where you can record the debt.
Head to the home page and locate ‘Customers.’
From the drop-down menu, choose ‘Recieve Payments.’
Locate the customer with the bad debt.
Click the items on that line aligning with the bad debt.
After that, hit ‘Discounts and credits.’
Navigate to the ‘Amount of discount’ tab and input the bad debt amount.
Finally, tap ‘Done.’
Tap ‘Save and close.’

3. Use Accounts Receivable Aging Detail reports

You can also access the Accounts Receivable Aging Detail report to examine the outstanding accounts receivables to write off.

In QuickBooks, search for ‘Report.’
Now, tap ‘Accounts Receivable Aging Detail Report.’
Tap the gear icon to find the Chart of Accounts.
Choose the ‘Account Type’ dropdown.
Now, from the items list, choose ‘Expense.’
From the drop-down menu, tap ‘Detail Type.’
Now, choose ‘Bad debts.’
In the ‘Name’ box, add bad debt.
Tap ‘Save and close.’
Select the gear button from the menu.
Now, move to lists.
Select ‘Products and services.’
From the ‘Information’ drop-down, choose ‘Non-Inventory.’
In the ‘Name’ field, input bad debt.
Choose ‘Bad debt’ below the ‘Income Account’ section.
Uncheck the ‘Taxable’ checkbox.
Now, choose ‘Save and Close.’
Tap the plus tab.
From the ‘Customers’ section, choose ‘Credit memo.’
From the ‘Customers’ drop-down menu, choose your customer.
Input the bad debt amount in the ‘Text memo’ box.
Now, tap ‘Save and close.’
Choose the ‘Customers’ drop-down through the plus sign.
Head to ‘Receive Payments.’
From the drop-down list, choose your customer.
Now, choose the invoice by clicking on the ‘Outstanding transaction’ section.
Below ‘Credits.’ tap your credit memo.
The calculation should amount to $ 0.
Finally, tap ‘Save and close.’

4. Use lists to write off bad debt in QuickBooks Desktop.

The Lists menu also comes in handy to write off bad debts in QuickBooks Desktop. Open QuickBooks Desktop and use these points.

Click ‘Lists.’
Choose ‘Chart of Accounts.’
Tap ‘Account’ followed by ‘New.’
Select ‘Expense’ and hit ‘Continue.’
Input the account name in the needed field.
Tap ‘Save and close.’
Now, the spending account will get added to monitor the bad debt.
Select ‘Customers’ to close the outstanding debts.
Now, hit ‘Receive payments.’
Like before, input the customer’s name in the ‘Receive from’ field.
Write dollar 0.00 as the Payment Amount.’
Decide the discounts and credits and write appropriate amounts.
Now, choose the account you added previously in the ‘Discount Account’ section.
Press ‘Done’ and exit the window.

How to Write off Bad Debt in QuickBooks Online

Some ways to write off bad debt in QuickBooks Online include:

Using the Chart of Accounts option
Using the Accounts Receivables Aging Report
Setting up a bad debt item

Use the Chart of Accounts to write off bad debts.

In QuickBooks Online, choose the ‘Report’ menu.
Now, find the ‘Accounts Receivable Aging Detail Report.’
Select the ‘Outstanding Accounts Receivable’ that needs to be written off.
Tap ‘Settings’ and choose ‘Chart of Accounts.’
Click ‘New’ and choose ‘Expenses’ in the ‘Account Type’ menu.
In the ‘Detail Type’ drop-down, tap ‘Bad debts.’
In the ‘Name’ field, input bad debts.
Now press ‘Save and Close.’
Go to ‘Settings’ and choose the ‘Products and Services’ tab.
Tap ‘New’ and select ‘Non-Inventory.’
In the Name box, input ‘bad debts.’
In the ‘Income Account’ drop-down, select ‘Bad Debts.’
Tap ‘Save and Close.’
Click the ‘New’ option and choose ‘Credit memo.’
In the ‘Customer’ drop-down, select your customer.
Now, in the ‘Product/Service’ section, choose ‘Bad debts.’
Fill in the debt amount in the ‘Amounts’ column.
In the ‘Message displayed on statement field,’ input ‘bad debt.’
Click ‘Save and close’ and move to the ‘New’ menu.
Locate the ‘Receive Payment’ option.
From the ‘Customer’ drop-down, select your customer.
Choose the invoice in the ‘Outstanding transactions’ section.
Now, find the credit memo in the ‘Credit’ section.
Tap ‘Save and Close’ and move to ‘Settings.’
Click ‘Chart of Accounts.’
Finally, tap ‘Run report.’

Examine the Accounts Receivable Aging Report to write off bad debt.

Hit the ‘Report’ section.
Find the Accounts Receivable Aging Report from the search bar at the top.
View the outstanding receivable account by tapping on the ‘Accounts Receivable Aging Detail Report.’

Make a bad debt item.

Head to ‘Products and Services.’
It will make a non-inventory item a placeholder for your bad debt.
It is for connecting the bad debt entries to the bad debt expense account.
Now, select ‘New’ followed by ‘Non-Inventory.’
In the succeeding screen, enter ‘Bad Debt’ in the Name field.
Choose ‘Bad debts’ from the Income account drop-down.
Pick the ‘Save and close’ option.

Write off Bad in QuickBooks and Clear Invoices Easily

Now you can easily write off client invoices that will not be paid on both QuickBooks Desktop and QuickBooks Online. It’ll help you reconcile your accounts and run accurate reports. If you need more help, feel free to consult a QuickBooks support service.

Frequently Asked Questions

Q. How to write off a balance in QuickBooks?

A. You can make a general journal entry to write off the balance. In Accounts Receivables, make a general journal entry. After that, apply this entry to existing credit/debit. Thereafter, in Accounts Payable, make a proper journal entry and apply it to existing debit/credit. But if you have to write off small amounts, you can use discounts for this purpose.

Q. What is the difference between a credit memo and a write-off?

A. You can make credit memos if the invoice-type sales order is underpaid or overpaid and then write-offs to rectify the balance. The major difference between them is that a credit memo assigns an overpayment on an invoice as credit, which the user can use later. However, a write-off is for an underpaid invoice. It should correspond to the underpaid invoice amount.

Q. How to summarise unpaid balances in my QuickBooks?

A. Use these points to summarise or create a report for unpaid balances.

Navigate to ‘Reports’ and open ‘Unpaid Bills.’
Tap the gear icon on the Reports page.
Now, add ‘Open Balance’ in the corner.