How to Write Off Bad Debt in QuickBooks Desktop and Online?
QuickBooks is famous for accounting among start-ups and small companies. It provides advanced accounting software that helps the business manage all the income and expenses. QuickBooks users’ favorite feature is automatically creating bills and invoices for clients’ payments. But there are many scenarios where the owners send the invoices to the clients, but clients didn’t pay that or can say the debt is uncollectible. So the users count them as bad debt, and after that, they write these bad debts off. With this blog, we try to help you to write off bad debt in QuickBooks Desktop and Online.
What is Write Off Bad Debt in QuickBooks?
Whenever you don’t receive the debts from the clients after creating and sending the invoices, it can also affect your bank statement and the tracking of profit and loss. These situations are very common, but at the given time, if the debts don’t receive, then these debts are counted as bad. And it is mandatory to write them off on Desktop or Online as the income statement can be impacted. It is also important to write off these bad debts in QuickBooks since the records can be cleared over time, but the written bad debts will not.
Now, it’s time for us to know the steps of writing off these bad debts in both versions of QuickBooks Desktop and Online.
How to Write Off Bad Debt in QuickBooks?
It is important to record the write off bad debts/uncollectible amounts in QuickBooks. As it makes it easy for QuickBooks users to remember and notify of the pending debts. The process of writing off these bad debts is different for Desktop and Online, but you don’t have to bother; we will explain to you all the steps for both.
How to Write Off Bad Debt in QuickBooks Desktop?
The QuickBooks Desktop version is locally installed, records the bad debts, and writes them off to notify you at a particular time. It is the best feature of QuickBooks, which assures you that all accounts are receivable and net incomes are updated. Now, the following are the steps to write off:
Suggestion: You can stay on top of your clients’ open balances with the help of the Accounts Receivable Aging Detail Report.
Step 1: Create an Expense Account For Bad Debt Tracking
In the first step, create a bad debt expense account to write off bad debt in QuickBooks version Desktop.
- Firstly, in the QuickBooks Desktop, go to the Lists menu.
- Secondly, choose the Chart of Accounts option and then Expense, click on Continue.
- Then, enter an Account Name for the Expense Account, likewise Bad Debt.
- After providing the account name, click on Save and Close.
After creating an expense account for tracking all the Bad Debts in QuickBooks, now close all the unpaid invoices with the help of the following:
Step 2: Close Out Outstanding Invoices
In this step, we are going complete all the Unpaid invoices with the given steps to write off bad debt in QuickBooks:
- Go to the Customers menu.
- Click on Receive Payments.
- Then, in the Received From box, enter the customer’s name.
- Now, for the Payment Amount, enter $0.00.
- In the next step, pick the Discounts and Credits.
- After, enter the amount you want to write off in the Amount of Discount box.
- Next, for the Discount Amount, choose the Expense Account you created in Step 1 and click on Done.
- Lastly, click on Save and Close.
Now, you know how you can easily write off bad debts in the Desktop version of QuickBooks. It’s to go for the QuickBooks Online writing off bad debt procedure for the Online users.
How to Write Off Bad Debt in QuickBooks Online?
When we talk about QuickBooks Online or Desktop, they both work similarly. So whenever you don’t get the debt for the invoice, write off bad debt in the Online version with the help of the following means:
Step 1: Review Aging Accounts Receivable
In the first step, to write off bad debt in QuickBooks Online, you have to revise other receivables or invoices that should be deemed as bad debt with the help of the Accounts Receivable Aging Detail report. Now go through the following:
- Firstly, go to the Business Overview tab and click on Reports.
- Secondly, search and open the Account Receivable Aging Detail Report.
- Now, here you have to review that outstanding accounts receivable requires to be written off.
After that, we will create an expense account for the bad debts tracking. Here we go.
Step 2: Add a Bad Debts Expense Account
To track all the bad debt and then write off bad debt in QuickBooks Online, you have to create an expense account for bad debts. Follow the given steps:
- In QuickBooks Online, go to Settings.
- Then, go to the Chart of Accounts.
- Now, from the upper right side, click on New to create a new account.
- In the next step, choose Expenses by using the Account Type dropdown.
- After that, choose Bad Debts from the Detail Type dropdown.
- Now, in the Name field box, type “Bad Debts”.
- At last, click on the Save and Close option and head toward the next step.
Step 3: Create a Bad Debt Item
In this step, we will create a non-inventory item as a bad debt placeholder. Don’t worry about it; it is not a real item, it is present to balance the accounting. Now, follow the given steps to complete write off bad debt in QuickBooks version Online procedure:
- Firstly, choose Settings and the Products and Services option.
- Secondly, click on New from the upper right side.
- Now, choose the Non-Inventory option.
- After that, type Bad Debts in the Name filed.
- Next, using the Income Account dropdown, pick the Bad Debts option.
Step 4: For Bad Debt Create a Credit Memo
In the next step of the online write off bad debt in QuickBooks, we will create a credit memo with the following steps:
- Click on +New and then Credit Memo.
- Now, by using the Customer dropdown, choose the customer.
- After that, choose Bad Debts from the Product/Service portion.
- Next, enter the amount in the Amount field you want to write off.
- When the Message Displayed on the Statement box, type Bad Debt.
- Lastly, click on Save and Close.
Step 5: Apply for the Credit Memo to the Invoice
Now, we will apply for the credit memo to the invoice to write off bad debt in QuickBooks with the following:
- In this, click on +New.
- Then click on Receive Payment from Customers.
- Now, choose the particular customer using the Customer dropdown.
- After that, you have to choose the Invoice from the Outstanding Transaction portion.
- Next, choose Credit Memo from the Credit section.
- Finally, click on Save and Close.
When you apply the credit memo, the uncollectible receivable occurs on your Profit and Loss statement that is beneath the Expense Account of Bad Debts.
Step 6: Run Report of Bad Debts
In the procedure of write off bad debt in QuickBooks’ next step, we check all the receivables that you record as a bad debt by running Account QuickReport. Following are the steps:
- Firstly, head towards the Settings option and click on Chart of Accounts.
- Secondly, from the Action portion of the bad Debts account, click on Run Report.
To tell the particular customers about the bad debt without knowing the other customers by adding a note to their name. For that, the following are the steps:
- First, select the Get Paid & Pay option.
- Then, go for the Customers option and choose the customer’s name.
- Now, click on Edit from the upper right.
- Here, type “Bad Debt” or “No Credit” in the “Display Name as” the box field after the customer name.
- Finally, click on Save.
When you send a client’s invoices in QuickBooks, and the amount is not credited, this debt must be written off as bad. The invoice record can be forgotten or erased, but the written bad debt is not. So, to write off bad debt in QuickBooks Desktop and Online, we present to you this blog. We derive a step-by-step procedure for writing off bad debt easily. However, you can contact the ProAdvisors through Live Chat and Email if you have any doubts or concerns. They will assist you immediately. Thank You!