How to Write off Bad Debt in QuickBooks?

How to Write off Bad Debt in QuickBooks

It is always a hassle to clear out debt. Bad debt happens when a customer who owes you money, does not give it back to you. You know that getting the money back is important but you can’t get any. In this article, we’ll talk about “How to Write off bad debt in QuickBooks”.

However, if your company sticks with the accrual method which also called accounting, you may be able to deduct bad debt. In order to record bad debts before recording them you have to create a monitor.

Now that you’ve done this, you can utilize QuickBooks’ Discounts, and credits feature to keep a record of the debt while keeping it organized in a separate register for tax purposes.

In the world of business, Bad debts turn out to be one of the most crucial problems ever. Writing off bad debts can be a difficult issue to resolve too.

However, we will try our best to make your work easy for you.

How does Bad Debt Occur?

Money plays an important role in the business. Your business is directly dependent on the investments that made, the money that comes and even the money that goes.

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Bad debts often occur when your profitable money was meant to be received but for some reason is not able to, which causes disruption in any organization.

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If you’re someone from an individual business and use QuickBooks Desktop as an individual user, in that case bad debts happen when invoices become unrecoverable over time.

When bad debts written off, it becomes simpler for a business to keep an eye on its average net turnaround and profitability.

On the other hand, the procedure can get quite laborious if the records maintained and managed manually without the help of accounting software.

How to write off Bad debt in QuickBooks?

Here is how you writing off Bad debt in QuickBooks:

Step 1: Keep a check on your Past-due Accounts Receivables

  • To examine further invoices or receivables that ought to be classified as bad debt, utilize the Accounts Receivable Aging Detail report.
  • From the Business Overview menu, choose Reports
  • Find the Accounts Receivable Aging Detail report and open it.

Step 2: Set a Fixed Expenditure Account for Bad Debts

If you haven’t already, create an expenditure account for “bad debts.”

  • From the Settings menu, select Chart of Accounts.
  • In the upper right corner, select New to create a new account.
  • Next, select the Account Type selection and select Expenses.
  • On the Detail page, tap Bad Debts.
  • Go to the Name field and type “Bad debts.”
  • Select Save and Close.

Step 3: A Bad Debt item advised to created

If you haven’t previously, make a non-inventory item to serve as a stand-in for the bad debt. This is just to keep the books straight; it’s not an actual thing.

  • From the Settings, first press on Products and Services.
  • Select New, then Non-inventory from the menu in the upper right corner.
  • Go to the Name field and type “Bad debts.”
  • From the Income account menu, tap Bad debts.
  • Select “Save” and “Exit.”

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

  • One alternative is to select + New.
  • Select Credit Memo.
  • Select the customer from the dropdown menu.
  • From the Product/Service column, tap on Bad Debts.
  • In the Amount field, enter the amount you wish to write off.
  • In the Message field of the statement box, enter “Bad Debt.”
  • Select “Save” and “Exit.”

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Step5: Apply the Credit Memo to the Invoice

  • Select the + New option.
  • Proceed to Receive payment under Customers after that.
  • From the Customer menu, pick the appropriate customer.
  • From the list of outstanding transactions, select the invoice.
  • From the Credits area, choose the credit memo.
  • Select “Save” and “Exit.”
  • On your Profit and Loss report, the uncollectible receivable now shown beneath the Bad Debts expenditure account.

Step 6: Create a Report on Bad Debts

You can use an Account Quick Report to review any receivable that you designated as bad debt. Take these actions to achieve that:

  • Choose Chart of Accounts from the menu under Settings.
  • From the Action column of the bad debts account, select Run report.

Note: You can distinguish a bad-debt company from your other clients by adding the following note at the end of its name:

  • From the Get paid & pay menu, choose Customers.
  • Make a decision about the consumer’s name.
  • In the upper right corner, choose Edit.
  • In the Display Name as field, type “Bad Debt” or “No Credit” after the customer’s name.
  • Press the “Save” button.

Conclusion

Hopefully, you now know how to use QuickBooks bad debts write off.

Regular execution of an Account Receivable Aging Detail Report recommended. You can monitor which debtors are on the verge of default with its help.

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