How to Write Off Bad Debt in QuickBooks Online & Desktop?

In QuickBooks, if the invoices you share become uncollectible, they should be marked as a bad debt and then write them off. By doing so, you can make sure that your account is receivable and the net income remains updated. If you are concerned about how to write off bad debt in QuickBooks Online and Desktop then don’t worry, we will enlighten you.

The guide explains step by step how to write off a bad debt in QuickBooks Online as well as in QuickBooks Desktop.

What is Bad Debt in QuickBooks?

When customers owe money to the company but you cannot collect it, here, the customers have debt with you that you will not even get paid. In this scenario, you can mark this as a bad debt and write it off as a deduction.

This can be done in both QuickBooks Online and QuickBooks Desktop. However, the steps would be different. Let’s know further information on how to write off bad debt in QuickBooks cash basis.

How Do You Write Off Bad Debt in QuickBooks Online?

To write the bad debt, you first need to check the invoices that are considered to be a bad debt, set up a bad debt expense account, create items, and then create the credit note in order to run the bad debts report.

The procedure of QuickBooks Online bad debt write off is divided into 5 steps. If you are thinking about how do I write off bad debt in QuickBooks Online, follow these steps to get your answers:

Must Read: How to Add an Account to QuickBooks

Step 1: Review the Ageing Accounts Receivable

In this step, you are required to check the receivable or invoices that are examined as bad debt. This can be done by using your Account Receivable Ageing Detail report. Let’s know how to check the invoices in the following steps:

• Click on the “Reports” menu.
• Search and click on the “Accounts Receivable Ageing Detail” report.

At this point, you can check the accounts receivable that you should write off. Once done, move to the next step.

Step 2: Setup a Bad Debts Expense Account

Now, we will create a bad debt expense account. For this, you can go through the steps instructed below:

• Click on the “Settings” option.
• Go to the “Chart of Accounts” option.
• Now, click on the “New” button located on the top right.
• Hit the “Expenses” button using the “Account Type” dropdown.
• Using the “Detail Type” dropdown, click on the “Bad debts” button.
• Now, click the “Save and Close” button.

This way you can create a new account for bad debts. Now you are supposed to create items for this account.

Step 3: Create Items for Bad Debt

You can create the non-inventory(non-inventory) item for the bad debt account. It works as a place holder. Remember that they are not real items but to balance your accounting in QuickBooks. To create items for bad debt, you can pursue these steps:

• Click on the “Settings” menu.
• Go to the “Products and services”.
• Now, click on the “New” button located on the top right.
• Click on the “Non-inventory” option.
• Then, enter your “Bad debts” in the “Name” field.
• Click on the “Bad debts” option using the “Income account” dropdown.
• Hit the “Save and Close” button.

After following these steps, you can easily create the items for bad debts. Now, you can proceed with the credit note.

Step 4: Create the Credit Note for Bad Debt

In this step, one has to create a note for the bad debt so that you can apply this credit note to your invoice. To make this credit note, you can follow these steps:

• Click on the “+New” button.
• Go to the “Give credit” or “Credit note”.
• Now, choose your customer using the “Customer” dropdown menu.
• Click on the “Bad debts” located in the “Product and Service” section.
• Input the amount that you prefer to write off in the “Amount” section.
• Now, enter “Bad Debt” in the “message displayed on statement” option.
• Click the “Save and Close” button.

This is how you can create a credit note. Once done with this, you can go to apply this note to your invoice so that you can run the bad debts reports.

Step 5: Apply Credit Note to Your Invoice

Since you have created the credit note, you can use it for your invoice. Doing so the uncollectible receivable will display on the Profit and Loss report. Here is what you have to do for the applying credit note:

• Click on the “+New” button.
• Choose the “Receive invoice payment” or “Receive payment” option under the “Customers” section.
• Now, choose your customer using the “Customer” dropdown menu.
• Select your invoice from the “Outstanding Transactions” section.
• Pick a credit note from the “Amount” section.
• Click the “Save and Close” button.

Once you are done following these steps, you will see the uncollectible receivable on the Profit and Loss report located in the Bad Debt expense account.

Step 6: Run the Bad Debts Report

This is the last step where we will finally run the Account QuickReport. This will check all the invoices you have marked as bad debt. To do so, you can do the following:

• Click on the “Settings” option.
• Then, go to the “Chart of Accounts” option.
• Now, click on the “Run report” in the “Action” column.

This is how you can run the report to check bad debts. Apart from the other customers, you can even tell the bad debt entity just by saving a note to the customer’s name. Here is how you can do that:

• Click on the “Sales” menu.
• Choose the “Customers” option.
• Click on the name of the customer.
• Then, go to the “Edit” button located on the top right.
• Now, in the “Display Name as” section, add “No Credit” or “Bad Debt” next to the customer’s name.
• Hit the “Save” button.

These are all the steps for how to write off a bad debt in QuickBooks Online. All you have to do is check the invoices that are considered to be bad debt then you can proceed with other steps such as setting up a bad debt expense account, creating items, creating the credit note in order to run the bad debts report.

How Do I Write Off Bad Debt in QuickBooks Desktop?

Bad debt can also be tagged in the QuickBooks Desktop version too. If the invoices that you send via QuickBooks Desktop go uncollectible then one has to record it as bad debt and write it off.

To get this job done, you should first add the expense accounts so that you can track your bad debt in QuickBooks Desktop. Later, you can close the invoices that are unpaid. Let’s understand in more detail.

Step 1: Add the Expense Account to Track Your Bad Debt

To add the expense account, you can go through the tools and create an account for tracking bad debt. You can follow these steps to understand better:

• Click on the “Lists” menu.
• Go to the “Chart of Accounts” option.
• Click on the “Expense” button.
• Hit the “Continue” button.
• Now, you can enter the name of your account such as Bad Debt.
• Click on the “Save and Close” button.

Once you follow these steps, the account would have been set up. Now, you can track the bad debts and close the unpaid invoices.

Step 2: Close Unpaid Invoices

In this step, we will select the account that was just created and close the unpaid invoices. Here is how to do that:

• Click on the “Customers” menu.
• Then, go to the “Receive Payments” option.
• In the “Received from” section, type the customer’s name.
• Now, add $0.00 for your “Payment amount”.
• Click on the “Discounts and credits” option.
• Then, add the amount that you prefer to write off in the “Amount of Discount” section.
• Now, pick that account you created in Step 1 for “Discount Account”.
• Hit the “Done” button.
• Click on the “Save and Close” button.

This way you can add the expense account and write off the amount as a deduction in QuickBooks Desktop. This is the best way to write off bad debt in QuickBooks Desktop.

To Wrap Up

To write off the bad debt keeps your net income updated and account receivable. Whether you are using QuickBooks Online or QuickBooks Desktop, we have discussed the procedure for both of them.

For QuickBooks Online, you first need to check the invoices that are considered to be a bad debt, set up a bad debt expense account, create items, and then create the credit note in order to run the bad debts report.

Whereas for the QuickBooks Desktop, you should first add the expense accounts so that you can track your bad debt in QuickBooks Desktop. Later, you can close the invoices that are unpaid.

If you are having any issues related to QuickBooks software such as your QuickBooks has stopped working then read this guide to find effective solutions.