A bad debt means if a QuickBooks customer is not paying the bill that a customer needs to QuickBooks has a feature to write off a bad debt to this customer so that the customer appears to be black listed so that will not be entertained by any company in future and has to give the penalty for the same once the writing off bad debt in QuickBooks is issued.
- 1 Advantages of Write Off Bad Debts in Quickbooks
- 2 Steps Need to Perform Before Writing off Bad Debts in Quickbooks
- 3 How to Set Up Bad Debt Account in Quickbooks
- 4 How to Write-off Bad Debts in Quickbooks
- 5 FAQs
Advantages of Write Off Bad Debts in Quickbooks
- You will be able to clear the invoices from the accounts receivable. Due to this, you get the net profit amount.
- You will not have any miscalculations in income statement and profit and loss reports.
- When you record a bad debt, invoices become collectible.
Steps Need to Perform Before Writing off Bad Debts in Quickbooks
- The accountant must be consulted before the writing off decision because the loss of the customer or the customer himself must not be aware for the same. So they must be told before this is happening for bad debt in quickbooks which is assumed to be non tolerance to the companies using QuickBooks.
- When the writing off is performed at that point of time the allowance should not be used and the gross high percentage is recorded and entered as well. In journal entry also it should be mentioned if the customer writing off is done so that in future or any moment of time the details must be available about the customer to reduce data corruption and data loss also.
- Generally in QuickBooks Enterprise and QuickBooks Professional the writing off the bad debt is done as well as the quickbooks cash basis also has this feature to keep the recording of the write off debt and then the invoices are checked so that the debt which is given has the valid reason by checking all the payments and transactions done by the customer is analysed.
How to Set Up Bad Debt Account in Quickbooks
To setting up a bad debt account in quickbooks, You need to follow mentioned below steps:
- Login to Quickbooks Dashboard >> Click on Gear Icon >> Select Chart of Accounts.
- Click on New.
- Select Your Account Type As Expense >> In the Name Field (Type Bad Debt) >> Choose Bad Debt as the Detail Type.
How to Write-off Bad Debts in Quickbooks
How to Write-off Bad Debts in Quickbooks Step by Step
To write-off bad debts in quickbooks, you need to follow mentioned below steps one by one;
Total Time: 10 minutes
Verify Aging Report
💠 Click on Reports : First of all, You need to Click on Reports which is in The Left Side panel in Quickbooks.
💠 Search for Account Receivable Aging Report : At the Top Search bar section Search for Account Receivable Aging Report.
💠 Analyze Your Outstanding Receivable Account : To Analyze Outstanding Receivable Account You need to click on Account Receivable Aging Report details.
Make An Account for Bad Debt Expense
💠 Choose Chart of Accounts : Go to Company Section >> Click on Gear Icon >> Choose The Chart of Accounts Option.
💠 Select Option : Before Moving to Next >> Select The Option
💠 Click on Expenses Option : Go to Account Type Drop down List >> Now Click on Expenses Options.
💠 Give A Name to Bad Debts : From The Drop Down List >> Select All Bad Debts >> Assign Bad Debt in The Name Field.
💠 Final Step : To end the Procedure >> Click on Save & Close.
Make A Bad Debt Item
💠 Select Product & Service : Go to list section >> Click on gear icon >> select product and services >> Choose The Option.
💠 Click on Non-Inventory Option : Click on New Product >> Click on Non-Inventory Option from Product/Service Information Section.
💠 Type Bad Debt : Inside the Name Text Box >> Type the Bad Debt.
💠 Select Bad Debt Expenditure : Now Select The Bad Debt Expenditure Which you have created in Income Account Section.
💠 Unmark The Check Box : Unmark the “Is Taxable” Check Box.
💠 Final Step : At Last you need to click on save & close option.
Set Up The Credit Memo
💠 Login to Quickbooks Dashboard >> Click on Plus Icon
💠 Go To Customer Section >> Select The Credit Memo
💠 From the customer drop down list >> Select Customer
💠 Select The Item which you have created for the bad debt in Product & service field.
💠 With Positive Values type the amount of bad debt or unpaid invoices.
💠 Now Type the bad dept amount in the memo text box.
💠 To End this Step Click on Save & Close Option
Access A Bad Debt Report
💠 Reach to Receive Payments from The Customers : At the top of the screen Click on + Icon >> Navigate to Receive Payments from The Customers section.
💠 Select The Customer : Go to customer drop-down list >> select customer.
💠 Select The Invoice : Select the Invoice Which you want to write off from the outstanding transaction.
💠 Select The Credit Memo : Go Under the credit section >> Select the Credit Memo.
💠 Run A Check : Perform a check & confirm >> Reflecting amount in the section must be $0.00
💠 Final Step : Click on the save & close option to end the procedure.
How to Write Off Bad Debt in Quickbooks Cash Basis?
If the taxes are filed you on the basis of cash then the best to get the due and noncollectable amount removed is to either delete or void the invoices that are open. You can do this because the open invoices are not reported as the income.
1. Deleting or Making the Invoices Void
- Go to left menu and choose Invoicing or Sales
- Then from the too select Customers
- After that choose Customer’s Name
- Then go to the drop-down list and select Open Invoices adjacent to Show
- After that from the list of drop down adjacent to Date, choose the date range
- Then ensure that each and every invoice for which you believe that you are not going to receive any payment is selected, make sure just one at a time
- As soon as the invoice opens up, go to the bottom left and select More and then Void
- When you see, Are you sure you want to void this? Click on Yes
- In order to make every invoice void repeat the point from 4-6
2. Direct Method
-In case the writing off amount is going to have an impact on the amount of your gross sale then for sure get in touch with your accountant before you make this entry.
-Ensure that bad debt or uncollectible expense account is already created.
-You can always get in touch with the QuickBooks helpline in order to know how the expense account is created.
Creating the service/product item named: Noncollectable Debt or Bad Debt:
- Tap on Gear icon which is present at top and then Products and Services
- Then go to top right side and then select New
- Then choose the template type, service or non inventory
- Then write the name
- Then for the field of Income Account, tap on Uncontrollable Debt or Bad Debt expense account
- Select Save
3. Issuing the Credit Memo to client
- Choose the icon depicting Plus (+) present at the top and then select Credit Nemo’s
- After that use the Uncollectible Debt and Bad Debt item and after get the amount entered that you are willing to write off as the positive number
- Now in the field of Memo enter the Bad Debt
- After that select Save
4. Applying the Adjustment note or Credit Memo
- Go to the top and choose icon of Plus (+) and then Receive Payment
- After that choose the name of the Customer
- All the open transactions could be checked easily below the form. Save it and do not fill the fields of Receive Payment. If no transactions are present there then select Cancel
5. Setting the allowance for the bad debt system
In order to set and start using allowance method your tax filling and reporting should be based upon accrual basis.
In order to get the allowance created for the bad debt account:
- Choose Gear icon which is present at top and then Chart of Accounts
- Then at the right side on the top, choose New
- In Category Type tap on Current Assets/Other Current Assets
- For the Detail type, you will see Allowance for Bad Debts highlighted
- Then click on Save
How to Write off Bad Debt in Quickbooks Desktop?
To write off bad debt in desktop version of quickbooks, you need to follow the mentioned below Methods.
1. Method One: Create an Expense Account & Name it as Bad Debt
a). Open Chart of Account
Go to Top navigation bar >> Go to List >> Select Company option >> Now go to Chart of Accounts.
b). Create a New Expense Account
Click on The “Account” >> Click on “New” >> Select “Expenses”.
c). Give A Name to Expanse Account
Type “Bad Debt” in the “Account Name” Field >> Hit the “Save and Close” Option.
2. Method Two: Record the Bad Debt & Close
- Go to Customer Menu >> Select Receive Payments option.
- In the Receive form Enter the Customer Name >> In the payment amount field fill the $0.00 >> For Tracking add invoice number of the bad debt in the description box.
- Select the “Discount & credits” >> Enter the Bad debt amount in the “Amount of Discount” field. (Note: Fill the Amount you want to write off).
- Select Bad Debt Account you have created in step one in the “Discount Account“.
- Save & Close, Now you’re done.
Need Professional Help?
There are many more ways to write off the bad credit. To know about all of them, you can contact our SMB QuickBooks Helpline ?smbaccountants.com anytime. SMB QuickBooks tech support team is ready to answer all your queries and concerns 24*7.
How do I write off bad debt in QuickBooks Online?
A quick and easy way to do this is simply delete the bad debt that you can apply to the invoice. Here’s is how to do it with these steps:
💠 Initially, go to Sales that you find on the left navigation menu
💠 Next, click on the Customers tab
💠 Now, choose the customer’s name
💠 After that, select the Credit Memo
💠 Hit more to select “Delete” option
💠 At last, hit the “Yes” button.
Why does bad debt occur in QuickBooks?
A bad debt may occur due to several reasons:
? The customer endured financial distress or worse, they applied for bankruptcy or creditors’ protection.
? Your client believes that the sum of the invoice is too high for the services provided and has only been able to pay a portion of the invoice.
? Despite your attempts to reach them, the client has become non responsive and you believe it is no longer worth trying to obtain.
How do I create a new account for bad debts?
To create a new account, you have to make an expense account:
💠 Go to Toolbar and select Gear icon
💠 Next, click on the “Your Company” option
💠 Now, select “Charts of Accounts”
💠 And then hit “New” button
💠 After that, select Account Type from the Accounts notification
💠 A pop-menu open and choose Expenses
💠 Select “Bad Debts” from the Detail type menu
💠 Next, write Bad Debts within the Name field
💠 Finally, click on the “Save” and then “Close” button.
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