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Intuit

How to write off bad debt

Learn how to write off bad debt in QuickBooks Online.

When an invoice becomes non-collectible, you need to write it off and declare it as a bad debt to clear the invoice out of your accounts receivable and reduce your net profit by its amount.

Step 1: Review the Accounts Receivable Aging report

Before you address a non-collectible debt, review your Accounts Receivable Aging Detail report.

  1. From the left menu, select Reports.
  2. In the Search bar, enter Accounts Receivable Aging.
  3. Select the Accounts Receivable Aging Detail report from the results to review your outstanding accounts receivable.

Step 2: Create an account for bad debts

To begin the process, create an account for bad debts

  1. Select the Gear icon.
  2. Under Your Company, select Chart of Accounts.
  3. Select New.
  4. From the Account Type drop-down list, choose Expenses.
  5. From the Detail Type drop-down list, choose Bad Debts.
  6. In the Name field, enter Bad Debt.
  7. Select Save and close.

The expense account is created. The next step is to create a non-product or service item to identify the bad debt.

Step 3: Create a product/service item for the bad debt

To create a product/service item for the bad debt

  1. Select the Gear icon.
  2. Under Lists, select Products and Services.
  3. Select New.
  4. In the Product/Service information panel, select Non-inventory.
  5. In the Name field, enter Bad Debt.
  6. In the Income account field, select the Bad Debt expense you created.
  7. Clear the Is taxable checkbox.
  8. Select Save and close.

The item is created. The next step is to create a credit memo for the debt.

Step 4: Create a credit memo for the debt

To create a credit memo

  1. Select the Plus icon (+).
  2. Under Customers, select Credit Memo.
  3. From the Customer drop-down list, choose the customer.
  4. In the Product/Service field, select the Bad Debt item you created.
  5. Enter the Amount of the unpaid invoices as a positive number.
  6. In the Memo field, enter Bad Debt.
  7. Select Save and close.

The credit memo is created for the debt. The next step is to apply the credit memo to write off the bad debt.

Step 5: Apply the credit memo

Note: Credit memo will be applied automatically if you've turned on the setting to automatically apply credits. If you've turned on this preference before, proceed to Step 6.

To turn on the Automatically apply credits preference

  1. Select the Gear icon, then Account and Settings.
  2. Select Advanced.
  3. Select the pencil icon in the Automation section.
  4. Check the box before Automatically apply credits.
  5. Select Save, then Done.

To use the credit memo to write off the bad debt

  1. Select the Plus icon (+).
  2. Under Customers, choose Receive Payment.
  3. From the Customer drop-down list, select the customer.
  4. In the Outstanding Transactions section, select the invoices to write off.
  5. Under Credits, select the credit memo you created.
  6. Make sure the Amount received is 0.00.
  7. Select Save and close.

The uncollectible receivable now appears on your Profit and Loss report under  the Bad Debts expense account.

Step 6: Run a report of bad debts

You can run a report detailing bad debts from the Chart of Accounts.

  1. Select the Gear icon.
  2. Under Your Company, select Chart of Accounts.
  3. Locate the Bad Debts expense account.
  4. From the Action column drop-down menu, select Run Report.

The report provides information about uncollectible receivables.