Learn how to write off bad debt in QuickBooks Online.
Bad debt means a customer owes you money but you can't collect it. They have a debt with you, but you know you aren't going to get paid. If your business uses accrual method accounting, you can sometimes write off bad debt as a deduction. Learn more about bad debt from the IRS.
When invoices you send in QuickBooks become uncollectible, you need to record them as a bad debt and write them off. This ensures your accounts receivable and net income stay up-to-date. If you’re using QuickBooks Desktop, here’s how to write off bad debt.
Step 1: Check your aging accounts receivable
Review other invoices or receivables that should be considered as bad debt using the Accounts Receivable Aging Detail report.
- Go to Business overview then select Reports (Take me there), or go to Reports (Take me there).
- Find and open an Accounts Receivable Aging Detail report.
- Check which outstanding accounts receivable should be written off.
Step 2: Create a bad debts expense account
If you haven't already, create a "bad debts" expense account.
- Go to Settings ⚙ and select Chart of accounts (Take me there).
- At the upper right, select New to create a new account.
- From the Account Type ▼ dropdown, select Expenses.
- From the Detail Type ▼ dropdown, select Bad debts.
- In the Name field, enter “Bad debts.”
- Select Save and Close.
Step 3: Create a bad debt item
If you haven't already, create a non-inventory item as a place holder for the bad debt. This isn't a real item, it's just to balance the accounting.
- Go to Settings ⚙ and select Products and Services.
- At the upper right, select New, and then Non-inventory.
- In the Name field, enter “Bad debts.”
- From the Income account ▼ dropdown, select Bad debts.
- Select Save and Close.
Step 4: Create a credit memo for the bad debt
- Select + New.
- Select Credit memo.
- Select the customer from the Customer ▼ dropdown.
- In the Product/Service section, select Bad debts.
- In the Amount column, enter the amount you want to write off.
- In the Message displayed on statement box, enter “Bad Debt.”
- Select Save and Close.
Step 5: Apply the credit memo to the invoice
- Select + New.
- Under Customers, select Receive payment.
- From the Customer ▼ dropdown, select the appropriate customer.
- From the Outstanding Transactions section, select the invoice.
- From the Credits section, select the credit memo.
- Select Save and Close.
The uncollectible receivable now appears on your Profit and Loss report under the Bad Debts expense account.
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Step 6: Run a bad debts report
You can run an Account QuickReport to check all the receivables you tagged as bad debt. To do this:
- Go to Settings ⚙ and select Chart of accounts (Take me there).
- In the Action column of the bad debts account, select Run report.
Note: You can tell a bad-debt entity apart from your other customers by adding a note to their name:
- Go to Get paid & pay and select Customers (Take me there).
- Select the customer’s name.
- At the upper right, select Edit.
- In the Display Name as field, enter “Bad Debt” or “No Credit” after the customer name.
- Select Save.
