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.

When invoices you send in QuickBooks become uncollectible, you need to record them as bad debt and write them off. This ensures your accounts receivable and net income stay up-to-date. 

Step 1: Check your ageing accounts receivable

Review other invoices or receivables that should be considered as bad debt using the Accounts receivable ageing detail report.

1. Follow this link to complete the steps in product
2. Find and open an Accounts receivable ageing detail report.
3. Check which outstanding accounts receivable should be written off.

Step 2: Create a bad debt expense account

If you haven't already, create a "bad debts" expense account.

1. Follow this link to complete the steps in product
2. Select New account to create a new account.
3. From the Account type ▼ dropdown, select Expenses.
4. From the Detail type ▼ dropdown, select Bad debts.
5. In the Account name field, enter Bad debts.
6. Select Save.

Step 3: Create a bad debt item

Create a non-stock item as a place-holder for the bad debt. This isn't a real item. It's just to balance the accounting.

1. Follow this link to complete the steps in product
2. Select New, and then select Non-stock item.
3. In the Name field, enter Bad debts.
4. Select the I sell this product/service to my customers checkbox.
5. From the Income account ▼ dropdown, select Bad debts.
6. Select Save and close.

Step 4: Create a credit note for the bad debt

1. Select + New or + Create.
2. Select Credit note.
3. Select the customer from the Customer ▼ dropdown.
4. In the Product/Service section, select Bad debts.
5. In the Amount column, enter the amount you want to write off.
6. In the Message displayed on statement box, enter Bad Debt.
7. Select Save and close.

Step 5: Apply the credit note to the invoice

1. Select + New or + Create.
2. Under Customers, select Receive payment.
3. From the Customer ▼ dropdown, select the appropriate customer.
4. From the Outstanding Transactions section, select the invoice.
5. From the Credits section, select the credit note.
6. Select Save and close.

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:

Follow this link to complete the steps in product

1. 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. To do this:

1. Follow this link to complete the steps in product
2. Select the customer’s name.
3. Select Edit.
4. In the Customer display name field, enter Bad Debt or No Credit after the customer name.
5. Select Save.

Result

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