How to write off bad debt in QuickBooks Online

Clear unpaid invoices and balance your accounts receivable by writing off bad debt. This process allows you to account for uncollectible payments as an expense.

Overview

Bad debt refers to accounts receivable that you are unlikely to collect. Writing it off clears the open invoice from your books and records the loss.

If your business uses the accrual method of accounting, you can sometimes write off bad debt as a deduction. We recommend consulting your accountant before writing off any debt.

Note: If you’re using QuickBooks Desktop, see how to write off bad debt.

In this article, you'll learn how to:

• Review aging receivables
• Create a bad debts expense account
• Create a bad debt item
• Create a credit memo for the bad debt
• Apply the credit memo to the invoice
• Run a bad debts report
• (Optional) Add a distinguishing note

Step 1: Review aging receivables

Identify which invoices should be considered bad debt by reviewing your aging report.

1. Go to Reports and select Standard reports (Take me there).
2. Find and open an Accounts receivable aging detail report.
3. Review which outstanding accounts receivable should be written off.

Step 2: Create a bad debt expense account

You need a specific expense account to track these written-off amounts.

1. Go to All apps , select Accounting, then select Chart of accounts (Take me there).
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-inventory item to use on credit memos. This connects the bad debt expense account to the transaction.

1. Go to All apps , select Sales & Get Paid, then select Products & services (Take me there).
2. Select New product/service ▼ dropdown, and then select Non-inventory item.
3. In the Name field, enter "Bad debts".
4. Select the I sell this to my customers checkbox.
5. From the Income account ▼ dropdown, select Bad debts expense account you created in Step 2.
6. Select Save and close.

Step 4: Create a credit memo for the bad debt

1. Select + New or + Create.
2. Select Credit memo.
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. Enter the required details if any.
8. Select Save and close.

Step 5: Apply the credit memo 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 memo.
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:

1. Go to All apps , select Accounting, then select Chart of accounts (Take me there).
2. In the Action column of the bad debts account, select Run report.

Result: The uncollectible receivable appears on your Profit and Loss report under the Bad debts expense account.

(Optional) Add a distinguishing note

You can tell a bad-debt entity apart from your other customers by adding a note to their name.

1. Go to All apps , select Customer Hub, then select Customers (Take me there).
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.

Related links

• Run an accounts receivable aging report
• Record invoice payments