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LA Crane
Level 1

how to handle uncollectible debt with cash basis accounting

I use Cash Basis accounting method.  I have customer who will not pay an invoice.  I want to apply credit memo to it.  How do I fill out Credit Memo?  There is some labor that is unpaid and also some supplies that have not been paid for and sales tax is therefore not collectable.  This is not a traditional "Bad Debt" because I am not using the Accrual Method. 

 

Any help would be greatly appreciated!

Solved
Best answer January 26, 2020

Best Answers
AlcaeusF
Moderator

how to handle uncollectible debt with cash basis accounting

Thank you for posting here in the Community, @LA Crane.

 

You can follow the normal process on how to create a credit memo and apply it to the invoice. You're on the right path with using this type of transaction to affect Sales Tax reporting as well.

 

Set the date of the credit memo as to when the Write off is happening. Here's how:

 

  1. Click the + New button.
  2. Select Credit Memo.
  3. Fill in necessary information.
  4. Hit Save and close.
  5. Search for the invoice and press Receive payment
  6. Make sure to put a check mark beside the invoice and credit memo. 
  7. Tick Save and close

I also recommend seeking expert advice from an accountant to ensure your books will be accurate. They'll be able to guide how to deal with the invoice without recording them incorrectly in QuickBooks.

 

For additional reference, visit the Enter and apply a credit memo or delayed credit article. It provides the steps on how to create and apply it to an invoice.

 

If there’s anything else I can help you with, click the Reply button and post a comment. I’ll be right here ready to help you. Have a good one.

View solution in original post

6 Comments 6
AlcaeusF
Moderator

how to handle uncollectible debt with cash basis accounting

Thank you for posting here in the Community, @LA Crane.

 

You can follow the normal process on how to create a credit memo and apply it to the invoice. You're on the right path with using this type of transaction to affect Sales Tax reporting as well.

 

Set the date of the credit memo as to when the Write off is happening. Here's how:

 

  1. Click the + New button.
  2. Select Credit Memo.
  3. Fill in necessary information.
  4. Hit Save and close.
  5. Search for the invoice and press Receive payment
  6. Make sure to put a check mark beside the invoice and credit memo. 
  7. Tick Save and close

I also recommend seeking expert advice from an accountant to ensure your books will be accurate. They'll be able to guide how to deal with the invoice without recording them incorrectly in QuickBooks.

 

For additional reference, visit the Enter and apply a credit memo or delayed credit article. It provides the steps on how to create and apply it to an invoice.

 

If there’s anything else I can help you with, click the Reply button and post a comment. I’ll be right here ready to help you. Have a good one.

LA Crane
Level 1

how to handle uncollectible debt with cash basis accounting

Thank you!  I truly appreciate your quick and detailed answer. 

Best regards,

LACrane

nikkit1
Level 2

how to handle uncollectible debt with cash basis accounting

Hi  I have found that if you use a credit memo  to write off the bad debt, it does NOT work in cash meth books. It makes the revenue all of a sudden show up! That's wrong! I would love to hear if there is a way to write off the invoice WITHOUT making anything show up at revenue. 

Thanks,

Nikki

GlinetteC
Moderator

how to handle uncollectible debt with cash basis accounting

Thanks for joining this conversation, Nikki. Let's get this figure out together.

 

You can create a Credit Memo of the same item to the invoice so it zeroes the income. The credit amount can be issued in your customer's account as a return and apply it to their invoice. This way, it clears the amount out from your accounts receivable and reduces your net profit. Here's how:

 

  1. Go to the Customers menu, select Create Credit Memos/Refunds.
  2. From the Customer:Job drop-down, select the customer name.
  3. Enter the items, then select Save & Close.
  4. On the Available Credit window, select Apply to an invoice.
  5. Click OK.
  6. On the Apply Credit to Invoices window, select the transaction.
  7. Click Done.

Right after, run a report to ensure the total is zero.

 

Please check these articles for more details:

 

Tag me directly if you have anything else to add. Keep safe!

kathysmith1740
Level 1

how to handle uncollectible debt with cash basis accounting

I have a few invoices from previous years that I would like to do this for. Do I set the dates to the year end of the original invoice or just go ahead and post them in this year? Does it make any difference in Cash Basis if the invoice was never paid?

LieraMarie_A
QuickBooks Team

how to handle uncollectible debt with cash basis accounting

Hi there, @kathysmith1740.

 

Under cash basis accounting, revenue and expenses are recognized when the cash is received and paid, respectively. Though creating a credit memo would only offset the invoice amount giving you zero income, it still affects your financial reporting. I'd recommend seeking professional advice from your accountant about this. They can help you properly handle this type of scenario. If you don't have one, I can help run a search.

 

Here's how:

  1. Visit the ProAdvisor site.
  2. Enter your city or ZIP code in the Location field. It will display a list of accountants or bookkeepers near you.
  3. You can also filter the service provided, industry served, and product supported to narrow down the results. 

 

Please check these articles to learn the difference between creating a credit memo and writing off bad debt:

 

Feel free to visit the Community again if you need help with QuickBooks. We're always here to help. Have a great day ahead.

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