Writing off old invoice balances

Hey @kellyr2, great to see you again. We can have this done with some easy steps.

If the invoices you send in QuickBooks become uncollectible, you can record them as a bad debt and write them off. This way, it ensures your accounts receivable and net income stay up-to-date. Here are the steps to write off invoice balances.

To start, create an expense account and create bad items as a placeholder for the unpaid invoices. 

Next, make a credit memo and apply it to the invoice. Follow these steps:

1. Go to the + New button.
2. Click Credit memo.
3. Select the customer from the Customer ▼ dropdown.
4. In the Product/Service section, select Bad debts.
5. Under the Amount column, enter the amount you want to write off.
6. And in the Message displayed on the statement box, enter Bad Debt.
7. Select Save and Close.

These are the steps to apply the credit memo to the invoice:

1. Go to + New.
2. Under Customers, select Receive payment.
3. From the Customer ▼ dropdown, select the appropriate customer.
4. Under the Outstanding Transactions section, select the invoice.
5. From the Credits section, select the credit memo.
6. Select Save and Close.

You may visit this article as your reference when you reconcile an account to ensure your accounts in QBO are balanced: Reconcile an account in QuickBooks Online. 

If you have any further concerns about your transactions, please don't hesitate to post them here. Have a great day!

@kellyr2

The answer provided by @JamesAndrewM is incorrect.  Cash basis taxpayers should not use bad debt expense because you would need to record income to offset the bad debt expense and cash basis taxpayers only record income when payment is received.  If you create a credit memo and apply it, QB will book the income from the invoice and the expense from the credit memo, which you don't want since you never received payment.  That procedure is for accrual basis taxpayers only. 

The proper way for cash basis taxpayers to handle those invoices is to zero them out. 

Thanks for your response.  I knew, based on researching this topic here on this site, that bad debt expense would not work for my company.  When you say to zero out the invoices, how is that done?  Sorry if it's a stupid question but I want to make sure I do it correctly without affecting anything else.

Hello, Rainflurry.

I appreciate you for always sharing your knowledge about QuickBooks. This will definitely help other users as well in the future. Please keep on posting here in the Community.

Stay safe and have a great rest of the day.

This issue is driving me bonkers! You're correct- bad debt should never be on a cash basis payers income statement. Cash basis books should never show sales on the PL until the customer pays. If you put it to bad debt, youre taking an expense against income that never happened. It doesnt offset either like they say it does in cash books. Those instructions are literally for accrual only. I have a few clients who have cash basis books and I figured the same thing- just zero it out. But doesn't that have implications for sales tax? 

I have some information that I want to share. This will guide you on what you're going to do to ensure you're doing the right thing, Audarah1.

When you account for your bad debts depends upon whether you use the cash or the accrual basis of accounting. If you use the cash basis, you recognize income only when a payment is received. With bad debts you simply never record the income that you were expecting to get.

Bad debt can greatly impact sales. You'll want to reach out to your accountant and double-check with them if zeroing the invoice amount using the two different accounting methods has implications for your sales tax. Your accountant possesses more deep accounting knowledge and understanding with a strong foundation that understands your concern and your business as well.

Additionally, QuickBooks Online (QBO) provides several reports that show the different aspects of your business. You'll only have to customize them to make sure you'll get the information you need most. I've added this article for more details: Customize Reports In QuickBooks Online.

I'm happy if I could do this right for you. You can always get back to us if you have any questions about bad debts. We're always right here to help you anytime. Have a great day ahead!

I'm a licensed CPA... bad debts should never be on a cash basis payers books. I know what they are. Cash basis means the particular invoice that was paid is now on the Profit and Loss for ONLY the amount that was paid. If you bad debt the rest, you're going to dwindle sales down. You CANNOT take an expense based on income that you never reported in the first place. Stop telling customers this! 

@Audarah1 

I have a few clients who have cash basis books and I figured the same thing- just zero it out. But doesn't that have implications for sales tax?

On cash basis, QBO doesn't book the sales tax payable liability until the invoice is paid.  Therefore, zeroing out the invoice does not change sales tax payable.  Your state may have different rules, however.