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Newman1
Level 2

Bad Debt "Write Off" Process Adds To Income

I have some old bad debt I was cleaning up.

 

I followed the recommended process and procedure listed here:

https://quickbooks.intuit.com/community/Help-Articles/How-to-write-off-bad-debt/td-p/187834

 

Problem is that this process add to my income artificially inflating my P&L. This seems wrong.

 

I am running QB Desktop Pro Plus 2019

 

I dug around a little more and found this method of writing off bad debt. Same story, it adds to my income on my P&L for the year. That does not seem right. 

 

 
 
Write off bad debt

There are times when an invoice becomes non-collectible and you need to write it off and declare it as bad debt so you can clear the invoice out of your accounts receivable and reduce your net profit by its amount. This article outlines the steps for writing off bad debt.

 
Before you proceed, check and make sure your A/R Aging Detail report is correct. To check the report, go to Reports > Customers & Receivables > A/R Aging Detail.
  1. Create an account for bad debt.
    1. From the Lists menu, select Chart of Accounts.
    2. In the Chart of Accounts window, right-click anywhere and choose New.
    3. In the Add New Account window, click the Expense radio button then choose Continue.
    4. Assign the appropriate account number and in the Account Name field, type Bad Debt.
    5. Select Save & Close.
  2. Record the bad debt.
    1. From the Customers menu, choose Receive Payments.
    2. Select the name of the customer from whom you incurred the bad debt.
    3. Leave the amount field at 0.00.
    4. Highlight the line item that will not be paid.
    5. Select Discount & Credits Button.
    6. On the Discount tab, enter the bad debt amount in the Amount of Discountfield.
    7. In the Discount Account drop-down, choose the bad debt expense account created in Step 1, then click Done.
    8. Select Save & Close to record the payment.
19 Comments
QBsguru
Level 7

Bad Debt "Write Off" Process Adds To Income

The procedure for writing off bad debt is correct.  You are running your profit & loss statement on a CASH BASIS.  Your income will increase by the amount of the bad debt written off, but you will also have and expense (Bad Debt Expense) in the same amount, so they cancel each other out and net income remains unpaid.

 

When running a CASH BASIS profit and loss statement, income is not recognized until received.  When writing off bad debt in the manner described, you are literally recognizing the income and off-setting with an equal expense. 

 

If you do not want your income overstated, I suggest you issue a credit memo in the amount of the bad debt using income items on the credit memo.  Then apply the credit memo against the invoice.  This will reflect your true cash basis income without the off-setting bad debt expense.

 

Newman1
Level 2

Bad Debt "Write Off" Process Adds To Income

I thank you for your reply  QBsguru!

 

My bad debt is all aged 1 year or more. I am looking for a method that will not inaccurately skew my annual income numbers. I am using a cash basis. 

 

When I attempted the Credit Memo procedure for writing off the bad debt, that posted as income for the current year as well. Is this the correct application? I used this process:

 

Step 4: Create a credit memo for the debt

To create a credit memo:

  1. Select the Plus icon (+) on the Toolbar.

  2. Select the customer from the Customer drop-down list.

  3. In the Product/Service field, select the Bad Debt item you created.Enter the Amount of the unpaid invoices as a positive number.In the Memo field, enter Bad Debt.

    Select Save and close.

    1. Select the Plus icon (+) on the Toolbar.

    2. Under Customers, choose Receive Payment.

    3. Select the customer from the Customer drop-down list.

    4. In the Outstanding Transactions section, select the invoices to write off.
    5. Under Credits, select the credit memo you created.
    6. Make sure the Amount received is 0.00.
    7. Select Save and close.

  4. Step 5: Apply the credit memo

    To use the credit memo to write off the bad debt:

    1. Select the Plus icon (+) on the Toolbar.

    2. Under Customers, choose Receive Payment.

    3. Select the customer from the Customer drop-down list.

    4. In the Outstanding Transactions section, select the invoices to write off.
    5. Under Credits, select the credit memo you created.
    6. Make sure the Amount received is 0.00.
    7. Select Save and close.

stressedbyQ-B
Level 2

Bad Debt "Write Off" Process Adds To Income

This was so incredibly simple! So much so, that it makes feel as if I did it incorrectly. Would this process be the same for Accrual Basis? 

IamjuViel
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Glad to have you here, @stressedbyQ-B.

 

I'm here to share some information about the impact of your accounting preferences with writing bad debts.

 

With QuickBooks, you have the option to toggle your accounting preferences between accrual and cash basis. This feature greatly impacts the data included when generating reports in your account. Thus, you'll still use the same process in writing off bad debt.

 

Feel free to click the Reply button if you have other questions about writing off bad debt in QuickBooks Desktop. I'm always here to help.

QBsguru
Level 7

Bad Debt "Write Off" Process Adds To Income

If this worked for you, please mark it as solved.  Glad I could help.

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

So, I did this, and it works, except, the invoices were classed to different properties, but the credit memos all ended up in the general class, not the property classes. Any way to get this to work short of doing a journal entry?

IamjuViel
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Hello, @whizbank.

 

Depending on how you set up your class tracking feature in QuickBooks, both invoice and credit memo should be associated with the same class.

 

Let's open and compare the transactions. Then, manually change its class tracking. I've got a screenshot for your visual reference.

 

3004.GIF

 

You can check these articles for more insight about applying credit memo:

Swing by here if you have other questions about tracking your transactions in QuickBooks. I'm always here to help.

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

Thank you for the screen shots. I see that I don't have the same classes on both, not sure if that's because I did the credit memo in QB desktop and something happened in transfer, or, if I didn't use the class because I already had it as inactive. On desktop it didn't seem to do this in the same way. Thanks for getting back to me so quickly

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

Hi, since you have been so helpful maybe you can help me figure out something else. In Account and Settings, advanced, I have the accounting method set as cash basis. Yet, when I go to run a standard report, they keep coming up as accrual. these are not reports I have customized, just the regular standard report. Is there something else I need to do so cash basis statements load as a default?

Thanks

JonpriL
Moderator

Bad Debt "Write Off" Process Adds To Income

I"m happy you're all set with the question you asked, @whizbank!

 

You're on the right track in selecting Cash as your accounting method directly from your Accounts and Settings. From here, all the standard reports you pull will show you its transaction detail base on the cash accounting method.

 

Did we clicked on Save and then Done after choosing the appropriate settings? This way, the system will also update the changes you've made in your account.

 

Once done, let's consider logging into your QBO account using a private browser so we can isolate this issue. To do so:

  • Google Chrome: Ctrl Shift N
  • Internet Explorer and Mozilla Firefox: Ctrl Shift P
  • Safari: Command Option P

If this works, you can clear your regular browser's cache so the system can start fresh. But if you get the same results while using a private browser, use a different browser instead.

 

Lastly, here's a few articles you can read to learn more about how you can manage your account and other related tasks: Help articles for QuickBooks Online.

 

Keep me posted in the comments if you have any other questions. I'll be here to lend a hand.

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

I did clear the cache in firefox and I still have reports coming up as accrual instead of cash basis. It also happens if I am in Chrome. I want to do management reports and can't because they are coming up accrual instead of cash basis.

Jovychris_A
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Hi @whizbank.

 

Let's make sure that you're business is running cash basis reporting. You can review the Advanced settings is set to Cash and Save the method as what Jonpril suggested.
1.PNG

 

Since the issue persists, I would recommend calling our Care Support Team. They have tools to create a case and escalate this to our product Engineers. They'll also ask for screenshots to carry this over as additional details for the investigation.

 

Here's how:

  1. Go to Help ? on the top right.
  2. Click Contact Us.
  3. Type your query and then hit Let's talk.
  4. Hit Start messaging/Get a callback.
    Help.PNG

I've added this video article as your reference in running different financial reports: Run reports in QuickBooks Online.

 

Just in case you wanted to customize a standard report in QBO, you can view this video article for tips and tricks: Customize reports in QuickBooks Online.

 

I'll be glad to help if you have to more questions about QuickBooks. I'll keep my notifications open. Stay safe and healthy!

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

So I did a chat with support, which I'm attaching here. Basically they told me that they checked with engineering and that they said there is no way to make the reports default to cash, that what you put in the advanced settings has nothing to do with the reports. That, of course, was not my understanding but maybe I am missing something?? 

 

This has become a problem with doing management reports, because I want them issued as cash basis, and, it appears that you have no control over cash basis/accrual basis in the management reports, it just uses the default, so now my reports are getting issued as accrual which I definitely don't want. That's a big flaw in the management reports, even if they don't give you a choice, which they should, they should at least put the basis on the statements.

MaryLandT
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Hello there, whizbank,

 

Thanks for sharing your experience with our Chat Support Team. 

 

QuickBooks Online allows you to memorize a report based on your settings. Hence, you'll want to save it on a cash basis. That way, you don't have to go through the customization again. QuickBooks saves only the report settings based on what you've filtered. 

 

To do so, the following steps outlined below will guide you through the process:

 

  1. Find and display the report you want to memorize.
  2. Once the report is customized the way you like it, select Run report.
  3. Choose Cash for the Accounting method, then Save customization.
    savereportincashbasis.PNG
  4. In the Custom report name field, enter a descriptive name for the report.
  5. If you want to add this report to a group, select Add this report to a group, then choose an existing group or create a new one. 
  6. If you want to share the report with other users, select Share with.
  7. Once the desired options are set, select Save.

You need to save the custom report again to preserve the changes if you change the customization on it.

 

I've listed these articles below to help you personalize your financial statements depending on your business needs:

Stay in touch if there's anything else you need. I'm always right here to help.

 

Thank you and stay safe!

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

So, earlier in this string, Jonpril said

You're on the right track in selecting Cash as your accounting method directly from your Accounts and Settings. From here, all the standard reports you pull will show you its transaction detail base on the cash accounting method.

 

Are you telling me that is not correct?

I know how to customize reports, etc. but sometimes it's easier to just pull up a standard report and it's frustrating to have to change the basis every time.

LieraMarie_A
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Hi there, @whizbank.

 

When you set Cash basis as the default accounting method, this will be applied to all of your standards reports. However, it will not be applied to the customized reports since it follows the accounting basis you've chosen upon saving them.

 

Let me guide you on how to create a new template in the Management reports tab. This time, you'll add your cash basis customized reports in this template.

  1. Go to Management reports tab.
  2. Select any template. Then under the Action column, click the drop-down arrow and select Copy.
  3. Choose the new copy and select Edit from drop-down arrow.
  4. Enter a new template name.
  5. Choose the Reports section.
  6. To exclude reports, select the report and click the Delete icon.
  7. To add reports, click Add new report.
  8. Choose a report in the New report drop-down arrow.
  9. Select Save and close.

 

You can check our Management Reports guide to give you a better idea of how they work.

 

Please let me know if you need further assistance. I'll be around to help. Have a great day.

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

I appreciate the help, but no one seems to be grasping my point. I do have the company set to CASH basis, yet the STANDARD reports are still coming up as ACCRUAL by default. I understand how to change them to cash basis, I know how to save as custom, I get that how is save them is how they come up. 

I just think it would be nice if the standard reports worked the way everyone has told me they are supposed to as you indicate here. My point is that I am not experiencing that, and, when told to get help from customer service, they basically told me that was WRONG and that setting the company to a basis doesn't affect the reports.

 


@LieraMarie_A wrote:

Hi there, @whizbank.

 

When you set Cash basis as the default accounting method, this will be applied to all of your standards reports. However, it will not be applied to the customized reports since it follows the accounting basis you've chosen upon saving them.

 

 

Ashley H
QuickBooks Team

Bad Debt "Write Off" Process Adds To Income

Good afternoon, @whizbank.

 

Thanks for confirming that your Company Preferences is set to Cash Basis. I'd like to provide a small insight into how Reports work in QuickBooks Online. Summary Reports can be on Cash or Accrual Basis and Detail Reports will always be set to Accrual.

 

I'd like to ask a couple of questions to learn more about your Accounting Preferences:

If you can get back to me with more details, then I'd be happy to assist you further. Talk to you soon!

 

 

 

 

**Say "Thanks" by clicking the thumb icon in a post

**Mark the post that answers your question by clicking on "Accept as solution"

whizbank
Level 2

Bad Debt "Write Off" Process Adds To Income

I'm not using the sales tax center. Since I'm cash basis, I'm using all cash basis reports. I have a bunch customized, but sometimes if I'm searching for something it's easiest to click a detail report and look for whatever I'm searching for. Thank you for telling me that detail  reports default to accrual that basically answers my question, it's not anything I'm doing wrong, it's just a function of the program that isn't well explained in the documentation.

I appreciate your help.

Thanks

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