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Level 1

Profit & Loss

We use cash accounting. In order to zero out an old invoice while tracking the date/action taken, we credited the invoice with the balance and posted it to uncollectible income. We did not want to simply credit the invoice with a customer discount, since we did the work and was owed the money. The problem now is that our P&L is showing a deduction to income that shouldn't be there as we did not previously count the unpaid in our prior profits. I can't see how to simply make QB ignore the uncollectible written off income expense. How can cash accounting companies handle these situations?

QuickBooks Team

Profit & Loss

Welcome to the Community, @PAC-3.


QuickBooks handles uncollectible income by writing off bad debt. This way, those invoices will zero out and will not show a deduction to your income in your Profit and Loss report.


To get started, let's first create a bad debt expense account. Here's how:


  1. Click Accounting from the left menu, then select Chart of Accounts.
  2. Select New to create a new account.
  3. From the Account Type drop-down, select Expenses.
  4. Choose Bad debts in the Detail Type drop-down.
  5. Enter Bad debts in the Name field, then click Save and Close.

Then, create an item for the bad debt.


  1. Click the Gear icon and select Products and Services.
  2. Select New, then choose Non-inventory.
  3. Enter Bad debts from the Name field.
  4. From the Income account drop-down, select Bad debts.
  5. Click Save and Close.

Once done, you can now create a credit memo for the bad debt.


  1. Click the + New button, then select a Credit memo.
  2. Choose the customer from the drop-down.
  3. Select Bad debts in the Product/Service column.
  4. Enter the necessary information and the amount.
  5. Click Save and Close.

After following the steps, let's apply the credit memo to the invoice to write off.


  1. Click the + New button, then select Receive payment.
  2. Select the customer from the drop-down.
  3. From the Outstanding Transactions section, select the invoice.
  4. Choose the credit memo in the Credits section.
  5. Click Save and Close.

Once you've finished the steps, your uncollectible income will zero out and not show a deduction to your income in your Profit and Loss report.


Here's an article you can read for more details: Write off bad debt in QuickBooks Online.


As always, feel free to visit our QuickBooks Community help website if you need tips and related articles in the future.


Please touch base with me here for all of your QuickBooks needs, I'm always happy to help. Have a good day.

Level 1

Profit & Loss

Thank you so much. I already did all of this before writing, except my "bad debt" was an income category rather than expense category.  Respectfully, even changing it from "other income" to "other expense" my P&L still inaccurately reflects a false deduction to income (albeit net vs. gross) because the expense, which really isn't an expense, still can't be excluded.  Is that accurate - that there is no way to customize a P&L such that cash accounting companies can track, inside of QBO, invoices that never got paid while removing them from A/R register and from constantly showing up as unpaid invoices? I have to discount the charges to make my invoice zero out (while backdating, obviously, or it will still deduct income in the current fiscal year in the form of a discount) and then track in a spreadsheet or CRM? If that is true, it seems like a serious flaw.

QuickBooks Team

Profit & Loss

Hi @PAC-3,


Considering an unpaid invoice as a discount will only result in a customer's discount and won't be zeroed out in your Profit and Loss report. Since you've incurred an income from your invoice, you'll have to pair it with a credit memo to zero out bad debt.


On the other note, Profit and Loss report has an option to view the cash accounting. Just make sure to record your transactions correctly in QuickBooks. I'm also attaching these awesome articles for your reference.



Should you have other questions or concerns about reports, please reach out anytime. The Community has your back. Thanks for dropping in and have a lovely day.

Level 1

Profit & Loss

Hello, I am grateful for the additional reply; but I don't think the QB Team is actually understanding the problem I've encountered.  I will simplify it through enumeration:


1) The unpaid invoice was from 2014. It was only partially paid.

2) A credit memo (tied to a "bad debt" category to zero out the invoice) was issued in 2019.

3) An amount equal to the write off on the credit memo is deducted from the income on 2019's P&L, even though a) the report is in cash accounting view, and b) there is no corresponding income to offset the deduction.


The actual problem is that the P&L cannot be customized.  If it is cash accounting, the bad debt should be ignored in 2019 since it applies to an invoice dated 2015; however, QBO does not ignore it and there does not seem to be a way for me to delete it without exporting to Excel and deleting it there. That is not ideal since QBO acts as the general ledger and houses all of the company's accounts. Reports should be accurately generated from the source.  I only brought up a customer discount, which would actually zero the invoice, to demonstrate that it is an equally flawed alternative as it would still deduct from income that wasn't there.


Please see the compiled screen shot of the report, showing a cash accounting filtered P&L. As you can see, there is a bad debt expense deduction from the net operating income. Even if the bad debt category was "other income" rather than "other expense" it would still deduct from the income, only it would factor it in at the beginning instead.

QuickBooks Team

Profit & Loss

Thank you for explaining more about your concern, @PAC-3.


The reason why your bad debt shows as a deduction in your P&L because you're using "other income" as your account type. Bad debt should be under "expense account" because it's a loss. 


You are on the right track in deleting the bad debt which is exporting it to Excel. To add, you can customize your report to only see your income and expense except for the bad debt. I'll guide you how:


  1. From your Profit and Loss Report screen, click Customize.
  2. Click the arrow beside Filter.
  3. In the Distribution Account ▼, you can manually choose all the income and expense excluding the bad debt account.
  4.  Once done, click Run report.

You can also memorize reports in QuickBooks Online to easily pull it up in the future.


Here's how:

  1. Once the report is customized the way you like it, click Save customization.
  2. In the Custom report name field, enter a descriptive name for the report.
  3. Click Save.

If you have other questions, please feel free to drop a comment.

Level 1

Profit & Loss

Good morning,


Clearly this needs to be escalated. I've had three responses from three QB reps and sadly none of you has actually grasped the concern. It is disconcerting that three random team members have shown themselves to be unqualified at their jobs.


No, the issue is NOT that bad debt is tied to income. Besides the fact that you can't have a loss if you never had a gain, the category for bad debt is moot.  I will state the problem one last time:


1) A credit memo to zero an invoice results in a reduction to income. The only thing the category type changes is where the inevitable deduction to income appears. Bad debt income deducts from gross income; bad debt expense deducts from net profits. 

2) The bad debt category cannot be excluded from the P&L, despite what the last representative claims. I've attached another screen shot to prove that my only customization is the ability to show details versus totals. That's it.


Please have a qualified person actually respond. This entire experience has been frustrating, eye-opening and, most importantly, a complete waste of hours.  As I see it, I actually only have two real choices:

1) Delete my credit memos and leave the invoices unpaid. I will never be able to zero them out and my customer will always have a balance owed and my dashboard will always show unpaid invoices.

2) Keep my credit memos & bad debt product, zero the invoices, and never be able to generate a P&L directly from QBO.


One solution I wanted to try is to tie the bad debt category to A/R, which should be allowed since that asset is not a balance sheet account using the cash basis method.  A work around seems to be exporting to Excel, deleting the bad debt category, and manually re-calculating my total income.


I really, really hope that the bottom line does not boil down to me using Simple Start. This tier is advertised as having limited reporting, not inaccurate reporting.  A customer should reasonably expect to be able to zero an invoice and generate, at the very least, an accurate income statement and balance sheet.


Please have a qualified person respond. 

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