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Need to clear out balance, send to bad debt and clear A/R.

Forum|Forum|7 years ago
December 11, 2018
13 replies
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I've got a client who will not be paying. I have a balance of 256.07. I was told to send it to bad debt and clear out A/R. I'm seeing about a million steps on how to do this. Can someone help me? I'm using qb premier contractor edition 2016. I went to receive payments and put in 256.07 as a credit/discount and used the account bad debt. Is that all I need to do?

QuickBooks Desktop

Best answer by Rustler

@ suzette

The article reference by the intuit rep, sort of work, but bypasses reporting - I suggest you do not use it

create a non inventory item named bad debt, and select a bad debt expense account on the non inventory item screen (create the bad debt expense account first if you need to)

create a credit memo for the customer, use that bad debt item, enter the amount, save

in receive payments, select the customer, the invoice and apply the credit memo, save

RustlerAnswer

Level 15

@ suzette

The article reference by the intuit rep, sort of work, but bypasses reporting - I suggest you do not use it

create a non inventory item named bad debt, and select a bad debt expense account on the non inventory item screen (create the bad debt expense account first if you need to)

create a credit memo for the customer, use that bad debt item, enter the amount, save

in receive payments, select the customer, the invoice and apply the credit memo, save

J

jkvz

Hi,

I recorded a bad debt by making a bad debt expense account and also made it in the item list. Then, I created a credit memo for the customer for that amount. The line item, bad debt expense, showed up on my P&L, but it did not deduct it from the bottom line profit--why is that?

qbteachmt

Level 11

Good day, Julie.

When you use the discount to offset the bad debt, it will deduct from the Profit and Loss report.

Bad debt is a loss that a business incurs when a customer is not willing to pay. This will lower the profit/income.

If you have other questions, you can always leave a comment.

This is the Worst solution: "If I void the credit memo I created"

The Credit Memo has an Item listed on it; this is Controlling your data flow. You linked it to an Expense account or an Income account. The reason to link it to an Income account is because your tax form has that same provision:

Income

Returns/Allowance <== Your Write off account

Your QB file should have the same concept. Use One Income account only for running negative, the same as you need to report for taxes.

Do Not use the discount Function; I showed how it bypasses much of the reporting.

"and use a discount to zero the bad debt, then will this deduct the amount from my bottom line on the P&L?"

Here's where you are confused: You see the Income from the "paid invoice" that got the Credit Memo applied, and you see the Write Off. The Net = 0.

There is no Further deduction.

"The bad debt is a substantial amount, $20,000, so I wanted to make sure I did it correctly.

Is bad debt supposed to lower the amount of a profit?"

Let's review Cash and Accrual Basis:

If this is an invoice from Dec, and you are an Accrual Basis entity, you reported $20,000 income, even though it was not yet paid. If you Credit memo dated in Jan, you see the negative $20,000.

If this is a Cash Basis entity, the Income never even shows until the invoice is Paid. So, it doesn't matter how old or the date on the invoice. the Credit Memo becomes the "paid in lieu of funds" activity and the CM date, in the reporting, will then reveal the Invoice and the Credit memo and they wash away to 0. You don't see More write off. You only see the Wash Away.

Please see my attachment from QB Desktop.

JessT

Moderator

Hi Suzette.Horner,

I hate recording bad debts, but this is what happens when customers can’t pay anymore.

Thanks for taking the time to search for it in the Community. The steps you’ve tried were correct. That should clear the Accounts Receivable.

We have an official article for recording Bad Debts in QuickBooks Desktop. You may want to check it out.

Please get back to me if you have other questions.

qbteachmt

Level 11

"I went to receive payments and put in 256.07 as a credit/discount and used the account bad debt. Is that all I need to do?"

I have an attached image that shows you why this is Not a good method to use. You just created Out of Balance reporting.

You create an Other Charge Type item linked to the account you want to track the Write Off against. The Tax forms call this "Returns/Allowances" and it is in the Income part of the tax form. This is called Contra-Accounting.

Use that item on a Credit memo for the customer name, and apply this to the Open balance, to close out that amounts.

"create a credit memo for the customer, use that bad debt item, enter the amount, save

in receive payments, select the customer, the invoice and apply the credit memo, save"

The Apply to Open Charges is right at the top of the Credit Memo; there is an icon already there. You don't need to go to Receive Payments, as well.

S

suzeta20Author

Thank you so much!

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