Write off bad debt in QuickBooks Online

Learn how to write off bad debt in QuickBooks Online.

Bad debt means a customer owes you money but you can't collect it. They have a debt with you, but you know you aren't going to get paid. If your business uses accrual method accounting, you can sometimes write off bad debt as a deduction.

When invoices you send in QuickBooks become uncollectible, you need to record them as a bad debt and write them off. This ensures your accounts receivable and net income stay up-to-date. 

Step 1: Check your ageing accounts receivable

Review other invoices or receivables that should be considered as bad debt using the Accounts Receivable Ageing Detail report.

1. Go to Reports (Take me there).
2. Find and open an Accounts Receivable Ageing Detail report.
3. Check which outstanding accounts receivable should be written off.

Step 2: Create a bad debts expense account

If you haven't already, create a "bad debts" expense account.

1. Go to Settings and select Chart of accounts (Take me there).
2. At the upper right, select New to create a new account.
3. From the Account Type ▼ dropdown, select Expenses.
4. From the Detail Type ▼ dropdown, select Bad debts.
5. Select Save and Close.

Step 3: Create a bad debt item

If you haven't already, create a non-stock item as a place holder for the bad debt. This isn't a real item, it's just to balance the accounting.

1. Go to Settings and select Products & services (Take me there).
2. At the upper right, select New, and then Non-stock.
3. In the Name field, enter “Bad debts.”
4. From the Income account ▼ dropdown, select Bad debts.
5. Select Save and Close.

Step 4: Create a credit note for the bad debt

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

Step 5: Apply the credit note to the invoice

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

   The uncollectible receivable now appears on your Profit and Loss report under the Bad Debts expense account.

Step 6: Run a bad debts report

You can run an Account QuickReport to check all the receivables you tagged as bad debt. To do this:

1. Go to Settings and select Chart of accounts (Take me there).
2. In the Action column of the bad debts account, select Run report.

Note: You can tell a bad-debt entity apart from your other customers by adding a note to their name:

1. Go to Sales and select Customers (Take me there).
2. Select the customer’s name.
3. At the upper right, select Edit.
4. In the Display Name as field, enter “Bad Debt” or “No Credit” after the customer name.
5. Select Save.