How to Write Off Bad Debt in QuickBooks Online & Desktop: A Step-by-Step Guide

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Unpaid invoices can be frustrating for any business. When you determine that an invoice is uncollectible, writing it off as bad debt ensures that your financial records remain accurate. QuickBooks Online and QuickBooks Desktop provide streamlined methods for handling bad debt. This guide will walk you through the steps for both versions.

What is Bad Debt in QuickBooks?

Bad debt refers to outstanding invoices that customers fail to pay. Instead of leaving these invoices open indefinitely, QuickBooks allows you to write them off, ensuring your financial statements reflect actual revenue.

Writing Off Bad Debt in QuickBooks Online

Step 1: Create a Bad Debt Expense Account

Log into QuickBooks Online.
Click on Settings (Gear Icon) > Chart of Accounts.
Select New.
Under Account Type, choose Expenses.
In Detail Type, select Bad Debt.
Name the account "Bad Debt Expense" and click Save and Close.

Step 2: Record the Bad Debt

Navigate to Sales > Customers.
Locate and open the unpaid invoice.
Click More > Credit Memo.
In the Product/Service section, select Bad Debt Expense.
Enter the invoice amount.
Click Save and Close.

Step 3: Apply the Credit Memo

Go to + New > Receive Payment.
Select the customer name.
Choose the credit memo as payment for the unpaid invoice.
Click Save and Close.

Your books now reflect the write-off, ensuring accurate financial statements.

Writing Off Bad Debt in QuickBooks Desktop

Step 1: Create a Bad Debt Expense Account

Open QuickBooks Desktop.
Click Lists > Chart of Accounts.
Select Account > New.
Choose Expense and click Continue.
Name it "Bad Debt Expense" and click Save & Close.

Step 2: Create a Credit Memo

Click Customers > Create Credit Memos/Refunds.
Choose the customer name.
In the Item column, select Bad Debt Expense.
Enter the invoice amount.
Click Save & Close.

Step 3: Apply the Credit Memo to the Invoice

Click Customers > Receive Payments.
Select the customer.
Choose the credit memo and apply it to the invoice.
Click Save & Close.

Verifying Bad Debt Write-Off

To confirm that the bad debt has been recorded correctly:

In QuickBooks Online, go to Reports > Profit and Loss and check for the bad debt expense entry.
In QuickBooks Desktop, navigate to Reports > Company & Financial > Profit & Loss Standard.

Conclusion

Writing off bad debt in QuickBooks Online and Desktop ensures accurate financial reporting and tax compliance. By following these steps, you can maintain clean records and keep your business finances in order.

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