Writing off bad debt in QuickBooks Online is essential for maintaining accurate financial records. Bad debt refers to money owed by customers that cannot be collected. This is pertinent for businesses using the accrual method of accounting, as it ensures accounts receivable and net income are up-to-date and correct.

Identifying Bad Debt

To start, you need to identify which receivables are uncollectible. Utilize the Accounts Receivable Aging Detail report to review outstanding invoices. This report helps pinpoint those debts that should be written off.

Steps to Write Off Bad Debt in QuickBooks Online

Step 1: Check Aging Accounts Receivable

Navigate to the Reports section and select the Accounts Receivable Aging Detail report. Review this report to identify invoices that are likely uncollectible and need to be written off.

Step 2: Create a Bad Debts Expense Account

Go to Settings > Chart of Accounts > New. Select Account Type: Expenses, Detail Type: Bad debts, and name it “Bad Debts”.

Step 3: Create a Bad Debt Item

Navigate to Settings > Products & Services > New (Non-inventory). Name the item “Bad Debts” and set the Income account to “Bad Debts”.

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Step 4: Create a Credit Memo for the Bad Debt

Select + New > Credit Memo. Choose the customer, select Bad Debts in the Product/Service section, enter the amount, and add a message such as “Bad Debt“.

Step 5: Apply the Credit Memo to the Invoice

Select + New > Receive Payment. Choose the customer, select the invoice from Outstanding Transactions, and the credit memo from the Credits section.

Step 6: Run a Bad Debts Report

Go to Settings > Chart of Accounts. In the Action column of the bad debts account, select Run report to generate a detailed report.

Additional Tips

Consider consulting with a QuickBooks-certified bookkeeper for monthly categorizing transactions and bank reconciliation. They can provide expert advice and further assistance with managing your bad debts.

By following these steps, you ensure that your financial statements accurately reflect your receivables and income, thereby promoting healthy financial management.

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