Writing off bad debt in QuickBooks ensures your financial records reflect the true value of your accounts receivable. Here's a step-by-step guide to do it correctly:
Create a Bad Debt Expense Account:
- Go to the Lists menu and select Chart of Accounts.
- Click New to create an expense account named "Bad Debt."
- Save and close.
Create a Credit Memo:
- From the Customers menu, select Create Credit Memo/Refunds.
- Choose the customer with the unpaid invoice.
- Use the item "Bad Debt" and enter the amount to be written off.
- Save the credit memo.
Apply the Credit Memo to the Invoice:
- In the Customers menu, select Receive Payments.
- Choose the customer and apply the credit memo to the outstanding invoice.
Run Reports to Verify:
- Ensure the bad debt is reflected in your Profit & Loss and that the accounts receivable is reduced accordingly.
By following these steps, you will remove uncollectible amounts without impacting your cash flow, and your reports will accurately show the loss. Always consult with your accountant for tax implications when writing off bad debt.
