Giving credit to clients is a part of running a business. Unfortunately, there are some cases in which a client is unable to make payments on their overdue debts. So, fear not! Your quest for ‘How do I record bad debt in QuickBooks?’ is solved in this article!
Here is an explanation of the steps involved in recording bad debt in QuickBooks to guarantee a quick and easy process:
Open a Bad Debt Expense Account
To track bad debt expenditures in QuickBooks, you need to have a separate account. This is how to make one:
QuickBooks Online
- Go to settings.
- Navigate to the Chart of Accounts.
Select Bad Debts (or a preferred name) from the Detail Type dropdown.
- Enter a descriptive name (e.g., Uncollectible Accounts Expense)
- Click Save and Close.
QuickBooks Desktop
- Navigate to Settings and then Charts of Accounts.
- Go to Account > New.
- Click Continue after selecting Expense.
- Click Save and Close after entering ‘Bad Debt’ or a name that sounds close.
Document the Negative Debt
Depending on your desire, there are two primary ways to report bad debt in
QuickBooks:
Credit Memo
This technique creates a credit memo that immediately lowers the customer’s account balance.
- Open QuickBooks Online by going to Customers > Credit Memos or QuickBooks Desktop by going to Sales > Credit Memos.
- Choose the client with a bad debt.
- Select the generated expenditure account or “Bad Debts” from the list of available products and services.
- In the amount area, enter the amount of the bad debt.
- In the memo section, write a concise statement such as ‘Writing off bad debt.’
- Choose to Save or Close and Save.
Accept Discounted Payments
This approach uses the current invoice and reduces it by the amount that has been written off.
- Open QuickBooks Online. Select Customers > Receive Payments or QuickBooks Desktop by selecting Sales > Receive Payments.
- Choose the client that owes you money.
- Either type in the invoice number or choose it from the list.
- Enter $0.00 as the payment amount.
- Select Credits and Discounts.
- In the Amount of Discount area, enter the amount of bad debt.
- In the memo area, provide a remark such as ‘Writing off bad debt.’
- Choose to Save or Close and Save.
Important Reminder
Regardless of your approach, ensure you have the proper paperwork to back up the bad debt write-off. This contains:
- Court documents
- Correspondence logs
- Collection efforts
Get in touch with our QuickBooks & Bookkeeping services.
The Bottom Line
So, now you know the detailed solution to ‘How do I record bad debt in QuickBooks?’.
Follow these procedures while recording bad debt in QuickBooks. You can keep accurate financial records and portray a fair image of your company’s financial health. Minimize future bad debt issues by implementing efficient credit management procedures and routinely reviewing your accounts receivable.
