Writing off Bad Debt in Accounts Receivable (QuickBooks Online)

Writing off Bad Debt in Accounts Receivable

Occasionally businesses find themselves in the position of writing off client invoices that will never be paid. These instructions will help you do this within QuickBooks Online.

These steps are set up and will only be performed once.

Set Up the Item “bad debt” in QuickBooks Online:

  1. Click on accounting on the left side of the screen
  2. Click on chart of accounts
  3. Click on new in the upper right hand corner
  4. Change the account type to income and name the account bad debt
  5. Click save and close
  6. Click on the big gear icon in the upper right hand corner
  7. Click on products and services under the column called lists
  8. Click on new
  9. Click on service
  10. Name this service Bad Debt
  11. Change the income account from income to bad debt
  12. Click save and close

Write Off the Bad Debt in QuickBooks Online

  1. Click on the plus sign (quick create) in the upper right hand corner
  2. Click on credit memo under the column called customers
  3. Select or enter the name of the customer whose invoice(s) is being written off
  4. Choose Bad Debt as the product / service
  5. Enter the amount being written off into the column for rate
  6. Click on save and close
  7. Click on the plus sign (quick create) in the upper right hand corner
  8. Click on receive payment under the customers column
  9. Select or enter the name of the customer whose invoice(s) is being written off
  10. Check the box that corresponds to the invoice(s) being written off
  11. Check the box for the credit memo you just created
  12. Scroll up and confirm the dollar amount in bold is zero, if it is not, change the amount received to zero dollars
  13. Click save and close

Click here to download these instructions as PDF

Click here for a link to the QuickBooks Online sample file / sandbox

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This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Gentle Frog, LLC does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Gentle Frog, LLC does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers and viewers should verify statements before relying on them.

7 Responses

  1. Thank you!! Straight to the point and so easy to follow your instructions. Made my day 🙂

  2. Hello,
    This well explained and easy to follow.
    I’m having some challenges though and it might be because I am in Canada and have QBO Canada and it is 2 years following the initial post.
    1. The easiest challenges I have found and those were the locations/names of the fields to click on.
    2. The second is a questions & because I was a banker by trade – There is no indication of entering disposition on the credit memo or anywhere in the process. Is it not necessary since there should be a good paper trail from the initial document with the disposition in the “MEMO” section of the Estimate/Quote?
    3. Section 2 – Write off the Bad Debt in QBO: item 5. In Canada we also need to enter the Sales Tax breakdown and double check that the amounts are the same as the original invoice.
    4. Section 12 – We don’t have a “BOLD” amount anywhere and we can not enter zero in the “Amount Received” because we get a “Something is not quite right-you must enter a transaction amount” error.

    Will you provide direction please? I have had the most time consuming search.
    Thank you

    1. Hi Janice,
      Rachel currently works at a bookkeeping office in Ontario so she can definitely help you out with your QBO Canada. She’d be happy to walk you through this using your data file or using the Canadian sample file. You can set up a Zoom meeting with Rachel here, https://www.gentlefrog.com/meeting/ a 30-minute meeting should do it.
      -Jess

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