When you sell any goods on credit to the customer. But you didn’t get money from customer within the accounting period. Then this is by default called as bad debts in accounting. Because of there no chance to receive money from the customer. So today we will talk about, how to write off bad debts in Quickbooks. So let’s see below first what is bad debts.
What is Bad Debt
When your company sells anything on credit, then the company records it in its accounting books as account receivable. And this account receivable is highly chance to didn’t get money from the customer. By the way, this account receivable comes under current assets. So it is necessary to keep a record of it while creating a balance sheet.
Overall bad debts are a term when you sell goods on credit, but customer did not pay the amount that he has to pay to you. It is known as bad debts for the company or uncollectible expenses. So let’s see how to record bed debt in Quickbooks below…
How To Write Off Bad Debt In Quickbooks
By following the below-mentioned steps you can easily write of Bad Debts in Quickbooks.
However different accounting software has a different approach to record bad debt. But the concept of bad deb is similar in all places. But if you are using Quickbooks then let’s see how to write off bad debts in Quickbooks.
Step 1: Add An Expense account to track the bad debt
- Now first, go to the chart of account
- And create a new account by wright click on Account> New
- Choose Expense account from the Choose account type window.
- And this Expense account after some time we will mad as bad debt.
- Click on the create button, Now you have to specify Account Name as Bad debt
- Now click on the Save it setup
- Then you need to set up a bad debt item for invoicing and link it to that bad debt expense accounts
- Now go to the List menu and select list item and create a new item by right click on the below first tab and then click on New.
- Then click on Other charges from the drop-down menu
- An provide a name as Bad Debt write off and click on OK button
Now you have to find a customer that has an invoice to write off.
- Click on the Customer tab and select customer from the list of customer
Then you will see the Transaction list of that particular customer. Suppose ther is a transaction of $5000 and if we have to write of it. Then let’s see how to write of bad debt in Quickbooks.
- So let’s create a credit memo for that customer
- By clicking on the New transaction dropdown menu and then click on Credit Memo
- When you try to enter detail, a warning popup window appears. You have to click on the checkbox and click on OK button
- Type bad debt write off and enter the amount as we have suppose her $500
- This credit memo helps you to reduce tax payment.
- Now click on Save, and it will show you couple of options. So if we select Apply to an invoice, and click on the OK button.
- Then we will see Apply credit to invoice, and select your transaction as we have $5000 and click on Done button
Congrats, you have learned how to write off bad debt in Quickbooks. But its a very long process. So we bring her shortcut method for you.
Short Cut Method Of write of bed debt in Quickbooks
As you have seen above method of write of bed debt using a credit memo. But the above method is very long and confusing. So we have sort trick to write of bad debt in QuickBooks. Let’s see below.
- Go to New Transaction Tab and click on Receive Payment
- And choose a particular customer that you have to make a bad debt
- Click on Discount and Credit
- And enter the amount in the amount field
- Now choose Bad debt from Discount account dropdown menu and click on the OK button.
This method is best for those people who don’t charge sales taxes
As you have seen above how to write off bad debt in Quickbooks. Also, we have described what is bad debt in accounting. So follow the above steps, as according to use using a credit memo is the best to approach to write off bad debt in Quickbooks. Because of its cleaner and lot more traceable. If you are still unable to write then you can contact Quickbooks ProAdvisor.