How to Write off an Invoice in QuickBooks Desktop & Online?

When customers fail to pay their bills, companies must write off their invoices or debts. When all other attempts to […]

When customers fail to pay their bills, companies must write off their invoices or debts. When all other attempts to recover the funds have failed, the only option left is to write off the invoice as a bad debt. Users can use Accountant Tools to write off their invoices, and the methods outlined here will assist you in doing so. Know how to write off an Invoice in QuickBooks.

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For many businesses, unpaid invoices are a sad reality. The majority of customers enter into a business relationship with the intention of paying in whole and on time, but occasionally they are unable to do so. And sometimes they are completely unable to make a payment. In such a case, it is important to write off the uncollectible invoice. You can remove unpaid invoice amounts from your accounting records in several methods.

In this article, you get to know about Accountant Tools, which is nothing more than a collection of distinct characteristics. Accountant Tools provide features that make it simple to analyze and manage financial data for your customers, as well as shortcuts to useful QuickBooks Online sections. The Accountant Toolbox is used in the same way in your employer’s QuickBooks Online Accountant Company as it is in your client’s QuickBooks Online Accountant Company.

What are the Reasons to Write off an Invoice?

For the following reasons you might want to write off an invoice in QuickBooks:

  • Bad Debt: A customer may occasionally be unable to pay an invoice because of uncontrollable financial conditions. Customer chooses not to pay for other reasons that occur less frequently. In either case, it’s important to correctly record a customer’s payment default in your books by writing off the invoice.
  • Underpayment: Perhaps your customer has already made a payment on your invoice, but there is still a balance owed. This is usually the result of a customer’s end clerical error. When there is an underpayment, the amount is frequently too tiny – sometimes only a few pennies – to justify asking the customer for the balance.

What are the Mistakes to Avoid?

You might believe that deleting an invoice is the simplest way to write off an Invoice in QuickBooks. Avoid doing this. The effects of deleting the invoice as opposed to correctly writing it off on your business’s bookkeeping include the following:

  • You Lose Valuable Information: To avoid selling to that customer again on credit, you should keep track of any invoices you write off for customers owing to bad debt. You will lose this information if you delete the invoice. The percentage of invoices you write off should also be known to you. You may manage your business more profitably and effectively by using this useful business metric.
  • The Deleted Invoice’s Items will be listed as Unbilled: All the items on an invoice that is deleted in QuickBooks will appear as unbilled. These items will appear every time you try to invoice the customer whose invoice you wrote off if you keep doing business with them, confusing and cluttering your books.
  • You Lose Valuable Information: To avoid selling to that customer again on credit, you should keep track of any invoices you write off for customers owing to bad debt. You will lose this information if you delete the invoice. The percentage of bills you write off should also be known to you. You may manage your business more profitably and effectively by using this useful business metric.

If You are a Cash Basic Taxpayer

From a tax viewpoint, you don’t have accounts receivable if you are a cash basis taxpayer. If you invoice customers, you must still keep track of your accounts receivable. Modified cash-based accounting is what this is.

If you are a cash-based taxpayer, some Accountants and Bookkeepers would suggest that you simply eliminate bad debt invoices. Others would recommend you issue a credit memo instead of employing a bad debt expense item, which will result in a decrease in your overall sales for that item. The same issues outlined in the previous section can be brought on by either of these ways. Even if you file on a cash basis, you should appropriately write down your bills to maintain the integrity of your QuickBooks file.

What is the Process to Write off an Invoice in QuickBooks?

  • Open the QuickBooks account
  • Then open the Toolbox that has \uD83D\uDCBC
  • Now select the option Write off Invoices
  • Mention the details like Balance due less than, To Date, and Age
  • Apply the filters according to the invoice that you want to search
  • After this, click on the Refresh button to get a fresh list according to the applied filters
  • Choose invoices by ticking the checkbox that you want to write off in QuickBooks
  • In the Write off account, you have to choose the account from the drop-down menu that you are using for the bad debts
  • Review the things by clicking on the Preview option
  • Then click on the Write Off option
  • You have to analyze the invoices that you have selected to write off
  • After all, is done, click on the Write Off that starts the process of writing off an invoice in QuickBooks
  • When done click on the Close button.

What to do to Write-Off Unpaid Invoice in QuickBooks

Balances that you can’t claim on accounts receivable can be handled in QuickBooks. Unpaid invoices can also be written off, and below are several methods for doing so and later declaring their bad debts. It signifies that a customer owes you money but you are unable to collect it due to a variety of circumstances. You owe them money, but you know you’re not going to get paid. If your business follows the accrual accounting approach, you can readily deduct bad debt.

How to Write off an Invoice in QuickBooks Online?

Using the credit memo tool is the most effective way to write off an invoice in QuickBooks, whether you are using QuickBooks Desktop or QuickBooks Online. Your Sales Tax Liability Account will remain spotless if you use a credit memo with a bad debt expenditure item, so you won’t ever need to be concerned about paying too much in sales tax.

1. Open the Invoice You are Writing Off

As you carry out the ensuing stages, you should refer to the invoice. To find the invoice you have to follow the below steps:

  • You have to click on Sales.
  • Select Customers.
  • To open an invoice, enter the customer’s name and select it from the list.
Open the Invoice you are Writing Off
Open the Invoice you are Writing Off

2. Create a New Credit Memo

  • Right-click the browser tab to duplicate it. This enables you to compare the credit memo and the original invoice side by side.
  • To start a new transaction, click the + New button on the new tab.
  • From the drop-down menu that opens, choose Credit Memo.
Create a new credit memo
Create a new credit memo

3. For the Credit Memo you have to Enter Identifying Information

Type in the name of your customer and the day you are writing off the bad debt. You will see that QuickBooks enters a credit memo number automatically. As updating this could cause issues with your invoice and credit memo numbering in the future, it is advised against doing so.

credit memo you have to enter identifying information
credit memo you have to enter identifying information

4. Create the Bad Debt Expense Item

You can quickly enter Items in both QuickBooks Desktop and QuickBooks Online. If your item drop-down list doesn’t already include a bad debt expense item, you should add one.

  • Click Add New after entering the Product/Service form.
  • Select the Service product category.
  • The item is called Bad Debt.
  • For the income account type, select your bad debt expense account.
  • Make the nontaxable sales tax category the default. This can be changed for each credit memo separately.
Create the bad debt expense item
Create the bad debt expense item

5. Fill out the Credit Memo

You effectively duplicate the invoice you are writing off on the Credit Memo screen at this stage. However, you will use the bad debt item you created in the previous step rather than the original good/service/item you used in the invoice. As you proceed, be sure to mark anything as taxable. If the amount on your credit memo matches the amount still owed on the invoice you are writing off, you have done it correctly.

Your credit memo requires only one line with the term bad debt if the invoice you are writing off contains all taxable items or only nontaxable items. On this line, enter the entire, pretax amount of the invoice you are writing off. If the invoice contained sales tax, add it to the credit memo at that point.

Fill out the credit memo
Fill out the credit memo

6. Apply the Credit Memo to the Invoice

Your accounts receivable balance will remain accurate if you skip this step, but the invoice for which you created the credit memo will continue to show up on your Open Invoice report.

  • To write off an invoice, click it.
  • Then select Receive Payment.
  • You can choose to include the outstanding credit memo in your payment on the next screen. After applying the credit memo, the payment should be in the amount of $0 only. Your check register will reflect a $0 transaction as a result, which you can remove the following time you Reconcile Your Bank Account.

Overstated Income Problem

The invoice will show as paid when the credit memo is applied when you write off an invoice in the way described above. This indicates that the amount of the invoice will be added to your income on your cash basic profit and loss statement. On the other hand, there will also be an off setting amount in the bad debt expense account, thus the impact on your net income will be zero.

This is sufficient in most of the states to prevent you from paying more income tax than necessary. However, if your state levies a gross receipts tax, you must make sure your accountant subtracts the amount of the bad debt charge from your overall revenue before you file your tax return. If not, you will be taxed on money that you never made.

Small Amount Write-offs

You will use the same method described above if you are writing off the remaining balance on an invoice that has been largely paid. Since small-amount write-offs are uncommon and normally do not add up to a sizable dollar amount over the course of the year, using an expenditure account other than bad debt expense for this could complicate your Chart of Accounts and is unnecessary.

Write-offs: The Right Way to Record Bad Debt

You can eliminate bad debt and other uncollectible sums from your accounting records in a number of ways. The procedure described above will help you in maintaining your records and provide you with important managerial information, even if it is more time-consuming than simply erasing the invoice or issuing a credit memo that reverses the charge. This means that you may use your financial statements to manage your business profitably and successfully while also giving your tax experts the data they require to complete your tax return efficiently.

How to Write off Invoices in QuickBooks Desktop?

With the Customers menu in QuickBooks Desktop, writing off invoices is simple. You are able to add bad debt. The item may be brought up in regard to the debt. It could be added to the bill. That invoice needs to be marked as unpaid later. Please make sure that all the data are accurately added as you learn how to write off invoices in QuickBooks Desktop.

  • Start your computer’s QuickBooks Desktop software.
  • Then you have to go to the Customers tab in the top menu bar.
  • Select Customer Center from the menu.
  • Add the customer’s name on the left when the new window starts.
  • Select the invoice from the list of options.
  • Go back to the top and select the Customers tab once more.
  • Choose to Create Credit Memo/Refunds from the menu.
  • Enter the customer’s name when the Credit Memo window appears. Include the deadline for writing off the invoice as well. The credit memo number will automatically fill in as a result.
  • Now select Item and then Bad Debt from the menu that appears.
  • Next, select Add New from the menu.
  • Choose Other charges as the category.
  • Next, select Bad debt by clicking on the Item button.
  • Use the Bad debt you produced as an item to add a new product.
  • At this point, uncheck the Is Taxable option.
  • To save and close, click the button.
  • Mention the pretext amount of the unpaid or problematic debt here.
  • Select the bill you want to write off.
  • Then you have to choose the top option marked Use credit to apply to the invoice.
  • Select Save and Close from the menu.

In the above article, you get to know how to write off an invoice in QuickBooks. The process is mentioned in detail with correct steps that you have to follow properly. This way you won’t face any issues whenever you write off the invoices into your QuickBooks account. Still, if you are facing any glitches then connect with the Dancing Numbers helpdesk team. As they are available 365 days a year to help you with all your queries and issues by assisting you in the best way possible.

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+1-800-596-0806 or chat with experts.

Frequently Asked Questions (Faqs)

In QuickBooks Online, Can we Write off an Invoice?

Both QuickBooks Desktop and QuickBooks Online allow you to write off an invoice. The only steps required for the online version are to add the item as a bad debt, create a customer, and write off the invoice.

When should Unpaid Invoices be Written off in QuickBooks?

Customers frequently fail to provide you with the money they owe you. In that case, you ought to write off the customer invoice you made. By doing this, you will avoid having to pay sales tax and save the customer and product data at the same time.

How may an Invoice be Written off in QuickBooks?

Despite the fact that you can write off the bills manually, using the Write off Invoices Tool easier the process. Keep in mind that only QuickBooks Online Accountant users have access to this function. Open the Accountant Tools and select Write off Invoices to use this function. Apply the date, invoice age, and balance filters next, then click Find Invoices. Consider the customer’s name before selecting the bills you want to write off. Remember to select the account you use for bad debts.

What are the Steps to Check the Aging Account Receivable before writing off an invoice in QuickBooks?

checked In QuickBooks, click on the Report menu option
checked Locate and then open the report of Accounts Receivable Aging Detail
checked Now, check that which Account Receivable is outstanding and you have to write off.

How can I do a Bad Debt Entity apart from the other Customers after Writing off an Invoice in QuickBooks?

checked In QuickBooks, click on the Sales menu option
checked Further, select the option Customers
checked Click on the Edit option that is at the top right side of the screen
checked Mention the Bad Debt or No Credit in the field of Display name as (It shows after the name of the customer.)
checked In the end, click on the Save option.

Is it Important to Create an Account to Write off an Invoice in QuickBooks?

Yes, it is important as you have to show the entry for how you have written off the invoice. The type of account must be an expense that you named as bad debt.

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