Bad debt signifies that a customer or a client owes you a certain amount of money; however, you cannot collect it. To be precise, it means they are in your debt, and you know you are not going to get paid.
What is writing off Bad Debt in QuickBooks is all about?
When the invoices sent in QuickBooks turn uncollectible, they need to be recorded as a bad debt and need to be written off. This makes sure that accounts receivable and net income are updated.
Bad debt makes it quite complicated to reconcile your specific accounts and then run precise reports. Before recording a bad debt, an account should be created to monitor such transactions. When you do it, the Discounts and Credits option in QuickBooks can be used to record the debt while the debt is organized in a different register for tax purposes.
Note: Recording bad debt in your daily customer register makes debt tracking extensively difficult.
Why do you need to Write off Bad Debt in QuickBooks?
When there are debt issues, they can impact the profit and loss reports severely, during reconciling of QuickBooks.
It is important to write off bad debt in QuickBooks, in order to keep any discrepancies at bay in the Profit and Loss and Income Statement, especially since business often makes sales on credit. Once you write off bad debt in QuickBooks, the invoices in accounts receivable can be cleared, which will help you acquire the net profit amount in QuickBooks.
How to Write off Bad Debt in QuickBooks?
Here are the list of the steps that will help to write off bad debt in QuickBooks:
Inspect the Accounts Receivable Aging Report
Step 1: Click on the Report section, visible on the left side panel in your QuickBooks account.
Step 2: Look for the Accounts Receivable Aging report from the particular search bar visible on the top.
Step 3: To see the outstanding receivable account, click on the Accounts Receivable Aging detail report.
Setup the Bad Debt Account in QuickBooks
Step 2: Choose the option to make a new account.
Step 3: Select the Expense option from the particular Account Type drop-down section.
Step 4: Choose all your Bad Debts from the specific Detail Type drop-down list and enter the Bad Debt in the particular Name field.
Step 5: Select Save and Close and finish the procedure.
Set up a Bad Debt Item
Step 1: Select the Gear icon and choose product and services in the List section.
Step 2: Select the option of Product and Services in the Lists section.
Step 3: Select the new product and from the Information section and then choose the Non-inventory option.
Step 4: Add the Bad Debt type in the Name Txt box.
Step 5: Choose the Bad Debt expenditure prepared in the Income Account section.
Step 6: Unmark the check box that says Is Taxable.
Step 7: Select the Save and Close option.
Create a Credit Memo for the Bad Debt
Step 1: Select the plus icon, visible on the top of the QuickBooks dashboard.
Step 2: Choose the Credit Memo in the Customers section.
Step 3: Choose the customer from the particular Customer drop-down list.
Step 4: Select the item which has been created for a particular bad debt Product/Service field.
Step 5: Go to the memo text box and enter the amount of bad debt there.
Step 6: Select the Save and Close option to finish this step.
Execute the Credit Memo to bid for Credit
Step 1: Select the plus icon visible on the top area of the window and then go to Receive Payment from the Customers section.
Step 2: Choose the customer from the specific Customer drop-down list.
Step 3: Choose the invoice that you wish to write off from the particular Outstanding Transaction menu.
Step 4: Choose the credit memo which you have prepared from the specific Credits section.
Step 5: Conduct a check and confirm that the amount showing in the section is zero dollars.
Step 6: Finally, click on the Save and Close option and finish the procedure.
The main reason why writing off bad debt in QuickBooks is so significant since it helps to avoid any form of fiscal discrepancies. Just by adhering to the steps mentioned above, you will be able to write off bad debts in the particular QuickBooks software. The steps above will help you in evaluating, preparing, and setting up, and employing your debt data.
Can you view all the bad debt once you are done setting up a bad debt account in QuickBooks?
Yes. Once you have completed setting up a bad debt account in QuickBooks, you can smoothly run the report and view unpaid invoices along with the bad debts.
Can you write off bad debt as a deduction in business?
Yes. If your particular business puts to use an accrual method of accounting, it is possible to write off bad debt as a certain form of deduction.