As you all know that QuickBooks Accounting software has set its feet in the market. QuickBooks Accounting software is generally famous among various start-ups and established organizations due to its various advanced features and tools. To ensure the data which is entered in the software is encrypted as well as secured it uses advanced Industry recognized standards to guarantee that. In this blog post, it is discussed about one prominent use of QuickBooks which is writing off bad debts in the QuickBooks desktop.
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Mainly bad debts are one of the major issues that any organization has to go through. For this reason, all organizations, whether that is small or big, need to guarantee that they can write off their bad debts as quickly as they can and with the least amount of inconvenience.
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.
Meaning of Write off Bad Debts for an Organization
When the amount which was in the rewarding structure and should be gotten from the customer fails to recover in any organization, then it is named Bad Debt. Those organizations that are already using QuickBooks Desktop, bad debts can be understood as invoices that become uncollectible throughout time.
Writing off bad debts can make it clearer for an organization to track its average net turnaround and profit. Without the help of any accounting software if the records are managed and handled manually then the same can become quite boring.
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.
Know About How QuickBooks Desktop help in Writing off Bad Debts
QuickBooks Desktop is cloud-based accounting software that can make writing off bad debts quite easier. Big or small organizations don’t have to worry about hiring an Accountant for managing their finances as this software is highly user-friendly.
How to Write off Bad Debt in QuickBooks Desktop?
Here are some of the methods that users can follow to write off bad debts using QuickBooks Desktop:
Step 1: Create a Bad Debts Expense Account
- Firstly, open QuickBooks Desktop.
- Go to the settings option.
- From the list of options click on Charts of Accounts.
- After that, on the top-right corner, you have to select new to create a new account.
- Click on the Expenses option from the account type dropdown.
- In the Detail type dropdown, you have to click on the Bad Debts option.
- After completing the above steps, click on Save and Close.
Step 2: Close out the Unpaid Invoices
- Start by opening the Customers menu and then select Receive Payments.
- Type the name of the customer in the Received from field.
- In space of Payment, amount enter $0.00 and then choose Discounts and credits.
- In the field of Amount of Discount, enter the value you would like to write off.
- For the Discount Account, you have to select the account you have added in the previous step and press done.
- After completing choose Save and Close.
Alternative 1: Through the QuickBooks Chart of Accounts
The details of a company’s accounts may be included in the chart of accounts. You may benefit from writing off bad debt in QuickBooks because of this. You must first select Company from the QuickBooks menu. Then select Chart of Accounts from the menu. After that, press the Account button and then select New. To write it off, select Expense from the drop-down list of Account Types.
- Start by going to QuickBooks.
- The company should be chosen.
- Select Chart of Accounts by tapping it.
- Then you have to tap on Account.
- Select New from the menu.
- Then you have to select Expense in the Account Type drop-down menu and then click on Continue.
- If asked, Press the Number before beginning to type the account digits in the provided field.
- Select the Account Type field next.
- In the text field, type Bad Debt.
- Then you have to go to OK.
- The Bad Debt account will then be created in QuickBooks.
- Visit Customers on the site to start recording it.
- To Receive Payments, Select Receive Payments from the drop-down menu.
- Choose the customer whose bad debt you want to write off from the Customer List items.
- Tap the items that are on the same line as the bad debt.
- You must then click the Discounts & Credits tab.
- Select Amount of Discount from the menu.
- Total the amount of bad debt.
- Move to Done once you are finished.
- To complete the process, Select Save and Close.
Write off Bad Debt through Reports in QuickBooks
If they choose the Report tab, QuickBooks users can easily write off debts. Visit your QuickBooks account and seek for the tab to start the process. You may view the Outstanding Receivable Account by selecting the Account Receivable Aging Detail Report button. You can now navigate to its choice in Detail Type to better understand how to write off bad in QuickBooks.
- Start by going to the QuickBooks homepage.
- Towards the left look for Report.
- To know Outstanding Receivable Account you have to click on Accounts Receivable Aging Detail Report.
- Then you have to click the Gear icon. Now you have to find the Chart of Accounts.
- It is necessary to choose the option to create a new account.
- The Account Type drop-down should be selected.
- Select Expense from the list of items.
- Choose Detail Type from the drop-down menu, then select All Bad Debts.
- Add Bad Debt to the Name box after that.
- Click Save and Close.
- From the menu, You have to choose the Gear button. Then you have to go to Lists.
- Now you have to choose Products and Services.
- Select Non-Inventory from the Information drop-down menu.
- Put Bad Debt in the Name field.
- Also, under the Income Account section, the user must select Bad Debt.
- The Taxable checkbox should no longer be checked.
- Then you have to go to the option of Save and Close.
- Now you have to click on the + tab.
- Select Credit Memo from the Customers area.
- The next step is to choose your customer from the list provided in the Customer drop-down menu.
- Select the items that were created for the section on Bad Debt Product/Service.
- Enter the amount of the bad debt in the text memo box.
- Select Save and Close from the menu.
- You can access the Customers drop-down by clicking the + sign.
- Go to Receive Payments next.
- Choose your customer from the Customer drop-down list that is provided.
- Select the invoice that has to be canceled by tapping it in the Outstanding Transaction section.
- You must access the credit memo you created under Credits.
- Make sure the calculation yields $0.
- Lastly, Click on Save and Close.
Alternative 2: In QuickBooks Desktop Using Lists
The Lists menu in several versions of QuickBooks can be used to write off bad debts. One of these versions is QuickBooks Desktop. You must first launch the accounting software before navigating to this menu. The Chart of Accounts button is then available for selection. Once finished, select Expense from the Account menu. Later, you will need to enter 0 as the Payment Amount in QuickBooks Desktop in order to write off bad debt.
- First, You have to go to your QuickBooks Desktop account.
- Then you have to click on Lists.
- Now you have to choose the Chart of Accounts options.
- Click on Account.
- Now click on New.
- Then you have to select Expense and then click on Continue.
- In the necessary field, enter Account Name.
- To Save and Close, click.
- To keep track of the bad debt, your spending account will be added.
- Choose Customers to finish closing out the outstanding debts.
- Next, Click Receive Payments.
- In the Receive From field, you must enter the customer’s name.
- Enter $0.00 in the Payment Amount field.
- Decide on Discounts and Credits.
- The amount to be written off must be specified in the Amount of Discount field.
- You must select the account that was added in the preceding steps in the Discount Account area.
- Then you have to press Done. At last, you have to the Save and Close tab.
How to Write off Bad Debt in QuickBooks Online?
Here are the list of the steps that will help to write off bad debt in QuickBooks:
Step 1: Inspect the Accounts Receivable Aging Report
- Click on the Reports section, visible on the left side panel in your QuickBooks account.
- Look for the Accounts Receivable Aging report from the particular search bar visible on the top.
- To see the outstanding receivable account, click on the Accounts Receivable Aging detail report.
Step 2: Setup the Bad Debt Account in QuickBooks
- Select the Gear icon visible on the Company section and select the Chart of Accounts option.
- Choose the option to make a new account.
- Select the Expense option from the particular Account Type drop-down section.
- Choose all your Bad Debts from the specific Detail Type drop-down list and enter the Bad Debt in the particular Name field.
- Select Save and Close and finish the procedure.
Step 3: Set up a Bad Debt Item
- Select the Gear icon and choose product and services in the List section.
- Select the option of Product and Services in the Lists section.
- Select the new product and from the Information section and then choose the Non-inventory option.
- Add the Bad Debt type in the Name Text box.
- Choose the Bad Debt expenditure prepared in the Income Account section.
- Unmark the check box that says Is Taxable.
- Select the Save and Close option.
Step 4: Create a Credit Memo for the Bad Debt
- Select the plus icon, visible on the top of the QuickBooks dashboard.
- Choose the Credit Memo in the Customers section.
- Choose the customer from the particular Customer drop-down list.
- Select the item which has been created for a particular bad debt Product/Service field.
- Go to the memo text box and enter the amount of bad debt there.
- Select the Save and Close option to finish this step.
Step 5: Execute the Credit Memo to bid for Credit
- Select the plus icon visible on the top area of the window and then go to Receive Payment from the Customers section.
- Choose the customer from the specific Customer drop-down list.
- Choose the invoice that you wish to write off from the particular Outstanding Transaction menu.
- Choose the credit memo which you have prepared from the specific Credits section.
- Conduct a check and confirm that the amount showing in the section is zero dollars.
- Finally, click on the Save and Close option and finish the procedure.
Alternative 1: Through the Report Menu in QuickBooks Online
To write off bad debt in QuickBooks Online, please select the Chart of Accounts option. From the menu, select the Report option. Afterward, select Accounts Receivable Aging Detail Report. Choose the Outstanding Receivables, and the debt will shortly have been written off.
- Choose the QuickBooks Online Report menu.
- Accounts Receivable Aging Detail Report should be found.
- A Outstanding Accounts Receivable that needs to be written off should be selected.
- Then you have to select Settings.
- Pick Chart of Accounts instead and click New. Select Expenses from the drop-down box under Account Type.
- A drop-down menu called Detail Type can be found a press Bad Debts from here.
- Put Bad Debts in the Name field.
- Select Save and Close from the menu.
- Then you have to go to Settings.
- Select the Product and Services tab next.
- Go to New now and select Non-Inventory.
- In the Name field, type Bad Debts.
- Select Bad Debts from the Income Account drop-down menu.
- Now you have to click on Save and Close option.
- You must select Credit Memo after selecting +New from the menu.
- After that, You must select your customer in the Customer drop-down option in this stage.
- Go to the Product/Service section now.
- Then you have to look for Bad Debts.
- Put the amount you need to write off in the Amounts field.
- Add Bad Debt to the Message Displayed on Statement column as well.
- A Save and Close tab will appear.
- Then you have to select +New from the menu.
- Receive Payment is found below the drop-down menu for Customer.
- Select your particular Customer from the \Customer \drop-down menu.
- You must select the invoice in the Outstanding Transactions column.
- Look for a credit memo under the Credits section.
- Then you have to click Save and Close.
- Now you have to go to Settings.
- Click on Chart of Accounts.
- From the Action Column of the Bad Debts Account, select Run Report.
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.
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Frequently Asked Questions (Faqs)
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.
How to Record a Bad Debt Written off?
To record bad debt entry you have to:
● Debit your Bad Debts Expense account and credit your Accounts receivable account.
● Record the bad debt recover transaction.
● Debit your Accounts Receivable account and credit your Bad Debts Expense account.
How to Write off Overpayments on QuickBooks Desktop?
● From the customer’s menu you have to choose create Invoices.
● Then click the customer name in the Customer.
● After that, select minor charge-off in the field of Item and then enter the amount of overpayment.
● At last, hit on Apply Credits.