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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.
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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.
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.
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.
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