How to use QuickBooks to Write Off an Invoice for Bad Debt?

For many businesses, uncollectible invoices are an unfortunate reality. While most clients approach a business relationship to pay in full and on schedule, there are instances when this is not possible. Occasionally, they are unable to make any payments at all.

It becomes necessary to write off the uncollectible invoice when this occurs. You can get uncollectible invoice amounts from your accounting records in several ways. The best methods for small businesses to write off invoices in QuickBooks will be examined in this article.

Justifications for Writing Off an Invoice

There are two possible justifications for wanting to delete an invoice from QuickBooks:

Bad Credit: A customer's inability to pay an invoice can occasionally be attributed to uncontrollable financial circumstances.

Insufficient Payment: Perhaps your client has paid part of your invoice, but the full amount is still due.

Errors to Avoid for Writing Off an Invoice

You might believe that deleting an invoice is the simplest way to write it off in QuickBooks, but you must avoid doing this for the following reasons:

• You might lose crucial information.
• It's possible that you paid too much in sales tax if your account is distorted.
• The deleted invoice items will be shown as unpaid bills, which might lead to confusion about further tax payments.

Approach to Write Off Invoices

Whether using QuickBooks Desktop or QuickBooks Online, the credit memo feature and a wrong debt expense item are the most effective ways to write off an invoice and maintain your sales tax billing account in perfect condition.

Step 1: Open the Bill You Want to Write Off

As you follow the next steps, you should monitor the invoice. If it is a QuickBooks Void invoice from the previous year that you mistakenly marked as void, mark it as “Open Anytime” to proceed.

Step 2: Make an Updated Memo on Credit

• Right-click on the Browser tab to duplicate it. This allows you to see the credit memo and your original invoice side by side.
• Click the “+New” button in the new tab to start a new transaction.
• From the menu that displays, choose Credit Memo.

Step 3: Enter the Credit Memo’s Identifying Details

Put your customer's name and the date the bad debt is being written off. You’ll see that QuickBooks automatically enters a credit memo number, which you must keep unchanged.

Step 4: Make the Item for Bad Debt Expenses

You can enter items in QuickBooks Desktop and QuickBooks Online at any time. You should add a “bad debt” expense item to your item drop-down list if you don’t already have one.

Step 5: Complete the Credit Memo Form

• Make a copy of the invoice you are writing off on the credit memo screen.
• Use the “bad debt” item you created instead of the original product, service, or item you used in the invoice.
• Be sure to label items as “taxable.” If the amount on your credit memo matches the amount on the invoice you are writing off, you have done it correctly.
• Use one line with the item “bad debt” in your credit memo if the invoice you are writing off contains only taxable and nontaxable items.
• Enter the entire pretax amount of the invoice you wrote off. The sales tax should be applied to the credit memo if the invoice is taxable.

Step 6: Attach the Invoice to the Credit Memo

The invoice for which you created the credit memo will still be shown on your Open Invoice report, but your accounts receivable balance will remain accurate if you skip this step.

• To write off an invoice, click on it.
• Select "Receive Payment" by clicking.

You can now include the outstanding credit memo in your payment on the screen. After applying the credit memo, the payment amount should be $0. You can clear the $0 transaction that results from this the next time you reconcile the bank account. It will appear in your check register.

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In Conclusion

Bad debt and other uncollectible amounts can be eliminated from your accounting records in several ways. While the writing-off method may be more laborious than just erasing the invoice or sending a credit memo that reverses it, it will help you maintain your documentation and provide valuable managerial data. This implies that you can use your financial statements to manage your company profitably and efficiently while giving your tax advisor the required data to prepare and file your return on time.