Bad Debt in QuickBooks

 

Occasionally you will be required to write off bad debt from a customer. This should only be done after you have made an effort to collect the money from the customer or at the direction of your accounting professional. There are several different steps to recording a bad debt. The steps are:

1. Setup an account in QuickBooks to track the bad debt.
2. Setup a QuickBooks item to track the bad debt.
3. Create credit memo to record the bad debt.
4. Apply the credit to the outstanding customer receivable.

 

1. Create an Account for Bad Debt

i. Go to the QuickBooks Home Page, click Chart of Accounts
ii. Select CTRL + N.
iii. Select the account type, Expense.
iv. Enter the Name – Bad Debt, then click Continue
v. Click Save & Close.

 

 

2. Create an Item for Bad Debt

i. Go to the QuickBooks Home Page, select Items & Services.
ii. Select CTRL + N. The New item window displays.
iii. Select Item type, Other Charge.
iv. Leave the Tax Code and Amount blank.
v. Select the Account, Bad Debt Expense.
vi. Click OK.

 

 

3. Create a Credit Memo

i. Go to the QuickBooks Home Page, click Refunds & Credits.
ii. Select the Customer with the bad debt.
iii. Enter the Date.
iv. Select the Item, Bad Debt.
v. Enter the Amount.
vi. Enter the Tax Code that applied to the original transaction.
vii. Click Save & Close.

 

 

 

4. Apply the Credit

 

i. Click Apply to an Invoice.
ii. Select the Invoice that you want to apply the credit to.
iii. Click Done. This completes the bad debt write off in your QuickBooks company file.