Write off bad debt in QuickBooks Online

Learn how to write off bad debt in QuickBooks Online.

Bad debt means a customer owes you money but you can’t collect it. They have a debt with you, but you know you aren’t going to get paid. If your business uses accrual method accounting, you can sometimes write off bad debt as a deduction. Learn more about bad debt from the IRS.

When invoices you send in QuickBooks become uncollectible, you need to record them as a bad debt and write them off. This ensures your accounts receivable and net income stay up-to-date. If you’re using QuickBooks Desktop, here’s how to write off bad debt.

Step 1: Check your aging accounts receivable #

Review other invoices or receivables that should be considered as bad debt using the Accounts Receivable Aging Detail report.

1. Go to the Reports menu.
2. Find and open an Accounts Receivable Aging Detail report.
3. Check which outstanding accounts receivable should be written off.

Step 2: Create a bad debts expense account #

If you haven’t already, create a “bad debts” expense account.

1. Go to Settings ⚙ and select Chart of Accounts.
2. At the upper right, select New to create a new account.
3. From the Account Type ▼ dropdown, select Expenses.
4. From the Detail Type, select Bad debts.
5. In the Name field, enter “Bad debts.”
6. Select Save and Close.

Step 3: Create a bad debt item #

If you haven’t already, create a non-inventory item as a place holder for the bad debt. This isn’t a real item, it’s just to balance the accounting.

1. Go to Settings ⚙ and select Products and Services.
2. At the upper right, select New, and then Non-inventory.
3. In the Name field, enter “Bad debts.”
4. From the Income account ▼ drop-down, select Bad debts.
5. Select Save and Close.

Step 4: Create a credit memo for the bad debt #

1. Select + New.
2. Select Credit memo.
3. Select the customer from the Customer ▼ drop-down.
4. In the Product/Service section, select Bad debts.
5. In the Amount column, enter the amount you want to write off.
6. In the Message displayed on statement box, enter “Bad Debt.”
7. Select Save and Close.

Step 5: Apply the credit memo to the invoice #

1. Select + New.
2. Under Customers, select Receive payment.
3. From the Customer ▼ dropdown, select the appropriate customer.
4. From the Outstanding Transactions section, select the invoice.
5. From the Credits section, select the credit memo.
6. Select Save and Close.

   The uncollectible receivable now appears on your Profit and Loss report under the Bad Debts expense account.

Step 6: Run a bad debts report #

You can run an Account QuickReport to check all the receivables you tagged as bad debt. To do this:

1. Go to Settings ⚙.
2. Select Chart of Accounts.
3. In the Action column of the bad debts account, select Run report.