There are times when an invoice becomes non-collectible and you need to write it off and declare it as bad debt so you can clear the invoice out of your accounts receivable and reduce your net profit by its amount. This article outlines the steps for writing off bad debt.
Before you proceed, check and make sure your A/R Aging Detail report is correct. To check the report, go to Reports > Customers & Receivables > A/R Aging Detail.
- Create an account for bad debt.
- From the Lists menu, select Chart of Accounts.
- In the Chart of Accounts window, right-click anywhere and choose New.
- In the Add New Account window, click the Expense radio button then choose Continue.
- Assign the appropriate account number and in the Account Name field, type Bad Debt.
- Click Save & Close.
- Record the bad debt.
- From the Customers menu, choose Receive Payments.
- Select the name of the customer from whom you incurred the bad debt.
- Leave the amount field at 0.00.
- Click the line item that will not be paid to highlight it.
- Click Discount & Credits.
- Go to the Discount tab and in the Discount Account drop-down, choose the bad debt expense account created in Step 1.
- In the Amount of Discount field, enter the bad debt amount then click Done.
- Click Save & Close to record the payment.