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.

Step 2: Create a bad debts expense account

If you haven't already, create a "bad debts" expense account.

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 & services (Take me there).
2. At the upper right, select New, and then Non-inventory.
3. In the Name field, enter “Bad debts.”
4. From the Income account ▼ dropdown, 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 ▼ dropdown.
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.

Get a QuickBooks-certified bookkeeper to categorize transactions and reconcile your bank statements every month so your books are always 100% accurate. Learn more about QuickBooks Live Bookkeeping.

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:

Note: You can tell a bad-debt entity apart from your other customers by adding a note to their name: