QuickBooks Online – on the other hand – will not allow you to use the Allowance for Doubtful Account. Therefore, you will work under the same steps as QuickBooks Desktop, but not change the account
Step 1: Checking Account Receivables Reports for invoices that would be written off
1. Open Reports menu.
2. In the Find report by name field, type “Accounts Receivable Aging Detail.”
3. Look for which outstanding accounts receivables should be written off.
Step 2: Prepare Bad Debt Expense Account and Bad Debt Item
Bad Debt Expense Account
1. From Settings icon, select Chart of Accounts.
2. Click on New and in the Account Type drop-down, you have to choose Expenses.
3. Select Bad Debts from Detail Type drop-down before entering Bad Debts in the Name field.
4. Click on Save and then Close.
Bad Debt Item
1. Open Lists from Settings icon and choose Products and Services.
2. Into the upper right section, select New and then Non-inventory.
3. Type Bad Debts in Name field.
4. Also, from Income account drop-down, choose Bad Debts.
5. Click on Save and then Close.
Step 3: Create a credit memo with the written-off amount
1. Hit on + New button and choose Credit Memo.
2. Select the customer from whom you want to write off the invoice in QuickBooks.
3. Choose Bad Debts in the Product/Service
4. Enter the amount you want to write off in the Amount column.
5. Type in Bad Debt into message displayed on Statement box.
6. Click on Save and Close.
Step 4: Applied the credit memo to close the invoice
1. Hit on + New button.
2. Choose Receive Payments under Customers drop-down list.
3. Select appropriate customer with the use of Customer drop-down list.
4. From the Outstanding Transactions section, select the invoice.
5. Click on Credit memo in the Credits section.
6. Finally, select Save and Close
Step 5: Check all transactions on Balance Sheet and P&L report
On Balance Sheet, when successfully apply the credit memo, you will find the list of transactions as below:
- An invoice with the total amount of $50,000.00
- A payment with the amount of $25,000 and waits for being deposited
- A credit memo with the amount of $25,000 as a bad debt
- Another payment to show the application of the credit memo on the invoice with the amount = $0.00
On Profit and Loss report, you will find both Income (by the invoice) and the bad debt expense:
Important Note when writing off invoice
When creating an invoice, the revenue on your Profit and Loss report increases by the amount of the invoice, even you have a bad debt and apply a credit memo. However, there will be an offsetting amount in the bad debt expense account, which will deduct your net income.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
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