Wow...FINALLY a Quickbooks help video that isn't full of rambling. This was very clear and concise and I had my bad debts written off in 5 min. Thanks!
in the background what happen : Invoice: AR 525 income 525 credit Memo: Bad debt 525 AR 525 its like journal entry in traditional accounting achieved throughout tool used in QuickBooks. explicitly bad debt item is posting to bad debt expense account and the credit memo allow the operation of debiting the bad debt expense account because it is acting the opposite way the invoice does. just instead of debiting income account, we trick QuickBooks to use an expense account instead wish gonna offset the original income account and clearing the AR
Hi, How would you sort out a bill that you do not intend on paying, but you want to keep it recorded? It seems like unpaid bills still show as a job related cost even if you dont pay it. BTW: I am a contractor and the bill is not paid due to faulty work by the vendor.
Ideally this would demonstrate the tax implications as well. I'm on QB 2019 and charge HST on sales so the default behaviour in QB for me was to add 13% tax to that credit memo, making it larger than the actual amount the customer did not pay. So I had to make it Tax Excempt (E) in order to ensure a proper balance. But this video did not show any indication of tax-related fields. It was a simple $50.05 debt so I don't car, but had this been some kind of $1000+ transaction I'd want to know what should have been put in the tax fields. Great video though! Rarely does anyone seem capable of making a to-the-point video like this.
You would credit the credit memo exactly as an invoice making sure you hit the proper tax account this will adjust the appropriate taxes and adjust on your next filing,, No different than a return
That's a little trickier. Did the customer actually overpay you? Do you owe them a refund? Are they just small amounts? If they are only small amounts, you will have to create an invoice instead of a credit memo and apply the overpayment to it.
There are two separate methods for writing off for bad debt. The allowance method requires a small business to estimate at the end of the year how much bad debt they have, while the direct write off method lets owners write off bad debt whenever they decide a customer won't pay an invoice. I would check with your accountant to be sure of which method you are using as it needs to be done on a consistent basis. The instructions that we have provided are for the direct write off method.
Technically, there is no such thing as bad debts in cash basis accounting. Since you do not record the revenues when you invoice the customer but when you collect the funds, there's nothing to write off.
@@rhondarosand4853 Technically, I agree. However, something has to happen to the invoices that are never paid. Call it what you may, I was suggesting that including that in your video would've been helpful.
Must you do a credit memo to write it off or can you just add the credit without a credit memo by going directly to a "customer payment" and applying a credit there under the "Discounts & Credits tab" for the amount you're trying to write off for each invoice open on that particular account? I'm very eager to know especially for accounts that have multiple open invoices that need to be written off. Your response is greatly appreciated.
Great question Cinthya - yes, you could click on the Discounts and Credits and write off the balance to a Bad Debt account for each invoice instead of creating a Credit Memo. In addition, if you have the Client Data Review Tool in the Accountant version of QuickBooks, you can write off batches of invoices all at one time.
@@newbusinessdirections I have done this too. My write off amount, $500, shows as a "discount and credit" in my invoice. Now this is my QUESTION: Today ( 5 months later), the customer paid $300 of this amount that was written off. ...so now, HOW DO I REVERSE THIS $300? (Bad debt RECOVERY). 🤔
If your invoice is a Tax invoice, when creating bad debt in item & Service. Do you change the Tax Code to Tax? so when writing off the debt it will write it off inclusive of Tax?
Hi Nalini K - You should not be paying sales tax on the invoice that you have written off and if you look further below in the comments, you will see details regarding that piece of the equation. The credit memo needs to be increased for the sales tax.
As a supplier to Markets and we get deduction for Spoils - we do not get products back but we need to record that as a credit against future bills. These Spoils does not affect inventory -- it is a loss. How do I records that in credit memo
Sounds more like an inventory adjustment than a bad debt. If It’s actually on the invoice, then you’ll want to credit those items Or have an item for the spoils
This video gave me some insight into my problem but not 100% We do our books on a "cash basis" so we do not claim an invoice as income until we collect for it. We still end up with some customers not paying us for our services. I have a customer with an accounts receivable balance whom I will not be getting paid for. I want to zero his account but I do not need to show an expense on my P&L since I have never claimed the sale as income for income tax purposes. I think I can create the same item as you did but want to attach it to an account that will not show up as an expense on my P&L? Help!
Hi Bruce - if you create an invoice in QB, behind the scenes it debits Accounts Receivable and credits and Income account - if you are on the Cash basis of accounting, you'll want to map the Bad Debt item back to the Income account that it originally posted to - that way you won't have anything in your expenses, but you will reduce the income that was recorded when you created the invoice. Hope that helps!
I would not use this procedure for writing off damaged inventory. There are separate inventory activities to handle such things. Adjust quantity/value on hand is what you should use to write off damaged inventory.
I recommend only writing off to bad debt if you are confident that you will not collect the receivable. However, in the off-chance that you do, you would just record the money as revenue.
I have a few clients who have paid; however, due to international wire charges, the payments come up short. I'm now trying to reclaim the VAT that we would've paid for on those invoices. Should I use this credit memo method or should I use the discount method? I know that the credit memo would decrease the VAT, which is what I'm looking to do, but can the discount method also work to reduce VAT Output?
Hi Daniel - I am not sure what you mean by "reclaim the VAT" - are you trying to reduce the VAT for the wire charges? You can write off the wire charges either by credit memo or by discount - either one will work to remove the receivable from the books. I do not believe that it will reduce tax/VAT.
If the invoice is negative, then it’s not an invoice, it’s a credit memo. You would need to create an invoice to an item called write off that is mapped to bad debt expense. Then apply the credit memo to the invoice. Unless of course, you actually owe the money to the customer, at which point you should not be writing it off, you should be writing them a check.
Hi Laura - apples and oranges - Bad debit/write off is writing off a revenue that you will not be collecting for a sale that you made. Gift In-Kind is something that happens in nonprofits when someone provides specific and credentialed services for which you record both an income and offsetting expense.
How does this work if the debt you are writing off includes sales tax? The net amount is the bad debt which has been provided for but I also want to reclaim the sales tax that has already been paid?
I don't know enough about QB for Mac to guide you in the correct answer to your question. It could be in your preferences to allow pop-ups or you may just need to apply the credit as a payment to the invoice.
You will need to make note of which items on the original invoice that is being written off or taxable versus non-taxable and he will need to enter two separate lines on the credit memo, one for the taxable items and one for the non-taxable items and in the last column to the right you will need to select either tax or non-tax and that should calculate the return to sales tax
![Writing Off Bad Debt in Quickbooks Online Made Easy! [2024]](/img/1.gif)
Wow...FINALLY a Quickbooks help video that isn't full of rambling. This was very clear and concise and I had my bad debts written off in 5 min. Thanks!
Thanks Karin - that's great to hear!
Thanks for a straight forward tutorial. No fluff! Straight to the point! I appreciate it.
in the background what happen :
Invoice: AR 525
income 525
credit Memo: Bad debt 525
AR 525
its like journal entry in traditional accounting achieved throughout tool used in QuickBooks. explicitly bad debt item is posting to bad debt expense account and the credit memo allow the operation of debiting the bad debt expense account because it is acting the opposite way the invoice does. just instead of debiting income account, we trick QuickBooks to use an expense account instead wish gonna offset the original income account and clearing the AR
Thanks
Thank you! This was helpful.
So good! Thank you for being thorough but not long winded! I needed a quick refresher and you provided exactly what I needed. Thank you!
Thanks! It helps.
Hi, How would you sort out a bill that you do not intend on paying, but you want to keep it recorded? It seems like unpaid bills still show as a job related cost even if you dont pay it. BTW: I am a contractor and the bill is not paid due to faulty work by the vendor.
You could enter a bill credit and apply it to the bill - it would still be in the system, just not sitting in AP and job cost effect would be zero
Ideally this would demonstrate the tax implications as well. I'm on QB 2019 and charge HST on sales so the default behaviour in QB for me was to add 13% tax to that credit memo, making it larger than the actual amount the customer did not pay. So I had to make it Tax Excempt (E) in order to ensure a proper balance. But this video did not show any indication of tax-related fields. It was a simple $50.05 debt so I don't car, but had this been some kind of $1000+ transaction I'd want to know what should have been put in the tax fields. Great video though! Rarely does anyone seem capable of making a to-the-point video like this.
You would credit the credit memo exactly as an invoice making sure you hit the proper tax account this will adjust the appropriate taxes and adjust on your next filing,, No different than a return
Short and sweet - great job! Thank you!
Thanks, R Handy!
I loved it
Thank you...needed this today at work...well explained 🤗
Excellent instruction Thanks
Glad it was helpful!
Very well explained and to the point!!!
THANK YOU SO MUCH!!!! Extremely helpful video! I had my bad debts done in minutes! I have overpayments on my A/R Aging Detail. How do I handle those??
That's a little trickier. Did the customer actually overpay you? Do you owe them a refund? Are they just small amounts? If they are only small amounts, you will have to create an invoice instead of a credit memo and apply the overpayment to it.
Well done! Thank you!
Thank you this was very helpful. Life saver. Again Thanks
Thanks for the easy to follow video.
Thank you for this helpful video - it worked perfectly
Very informative. Thank you!
Glad it was helpful!
THANK YOU!
The video sound is pretty good, beyond my imagination
Is there a way in quickbooks desktop to book bad debt using the allowance method? I really would like to see my A/R NRV.
hi, what if you want to use the Allowance for doubtful accounts to record bad debts? is it the same process?
There are two separate methods for writing off for bad debt.
The allowance method requires a small business to estimate at the end of the year how much bad debt they have, while the direct write off method lets owners write off bad debt whenever they decide a customer won't pay an invoice.
I would check with your accountant to be sure of which method you are using as it needs to be done on a consistent basis.
The instructions that we have provided are for the direct write off method.
Thank you for the video as I know this is a few years old. Would be nice to have the same info for Cash Basis accounting.
Technically, there is no such thing as bad debts in cash basis accounting. Since you do not record the revenues when you invoice the customer but when you collect the funds, there's nothing to write off.
@@rhondarosand4853 Technically, I agree. However, something has to happen to the invoices that are never paid. Call it what you may, I was suggesting that including that in your video would've been helpful.
Great great great. Thanks!
Must you do a credit memo to write it off or can you just add the credit without a credit memo by going directly to a "customer payment" and applying a credit there under the "Discounts & Credits tab" for the amount you're trying to write off for each invoice open on that particular account? I'm very eager to know especially for accounts that have multiple open invoices that need to be written off. Your response is greatly appreciated.
Great question Cinthya - yes, you could click on the Discounts and Credits and write off the balance to a Bad Debt account for each invoice instead of creating a Credit Memo. In addition, if you have the Client Data Review Tool in the Accountant version of QuickBooks, you can write off batches of invoices all at one time.
@@newbusinessdirections Awesome & thank you for the prompt response 😊
@@newbusinessdirections I have done this too. My write off amount, $500, shows as a "discount and credit" in my invoice. Now this is my QUESTION: Today ( 5 months later), the customer paid $300 of this amount that was written off. ...so now, HOW DO I REVERSE THIS $300? (Bad debt RECOVERY). 🤔
that sounds plausible - you could create another invoice for the $300 and use the item for bad debt
Great video, thank you!
Glad it helped!
If your invoice is a Tax invoice, when creating bad debt in item & Service. Do you change the Tax Code to Tax? so when writing off the debt it will write it off inclusive of Tax?
yes, you would need to separate taxable vs. non-taxable write off amounts.
Perfect video, got it cleaned up! Thank you.
Thank you that was very helpful :)
Glad it was helpful!
I have a question: why this invoice shows up in the Sales Tax Liability report? Why do I pay tax for the money I didn't receive? What did I do wrong?
Hi Nalini K - You should not be paying sales tax on the invoice that you have written off and if you look further below in the comments, you will see details regarding that piece of the equation. The credit memo needs to be increased for the sales tax.
Great thank you
Our pleasure!
Thank You
As a supplier to Markets and we get deduction for Spoils - we do not get products back but we need to record that as a credit against future bills. These Spoils does not affect inventory -- it is a loss. How do I records that in credit memo
Sounds more like an inventory adjustment than a bad debt. If It’s actually on the invoice, then you’ll want to credit those items Or have an item for the spoils
This video gave me some insight into my problem but not 100% We do our books on a "cash basis" so we do not claim an invoice as income until we collect for it. We still end up with some customers not paying us for our services. I have a customer with an accounts receivable balance whom I will not be getting paid for. I want to zero his account but I do not need to show an expense on my P&L since I have never claimed the sale as income for income tax purposes. I think I can create the same item as you did but want to attach it to an account that will not show up as an expense on my P&L? Help!
Hi Bruce - if you create an invoice in QB, behind the scenes it debits Accounts Receivable and credits and Income account - if you are on the Cash basis of accounting, you'll want to map the Bad Debt item back to the Income account that it originally posted to - that way you won't have anything in your expenses, but you will reduce the income that was recorded when you created the invoice. Hope that helps!
Can you use this for damaged inventory too?
I would not use this procedure for writing off damaged inventory. There are separate inventory activities to handle such things. Adjust quantity/value on hand is what you should use to write off damaged inventory.
How at left of your quickbooks screen have opened a menu or tasks views or opened window list menu appeared?
Please tell me..
In the very top ribbon there is a drop down menu under View. Click Open Window List
@@newbusinessdirections
Thank you so most, I've checked now and found it. Love you that you helped me. 😊
Can I do this with finance charges?
yes, if you want to write off finance charges you can do that with this procedure as well.
Can you do how to write off travel expenses
What do you do if the customer decides to pay the invoice after you would have created a bad debt for that customer.? Treatment/ Video.
I recommend only writing off to bad debt if you are confident that you will not collect the receivable. However, in the off-chance that you do, you would just record the money as revenue.
Thank you madam
You’re welcome 😊
I have a few clients who have paid; however, due to international wire charges, the payments come up short. I'm now trying to reclaim the VAT that we would've paid for on those invoices.
Should I use this credit memo method or should I use the discount method? I know that the credit memo would decrease the VAT, which is what I'm looking to do, but can the discount method also work to reduce VAT Output?
Hi Daniel - I am not sure what you mean by "reclaim the VAT" - are you trying to reduce the VAT for the wire charges? You can write off the wire charges either by credit memo or by discount - either one will work to remove the receivable from the books. I do not believe that it will reduce tax/VAT.
@@newbusinessdirections Thatnks for the response I was able to resolve the matter.
Hello, thanks for the video. Question: What if the invoice amount is negative, how can we write it off?
If the invoice is negative, then it’s not an invoice, it’s a credit memo. You would need to create an invoice to an item called write off that is mapped to bad debt expense. Then apply the credit memo to the invoice. Unless of course, you actually owe the money to the customer, at which point you should not be writing it off, you should be writing them a check.
Is there a difference between Bad Debt (Write-Off) Expense (in QuickBooks) and Gift-In-Kind? Can you please explain.
Hi Laura - apples and oranges - Bad debit/write off is writing off a revenue that you will not be collecting for a sale that you made. Gift In-Kind is something that happens in nonprofits when someone provides specific and credentialed services for which you record both an income and offsetting expense.
I have buy diesel 40 ton @ 1020 USD and sold it on 40 ton @ 915 USD now I have loss on 26 ton @ 105 USD = 4200 loss
Perfect
How does this work if the debt you are writing off includes sales tax? The net amount is the bad debt which has been provided for but I also want to reclaim the sales tax that has already been paid?
Hi Glen, thanks so much for your question; you'll find the answers in the comments on this video.
I didn't have a apply window to pop up, how do I apply to invoice?
I'm using Quickbooks 2015 for mac
I don't know enough about QB for Mac to guide you in the correct answer to your question. It could be in your preferences to allow pop-ups or you may just need to apply the credit as a payment to the invoice.
What if there was sales tax on the invoice? How do you back out already paid for sales tax on an uncollectible account
You will need to make note of which items on the original invoice that is being written off or taxable versus non-taxable and he will need to enter two separate lines on the credit memo, one for the taxable items and one for the non-taxable items and in the last column to the right you will need to select either tax or non-tax and that should calculate the return to sales tax
I need to record bad debt, but don't have invoices in QuickBooks .
It would help if you spoke at a slower pace