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How Do I Write-Off Bad Debt? [FAQ]
How Do I Write-Off Bad Debt? [FAQ]

Learn how to write-off a client's bad debt in QuickBooks Online.

Jay Sanchez avatar
Written by Jay Sanchez
Updated over a week ago



If I were to write off an invoice, how do I do that properly within LL?

How can I write off the remaining amount due on an invoice? It was partially paid and now I have to write off the unpaid amount. Is there a way to write off the balance of a bill through Lean Law?

A: If a client owes you money, but you're unable to collect on it, it can be written off as "bad debt". This is debt that you know cannot or will not be paid. This ensures your accounts receivable and net income stay updated.

Note: This require access to the firm’s QuickBooks Online account.

  1. Check Your Accounts Receivable Aging Detail Report

    First, you’ll want to review invoices that should be considered bad debt. From the side action menu, click the Reports tab from the dropdown list. From this page, open an Accounts Receivable Aging Detail report where you can check which outstanding accounts receivables should be written off.

2. Open the Chart of Accounts

In Settings (⚙), select Chart of Accounts:

Screenshot of the settings drop down menu with Chart of Accounts highlighted under

3. Create a new Bad Debts Expense Account

If you don’t already have one, create a “bad debts'' expense account. A bad debt account holds the amounts that have been written off by the company due to customers unable to pay what is owed. Initially considered an account receivable, it can then be marked as an expense under a bad debt account. You will only need to complete this step the first time you enter a bad debt.

In the upper right, select New to create a new account.

On the following screen, enter this information:

  • From the Account Type dropdown, select Expenses.

  • For the Detail Type, select Bad Debts.

  • In the Name field, enter “Bad Debts.”

4. Marking a Bad-Debt Entity (Optional)

If you want to distinguish a bad-debt entity apart from your other customers, now would be a good time in the process to take care of this. You can do so by adding a note to their name following the instructions below:

Go to the Sales menu, then select Customers.

Click on the client’s name.

In the upper right, select Edit.

In the Display Name as field, enter “Bad Debt” or “No Credit” after the customer name. Select Save.

5. Create a bad debt item

Go to Products and Services to create a non-inventory item as a placeholder for the bad debt. This isn't a real item, it's just to connect the bad debt entries to your bad debt expense account and to balance the accounting.

In Products and Services, select New and then Non-inventory. On the following screen, enter the following:

  • In the Name field, enter “Bad Debt.”

  • From the Income account drop-down, select Bad Debts.

  • Select Save and close.

6. Navigate to Credit Memo by clicking +New

Select + New in the upper left of the screen. Select Credit memo.

7. Complete & Save the Credit Memo

  • Select the customer from the Customer drop-down.

  • In the Product/Service section, select Bad debts.

  • In the Amount column, enter the amount you want to write off.

  • In the Message displayed on statement box, enter “Bad Debt.”

  • Select Save and close.

8. Settings for Automatically Apply Credits

If you have your Quickbooks Online settings configured to automatically apply credits to open invoices, you can skip step 9 and 10 and move on to Step 11. If you wish to enable this feature, click on the below Quickbooks Online article for detailed instructions:

9. Open a New Receive Payment Screen

Select + New. Under Customers, select Receive payment.

10. Apply the Credit Note to the Invoice

  • From the Customer dropdown, select the appropriate client.

  • From the Outstanding Transactions section, select the invoice.

  • From the Credits section, select the credit memo.

  • Select Save and Close.

The uncollectible receivable now appears on your Profit and Loss report under the Bad Debts expense account in Quickbooks Online. This will also be reflected on the invoice and reporting in LeanLaw.

11. Navigate to the Chart of Accounts

You can now run an Account QuickReport to check all the receivables you tagged as bad debt.

Click on Settings and select Chart of Accounts

12. Run a Bad debts report

Scroll down the chart until you find the Account for which you would like to view the Bad Debts Report. In the Action column of the bad debts account, select Run report.

You have now completed the process for writing off a bad debt in Quickbook Online! We hope that upon completion of this tutorial, you feel confident handling write-offs when the occasion arises.

More Info

Since everyone has different learning styles, LeanLaw includes a variety of types of educational stimulation, including visual and auditory mediums, in an effort to best serve our users in learning and retaining new information. With this in mind, we have included a video created by Tracie Todd, our in-house Quickbooks Online Expert entitled Writing off Bad Debt covering many topics in this article, as well as additional edification regarding bad debt accounting.

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