The best way to write off an invoice in QuickBooks systems – whether you are using QuickBooks Desktop or QuickBooks Online – is to use the credit memo feature. However, there are some additional steps to work in QuickBooks Desktop:
Step 1: Checking Account Receivables Reports for invoices that would be written off
1. Open Reports menu
2. Find Customers & Receivables, then A/R Aging Detail
3. Look for which outstanding accounts receivables should be written off.
Step 2: Prepare Accounts Allowances for Doubtful Accounts
1. Navigate to List, then choose Chart of Accounts
2. Press Ctrl+N to open the Add New Accounts window
3. Choose Type as Account Receivables, rename the account, and put it as a subaccount of Accounts Receivable
Step 3: Prepare Bad Debt Expense Account and Bad Debt Item
1. Open Chart of Accounts again, then press Ctrl+N to open the Add New Accounts window
2. Add the Bad Debt as an expense account, which will appear on the P & L report
3. Choose List, then Item List
4. Click on Item, then New to add Bad Debt Item
Step 4: Move the invoice from Account Receivable account to Allowance for Doubtful Accounts
1. Open the invoice, on the head of the invoice, choose the Allowance for Doubtful Account
2. In case the invoice was paid partially, continue to open its payment and move to Allowance for Doubtful Account. This could help you remain your invoice as partially paid and not create an unapplied payment.
Step 5: Create a credit memo with the written-off amount
1. Choose Customers, then Create Credit Memos/ Refunds
2. Use the Bad Debt Item with the written-off amount
3. The Account is still Allowance for Doubtful Account
Step 6: Check the reports for all necessary transactions
1. Open Reports Menu, navigate to Company & Financial, then Balance Sheet Standard
2. Customized the date range, then double click to open the Account Receivable, which includes the Allowance for Doubtful Account
3. You will have
- An invoice with the total amount of $1,000
- A payment with the amount of $500 and waits for being deposited
- A credit memo with the amount of $500 as a bad debt
Step 7: Applied the credit memo to close the invoice
1. Open the credit memo just created, click on Use Credit to apply invoice
2. Find the suitable invoice, then Save & Close.
3. When you successfully apply the credit memo, the invoice will be marked as PAID by 2 transactions – a payment and a credit memo.
Step 8: Check the Bad Debt Expense account on the P&L report:
1. Open Reports Menu, navigate to Company & Financial, then choose Profit & Loss Standard
2. Choose the date range and you will find both Income (by the invoice) and the bad debt expense
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