QuickBooks Tips & Tricks - Bad Debt

At the point you determine that customer is not going to remit payment on an outstanding invoice, you will need to "write off" the amount as bad debt.

	Confirm the procedures your accountant would like for you to follow, including any necessary documentation to support the decision that payment will not be received.

The most efficient way to enter the bad debt amount into QuickBooks is as follows:.

1. Create an "Other Charge" type item for bad debt, coded to the general ledger account of Allowance for Bad Debt, Bad Debt Expense, or an income account (if the desired result is that the cash basis reports should show the income as net, rather than income and a corresponding amount for bad debt) depending on the accounting procedures used. If unsure, check with the Accountant.

2. Create a credit memo. Depending on the version, this choice may be under "Activities" or "Customers" on the menu bar. Enter the customer name, the current date (i.e. when the decision was made that the amount is not collectible) and the software will automatically assign the credit memo number (this is in the same sequence as invoices). In the detail section of the credit memo, enter the newly created bad debt item for the amount of the sale to be written off. Be careful to enter the appropriate amount for the bad debt and classify it as taxable or non-taxable (the same as the original item on the original invoice) so the calculated sales tax amount is correct. Do not simply enter the invoice total if sales tax is an issue for the business. To avoid overpaying the sales tax, this transaction must be recorded correctly to result in a reduction in the amount of sales tax payable for the current period.

3. Choose the receive payment option from the "Activities" or "Customers" pull down to "link" the credit memo and invoice. In the older versions, enter the customer name, then check the box in the middle of the form to apply existing credits. In the newer versions, you may receive a few errors, but just continue to acknowledge them and eventually click on the invoice, then set credits to link the two transactions together.

---

As a resource for this and other questions, submit a question via "Ask the Expert" or attend our free, monthly discussion forum tele-class.

Bonnie J. Nagayama, CPA (925-247-0100) has been featured by Intuit in their QuickBooks Advisor Spotlight and frequently teaches and consults on using QuickBooks to its maximum advantage. For a FREE weekly newsletter of QuickBooks tips and tricks, plus many free and low cost QuickBooks resources visit www.4luvofbiz.com.