Quickbooks  in Adjusting Accounts Receivable

If your business uses receivable accounts to track customer payments chances are you have a few customers that have over payed or refuse to pay for products or services. In either case these receivables will stay on the books unless they are cleared out.  Here is how to use Quickbooks in Adjusting Accounts Receivable.

Clearing out an over payment:

We will be using an invoice to zero out over an payment in a customer’s receivable account. The over payment will be written off into an expense account. It is recommended that you create an ‘Other Expense’ account specifically for this. This way if an adjustment needs to be changed or deleted it can found easily.

If you haven’t done so already create a new ‘Other Expense’ account:

1. Begin by opening the ‘Chart of Accounts’ window. On the top menu bar click on ‘Accountant’ and select ‘Chart of Accounts’ from the drop down.
2. Right click in the window and select ‘New’ to create a new account.
3. Select ‘Other Account Types’ at the bottom of the window. In the drop down next to this option select ‘Other Expense.’
4. Click ‘Continue’ in the bottom right corner of the window.
5. Name your new account. You will use to write off the overpayments. It is recommended to use a specific name like ‘A/R Adjustments.’
6. Finally click ‘Save & Close’ at the bottom of the window to finish creating the new account.

With your expense account created, make a new invoice item. This is the item that we will use to adjust customer accounts:

1. Begin by opening the ‘Item List’ window. On the top menu bar click on ‘Customers’ and select ‘Item List’ from the drop down.
2. Right click in the window and select on ‘New’ to create a new invoice item.
3. Select ‘Other Charge’ as the item type in the ‘Type’ drop down menu.
4. Give the item a descriptive name. Something like ‘Overpayment Adjustment’ is recommended.
5. Next choose the account this item will go against in the ‘Account’ drop down. Select the account created in the previous step or the account that you would like to use.
6. Finally click ‘OK’ in the top right corner of the window to finish creating the invoice item.

Now you are ready to zero out customer over payments:

1. Before you begin write down the information for the customer account you will be adjusting and the amount you will need to debit from their receivable account.
2. Begin by opening the ‘Create Invoices’ window. On the top menu bar click ‘Customers’ and select ‘Create Invoices’ from the drop down.
3. Select the customer’s account that you will be adjusting in the top left corner of the window with the ‘Customer Job’ drop down.
4. Next under the ‘Item’ field in the invoice select the invoice item you created to make accounts receivable adjustments.
5. It is recommended that you leave a detailed description of the adjustment in the ‘Description’ or ‘Memo’ fields to avoid confusion in the future.
6. Under the ‘Amount’ field enter the adjustment amount you wrote down earlier.
7. If you need to change the date the adjustment will take effect, change the ‘Date’ field to the required date.
8. Finally click the ‘Save & Close’ button in the bottom right corner of the window to finish creating the adjustment invoice.

The customer’s Accounts Receivable should now be zeroed. It is recommended that you check the customer’s receivable account to make sure the invoice was entered correctly and had the desired effect.

Clearing out a bad debt:

If your accounting is done on a cash basis or the uncollectible invoice amounts will not significantly affect your gross sales there are two simple ways to clear out bad debts. You can either issue a discount on the bad debt in question or mark as a bad debt.

Issuing a discount for an invoice:

1. Begin by opening the ‘Customers’ window. On the top menu bar click ‘Customers’ and select ‘Customer Center’ from the drop down.
2. Find and click on the customer’s name whose receivables account needs to be adjusted.
3. Find the invoice or invoices that are outstanding and double click on one to open the ‘Create Invoices’ window.
4. Insert a new item into the invoice and select ‘Discount’ for the item type.
5. Make sure to leave a specific description to avoid confusion in the futue.
6. Enter the amount being written off in the amount field.
7. Select ‘Save & close’ to finish editing the invoice.
8. Repeat these steps for any invoices that need to be written off.

Marking the Invoice as a bad debt:

1. Begin by opening the ‘Customers’ window. On the top menu bar click ‘Customers’ and select ‘Customer Center’ from the drop down.
2. Select the customer whose receivable account needs to be adjusted.
3. Find the invoice or invoices that are outstanding and double click on one to open the ‘Create Invoices’ window.
4. When the invoice opens, on the bottom left click on the ‘More’ button and select ‘Void’.
5. A window will pop up asking you to confirm voiding the invoice. Select ‘Yes’
6. Repeat steps 4 to 6 for each invoice you need to void.

Quickbooks in adjusting accounts receivable

It is recommended that you check the customers receivable account to make sure the adjustment had the intended effect.

If your business reports on an accrual basis voiding bad debts is a bit more complicated. The invoices have already been reported as income but are no not collectible. It is recommended that you talk to your accountant to find solution.