Alexandria, VA

Learn One Tactic to Deal with Receivables that You Don’t Expect to Collect

1. Click the gear box in the upper right corner.
2. Under “Your Company” go to “Account and Settings”
3. On the left side go to “Advanced” and under Automation turn off “Automatically apply credits”
4. Now you’ll set up a new expense account by clicking the gear box in the upper right corner.
5. Under “Lists” go to “All lists” and choose “Chart of Accounts”
6. Click the “New” green button in upper right corner. Under “Account type” select Expense and under “Detail type” select Bad Debt.  Click Save and close.
7. Now you’ll set up a New Service by clicking on the gear box in the upper right.
8. Under “Lists” go to “Product and Services”
9. Click the “New” green button in upper right corner and click “Service.” Change the name to “Bad Debt” and under “Income account” choose “Bad Debts.” Click Save and close.
10. Now you’ll set up the credit memo. Click the “+New” button at the top and select “Credit Memo.”
11. Here, enter the customer’s name and the date you are writing off the receivable. Under “Product/Service” chose “Bad Debt.”  Then enter the amount.
12. Next to the amount is a box “TAX”. If the sale was not subject to sales tax, please unclick the box.
13. Save and close. In the green box at the bottom right there is a white arrow next to “Save and send;” instead, click the white arrow and choose “Save and close”.
14. You may notice if you did not take the action in step 1 above that QuickBooks Online will automatically net the credit memo against the earliest account receivable, which may not be what you want.
15. Now we’ll apply the credit memo to the stale receivable. Click the “+New” button at the top and select “Receive payment”.
16. Here, enter the customer’s name and the date the receivable is to be written off (“Payment Date”).
17. Select BOTH the box for Invoice to be written off and the credit memo. Both boxes need to be checked.
18. Save and close.

Notice that you have written off the accounts receivable to the current year’s Profit and Loss Statement.  You may not want to do that.  For example, presume that the account receivable you are writing off is five years old.  Maybe you want to set up a separate account for the account receivables that are stale for very old years under “other expenses” rather than “expenses” when setting up under “Product and Services” to delineate the write off of the very old receivables or set up under step 3. If you show the write off under “other expenses”, it will appear at the bottom of the Profit and Loss statement.

or

When setting up the “Bad Debt” under “Product and Services” you could choose “Retained Earnings” for very old accounts receivables and then the write off does not appear on the current year’s Profit and Loss statement at all.

To learn more about this issue, watch our YouTube video here.