Guide: Record Bad Debt in QuickBooks Online Solution
When you bill a customer but refuse to pay them for any reason, you face bad debts. As any small business owner knows, unless they write off this bad debt, it will show up on their accounts receivable and net profit, which means they will be taxed for it too. QuickBooks Online is a popular accounting service that makes it easy to record and write off bad debts. That way, you don’t have to worry about paying too much in tax. In this article you will learn exactly how to do it.
Phase 1: Identification of bad debts
Before you start, you should check your account for bad debts outstanding. Here is how to do it: This is a report that contains all your outstanding receivables. If your customers have refused to pay any of these, they are considered bad debts and should be written off accordingly.
Phase 2: Separation of bad debts
Now that you have identified bad debts, you need to create a separate account for this. Do the following:
This will open the Account Settings page. There you need to do the following:
Stage 3: Specify the details of bad debts
The next step is to specify the details of bad debt by setting up a product or service item for it. Again, you must click on the Equipment icon, only this time select Products and services in the Lists section. As in phase 2, you must now click on the green button labeled New. From there, do the following:
Phase 4: environment Up a credit note
Now that the item has been created, it is time to create a corresponding credit note. You can start by pressing the “+Icon and select Credit note of the Customers section. Then do the following:
Phase 5: applying the credit note
The credit memo is automatically applied if you have enabled this option. If not, you can do it by going to it Account and settings menu. From there, follow these steps:
Phase 6: finalizing the report
Because the credit notes are automatically applied to doubtful debtors, you now only need to run a report that contains the details of these debtors. To do this, you essentially have to go back to Stage 1 and back to your Chart of accounts. This time you will see Bad debt as one of the options in the expense account section. Just open the drop-down menu in it Action column select Run report, and you have a report with all the relevant information about your bad debts.
Write off bad debt
While this process may seem complicated, it is quite simple. If you follow the instructions in this article, you should have no problem withdrawing and debiting bad debt in QuickBooks Online. Keep in mind that these steps are for the online version only. If you’re using desktop software, some steps may vary, but the process itself shouldn’t be that much different. If you get stuck and need help, you can always contact QuickBooks support through their website.
Record Bad Debt in QuickBooks Online Solution: benefits
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