How to write off bad debt

How To
1

I have a client who’s client has gone bankrupt. There was a settlement. We were paid for part of our invoicing. How do I go about writing off the bad debt that we will not receive? Thank you.

2

Hi Ely,

You can use a Journal entry to write off your Bad Debt for this customer.

  • First, you need to set up a Bad Debt GL account.

  • Then, you can create a Journal Entry with line having your AR account and customer under it and other with “Bad Debt” account.

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  • Now, you can apply the Journal entry to the invoice to get the invoice to 0.00 by clicking on “Apply Credits” from “Actions”.

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This will settle off your bad Debt.

Regards,

Faiz

3

Thank you Faiz! Very helpful.

4

We do a similar thing, but we make a non-inventory item associated with the Bad Debt account, aptly named “Bad Debt”. This way we can make a simple credit memo with the bad debt item to do all the same accounting.

We do a similar thing for bounced checks where the item group is a bounced check fee, a debit to undeposited funds and an item to bill for the new check to replace the first back into undeposited funds.