In QuickBooks, you can easily write off bad debt to avoid overpaying your tax obligations while maintaining accurate records. To write off bad debt, you can define a Bad Debt expense item to apply to credit memos against any invoices you wish to write off.
To create the Bad Debt expense item, you can follow these steps:
- Select New from the main menu and then Credit Memo.
- Inside the credit memo, click on the Product/Service Field and then select Add new.
- Select Service as the product type.
- Enter the name of the item as “Bad Debt.”
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- Select an expense account to be used for bad debt as the income account type.
- Set the sales tax category to Nontaxable so you can define tax on each individual credit memo.
Once the Bad Debt expense item has been created, you can use it whenever you need to write off bad debt. Each time you create a credit memo for a write off, simply select the already created Bad Debt item under Product/Service. Apply the sales tax to match the original invoice, and then apply the credit memo to the appropriate invoice to complete the write off.