How to Write Off Bad Debt in QuickBooks

To write off bad debt in QuickBooks, create a Bad Debts expense account and a bad debt item, then issue a credit memo to the customer for the unpaid amount and apply it to the open invoice. This clears the invoice, moves the amount to bad debt expense, and keeps the customer's history accurate, all without deleting the original invoice. This guide covers the exact steps in QuickBooks Online and Desktop, why a credit memo is cleaner than a journal entry, whether the write-off is tax deductible, and how it differs on cash versus accrual basis.

Bad debt only becomes an issue when an invoice you already recorded goes unpaid, so clean accounts receivable start with reconciled books. If you are catching up before deciding what is truly uncollectible, convert your PDF bank statement to QuickBooks with the tool at the top of this page so every customer payment that did land is recorded, and only the genuinely unpaid invoices remain.

What is bad debt in QuickBooks?

Bad debt is the amount of an invoice you have decided you will never collect, so you remove it from accounts receivable and record it as an expense. A customer goes out of business, disputes the bill and disappears, or simply never pays after months of follow-up. At that point the receivable is not an asset any more, and leaving it open overstates both your income and the money owed to you. Writing it off corrects both.

Before you write anything off, make sure the invoice is truly uncollectible and not just a payment you failed to record. The best defense is to keep a close eye on what customers owe you throughout the month, so a genuine bad debt is rare and obvious rather than a surprise at year-end.

How do I write off bad debt in QuickBooks Online?

Set up the accounts once, then write off each bad invoice with a credit memo. First create a Bad Debts expense account under Settings, Chart of accounts, with the account type Expenses and detail type Bad Debts. Then create a product or service item named Bad Debt and map its income account to that Bad Debts expense account. To write off an invoice, create a credit memo for the customer, use the Bad Debt item, enter the unpaid amount, and save it. Finally, open Receive Payment for that customer and apply the credit memo to the open invoice so it nets to zero.

This keeps the original invoice intact, shows the write-off in the customer's history, and posts the loss to bad debt expense. Do not delete or void the invoice; that would erase the record and distort your prior-period income.

Should I use a credit memo or a journal entry to write off bad debt?

Use a credit memo for a standard bad debt write-off, and reserve journal entries for accountant-level adjustments. A credit memo applied to the invoice keeps accounts receivable, the customer record, and any sales tax correct automatically, which a journal entry does not. If you write off with a journal entry, you have to remember to link it to the open invoice, or the invoice stays on your aging report as still owed. The credit memo method avoids that and is what most bookkeepers use for a clean, traceable write-off.

There is one time a journal entry fits: when your accountant uses the allowance method and books an estimated reserve for doubtful accounts at period end. For writing off a specific known-bad invoice, the credit memo is the right tool.

How do I write off bad debt in QuickBooks Desktop?

In QuickBooks Desktop, create a Bad Debt expense account and a Bad Debt item, then use a credit memo or the Discounts and Credits window. Add a Bad Debts expense account under the chart of accounts, and create an Other Charge item named Bad Debt pointing to it. To clear the invoice, open Receive Payments, select the customer and the unpaid invoice, click Discounts and Credits, and enter the amount under the discount tab with the Bad Debts account, or issue a credit memo with the Bad Debt item and apply it. Either way the invoice closes and the loss lands in bad debt expense.

The logic matches QuickBooks Online: you are moving the uncollectible amount out of accounts receivable and into an expense, while keeping the invoice on record.

Can I write off bad debt on a cash basis?

If you report on a cash basis, there is usually nothing to write off, because you never recorded the income in the first place. Cash-basis businesses recognize revenue only when payment arrives, so an unpaid invoice was never counted as income, and you get no deduction for money you never received. You can still void or clear the stale invoice to keep your accounts receivable report accurate, but there is no bad debt expense to book.

Accrual-basis businesses are the ones that record the income when the invoice is issued, so for them the write-off is what reverses income they were taxed on but never collected. Knowing which basis you are on decides whether a write-off even applies.

Is bad debt tax deductible?

For accrual-basis businesses, a genuinely uncollectible receivable is generally deductible as a business bad debt, because you already reported the income. You must be able to show the debt is worthless and that you took reasonable steps to collect. Cash-basis businesses cannot deduct it, since the income was never recognized. The rules around timing and proof of worthlessness are specific, so confirm the deduction and the year to claim it with your tax preparer rather than assuming every unpaid invoice qualifies.

Keep your collection efforts documented: the follow-up emails, statements, and dates. That record supports the deduction and helps you decide when a receivable has truly gone bad.

How do I write off a small unpaid balance or underpayment?

For a small leftover balance, such as a customer who underpaid by a few dollars, use the same credit memo or discount method to clear it, often to a minor adjustments or bad debt account. Chasing a two-dollar underpayment costs more than it is worth, so writing off the small remainder keeps the invoice from lingering on your aging report. Apply a credit memo for the tiny amount and close the invoice, and your accounts receivable stays clean.

Handling these small write-offs monthly, rather than letting them pile up, keeps your receivable report meaningful so the real overdue accounts stand out.

Keep receivables clean by starting from the bank

The surest way to avoid writing off a payment you simply missed is to reconcile every account against its statement first. Convert each PDF statement so all customer payments are recorded, then only the truly unpaid invoices remain to review. For the follow-through, see the QuickBooks cleanup checklist and the guide on bank reconciliation from PDF statements. If you keep books for several clients, the PDF to QBO converter for accountants converts any client's statement so their receivables tie back to the bank before you decide what is bad debt.

Set up a bad debt item and expense account, write off each uncollectible invoice with a credit memo applied to the invoice, and confirm the tax treatment with your preparer. That is how you clear bad debt in QuickBooks without deleting invoices or distorting your income.