Writing off old invoice balances (2024)

‎March 10, 202309:45 AM

I need to write off some old invoice balances for one of our clients. Our company is cash basis. I've been looking on this site researching how to accomplish this and it appears I should create a credit memo. However, the instructions say to go to the "Customers" menu to do this. I do not have this - maybe my version of QB is newer? How do I do this? Thank you.

• QuickBooks Online

Rainflurry

Hey @kellyr2, great to see you again. We can have this done with some easy steps.

If the invoices you send in QuickBooks become uncollectible, you can record them as a bad debt and write them off. This way, it ensures your accounts receivable and net income stay up-to-date. Here are the steps to write off invoice balances.

To start, create an expense account and create bad items as a placeholder for the unpaid invoices.

Next, make a credit memo and apply it to the invoice. Follow these steps:

1. Go to the+ Newbutton.
2. ClickCredit memo.
3. Select the customer from theCustomer ▼dropdown.
4. In theProduct/Servicesection, selectBad debts.
5. Under theAmountcolumn, enter the amount you want to write off.
6. And in theMessage displayed on the statementbox, enterBad Debt.
7. SelectSave and Close.

These are the steps to apply the credit memo to the invoice:

1. Go to+ New.
2. Under Customers, selectReceive payment.
3. From theCustomer ▼dropdown, select the appropriate customer.
4. Under theOutstanding Transactionssection, select the invoice.
5. From theCreditssection, select the credit memo.
6. SelectSave and Close.

You may visit this article as your reference when you reconcile an account to ensure your accounts in QBO are balanced:Reconcile an account in QuickBooks Online.

If you have any further concerns about your transactions, please don't hesitate to post them here. Have a great day!

@kellyr2

The answer provided by @JamesAndrewM is incorrect. Cash basis taxpayers should not use bad debt expense because you would need to record income to offset the bad debt expense and cash basis taxpayers only record income when payment is received. If you create a credit memo and apply it, QB will book the income from the invoice and the expense from the credit memo, which you don't want since you never received payment. That procedure is for accrual basis taxpayers only.

The proper way for cash basis taxpayers to handle those invoices is to zero them out.

@kellyr2

That's not a stupid question and I'm not sure my way is the best way. To zero out invoices, I change the amounts on all products/services to $0. If you delete the invoice, it would put any inventory items back in stock which you don't want. Then, I make a note (in the description field of each product/service or one of the message boxes) with the original invoice amounts. You can take a screenshot and save it as an attachment if you prefer. That way, if the customer ever comes back and can pay the invoice, you have a copy of the amounts.

Hello,Rainflurry.

I appreciate you for always sharing your knowledge about QuickBooks. This will definitely help other users as well in the future. Please keep on posting here in the Community.

Stay safe and have a great rest of the day.

I have some information that I want to share. This will guide you on what you're going to do to ensure you're doing the right thing, Audarah1.

When you account for your bad debts depends upon whether you use the cash or the accrual basis of accounting. If you use the cash basis, you recognize income only when a payment is received. With bad debts you simply never record the income that you were expecting to get.

Bad debt can greatly impact sales. You'll want to reach out to your accountant and double-check with them if zeroing the invoice amount using the two different accounting methods has implications for your sales tax. Your accountant possesses more deep accounting knowledge and understanding with a strong foundation that understands your concern and your business as well.

Additionally, QuickBooks Online (QBO) provides several reports that show the different aspects of your business. You'll only have to customize them to make sure you'll get the information you need most. I've added this article for more details: Customize Reports In QuickBooks Online.

I'm happy if I could do this right for you. You can always get back to us if you have any questions about bad debts. We're always right here to help you anytime. Have a great day ahead!

I'm a licensed CPA... bad debts should never be on a cash basis payers books. I know what they are. Cash basis means the particular invoice that was paid is now on the Profit and Loss for ONLY the amount that was paid. If you bad debt the rest, you're going to dwindle sales down. You CANNOT take an expense based on income that you never reported in the first place. Stop telling customers this!

@Audarah1

I have a few clients who have cash basis books and I figured the same thing- just zero it out. But doesn't that have implications for sales tax?

On cash basis, QBO doesn't book the sales tax payable liability until the invoice is paid. Therefore, zeroing out the invoice does not change sales tax payable. Your state may have different rules, however.