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When a customer is unable or refuses to pay the debt. Then you can’t just delete the invoice because by doing this you’ll lose the information related to that customer and you may sell your products to the customer again. Therefore it is necessary to learn how to write off an invoice in QuickBooks.
The reasons behind the due payment could be the bad financial condition of the customer or an underpayment due to some error from the customer’s end. Maybe he doesn’t want to pay the amount for other reasons.
No matter what the reasons are if you don’t write off unpaid invoices properly then you may have to pay sales tax that you never actually collected.
How to Write Off an invoice in QuickBooks Online
Here, we are showing you how to write off an invoice in QuickBooks Online using Credit Memo Feature. In this way, your sales tax liability account will be restored to the original condition as same as before the bad debt issue.
- First, open the invoice you want to write off and for this click on the +New icon then Sales<Customers.
- Next enter the customer name and choose the invoice from the list.
- For creating a new credit memo, open a new tab in the browser and then click on the +New icon. After the select ‘Credit Memo’ from the Customers column.
- In the credit memo window, fill the customer name, billing address, date at which you are writing off the invoice.
- For creating a Bad debt item, go to Products and Services and then ‘Add new’.
- After that, a new window will come up. Here enter ‘Bad Debt’ in the name field and choose ‘Bad Debt’ in both category and account type.
- The next thing you need to do is click on the ‘Gear’ icon and select Product and Services. Then add a new product where in place of name enter ‘Bad Debt’ and select the ‘Bad Debt’ account you created earlier.
- Now enter the amount of the invoice you are writing off. You can enable the sales tax option and then ‘Save and Close’.
- The last step is to implement the credit memo.
- Click on + New and then Receive Payment. Then select the customer and the invoice you want to write off in the Outstanding Transaction.
- Next, in the Credit section select the credit memo that you have created earlier.
- The amount after applying the credit memo should be zero.
- If everything seems in place you can now ‘Save and close’.
How to Write Off an invoice in QuickBooks Desktop
In QuickBooks Desktop we’ll be using the same method as we used in the Online version. Some steps could be different from the QBO version so follow the instructions carefully.
- From the Customer-Menu at the top. Select ‘Customer Centre’.
- Then in the next window, enter the customer name on the left side and select the invoice from the list.
- Again in the Customer tab, select ‘Create Credit Memo/Refunds’.
- In the Credit Memo window, Enter the customer’s name and the date of writing off an unpaid invoice. The credit memo number will automatically be filled by QuickBooks.
- The next step is to create a Bad Debt field. For this click on ‘Item’ then ‘Add new’ and select ‘Other charges’ as a type. Then in the item name enter Bad Debt.
- Add a new product but instead of using original products/services use the ‘Bad debt’ that you created in the previous step. Unmark the box saying ‘Is Taxable’ and then save and close.
- Then, enter the pre-text amount of the bad debt/unpaid invoice.
- Select the invoice you want to write off then click on the ‘Use credit to apply to invoice’.
- Lastly, select ‘Save and close’.
Frequently Asked Questions
Do you have to pay tax on the unpaid invoice?
According to the IRS rules, for a tax deduction on the amount of unpaid invoices taxpayer must include the amount of invoice in the previous year’s tax return. Let’s say if you created an invoice in December 2019 and the payment due date is in January 2020. Then you have to include the amount in the 2019 tax return file.
How many days clients have to pay their invoices?
30 days (NET30) are the standard for most of the invoices to pay the invoice amount. It could also depend on the payment amount of invoices and types of businesses like NET10, NET20, and NET60.
Writing off an unpaid invoice will save you from paying the tax on income you never actually earned. There are numerous methods available on how to write off an invoice in QuickBooks but by using the above-mentioned methods there will be no effect on your financial statement whatsoever.
If you have any issue related to the QuickBooks that affecting the performance of your business then QuickBooks ProAdvisor team are here to help you. Our team consists of top-rated certified experts who have a lot of experience.
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