would you like to learn the absolute best method of writing off invoices that have
become uncollectible from your customers well then you should watch this video using the items method
of writing off uncollectible invoices if you have any questions about this topic you can leave them
in the comment section below and I'll do my best to help you and of course if you feel the video
helped you I hope you will click like and don't forget to subscribe to get updates on new videos
that come out all the time this video is a bonus video it is added to our course after the fact
by popular demand from the students who've taken the course it's not a follow along step by step
because it's not really part of our continuous little story that we've been following in this
course in other words the numbers on the screen won't match the numbers in your account this is
just an interjection video for us to demonstrate how you would write off uncollectible invoices now
let's just remind ourselves from the prior video about the context of writing off a customer's
balance well you would have to determine that a customer's balance is uncollectible through normal
reasons such as bankruptcy disability or death the invoices remain in your customer records as
unpaid so how do you remove them well the name of the deductible expense that this situation
creates is called bad debt expense and we saw this in the prior video bad debt expense lowers
your profit and net income on your profit and loss statement now what happens when you write
off a customer's invoice well the customers balance is in the accounts receivable account
so accounts receivable will decrease at the moment you write off the invoices and of course bad debt
expense that represents the money you lost from writing off uncollectible invoices will increase
the method that we learn about in this video is the most appropriate method for non accountants
to write off their uncollectible invoices it involves three simple steps where the first step
is simply setting up for the method and the other two steps happen when you write off invoices step
one we will set up and prepare QuickBooks Online to be able to use this method by creating a non
inventory part on the products and services list when we do this we will connect the item
to the bad debt expense account well we already learned how to create a new item here we are in
the items list if you want to get there click the cogwheel then go over to lists and click products
and services and that will bring you to the list of products and services then you will click new
now this is a non inventory part because we're not selling this item to the customer double-click and
you can give it any name you want let's call this none non collectible or any name you want but the
most important thing is to connect it to the bad debt expense account save and close so this will
be the item that we use and this will make the bad debt expense account increase at the moment
that we write off the invoices now on the day you right off the invoice you actually create a credit
memo and use the bad debt other charge item that we just made and put that on the credit memo then
after you record that credit memo very simply you then apply the credit memo in the receive
payment window for example let's imagine on May 6th of 2020 we determined that Alan RB cannot
pay let's take a quick look at what's going on we click reports and we click the open invoice
report and we see that Alan RB owes us for two invoices for a thousand dollars each so if Alan
cannot pay that means the amount of the write-off will be two thousand dollars and we have to remove
these from the open invoice report we should also take a look at the trial balance and see I made it
very simple so that you can understand right now the only two accounts and the chart of accounts is
the sales income that was earned when we recorded all of our invoices and the accounts receivable
account that represents the total of all of the balances of all of the customers so if we are
writing off $2,000 worth of a customer's balance accounts receivable will decrease and become 4000
and you will see bad debt expense appear on the trial balance for the two thousand dollars that
we just lost for writing off Alan's balance so we will make an item or we have already made an item
on the items list called uncollectible invoice or uncollectible or whatever name we gave it we've
already connected it to the bad debt expense account and now we will do the two other steps
so what was the first step we create a credit memo click new and go down to credit memo we said that
the customer was Alan and that the date that we're writing this off is May 6th of 2020 now all we
have to do is choose the non collectible item and put the total amount of the customers balance so
it does not have to be equal to a specific invoice it can be equal to all of the invoices that we are
writing off in this step now when we click Save and close it's so simple we now see that bad debt
expense has appeared in our trial balance for $2000 and accounts receivable has decreased by
2000 because a customer's balance has decreased by 2000 so the trial balance is fine but when
we click reports open invoice we can see that Alan Allen's balance is completely gone completely gone
it has been written off because the credit memo has been applied to those invoices and that's
why Alan neither of those Alan invoices show up on the open invoice report now you should look
at the very last transaction recorded the very last transaction recorded down here is notice
QuickBooks did you a favor it made the credit memo for Alan and then it made a zero dollar payment a
zero dollar payment in other words behind the scenes QuickBooks recorded this payment where
it applied the $2,000 credit memo to each of the invoices that were still open on our books and
noticed the default date that QuickBooks did this for us is whatever date you're doing not the date
of the credit memo I'm recording this video on May 9th so it applied the credit memo that
lowered the balance to the open invoices that we were writing off and it applied that automatically
and stamped it today's date and that my friends is the best method of writing off invoices