does your law firm have clients that sometimes cannot pay their legal bills
well then you need to know how to record writing off uncollectible clients
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sometimes clients who owe us money become bankrupt broke or insolvent this means any
balance they owe to us has become uncollectible we therefore must remove their balance
from the client's records this also affects the chart of accounts the name of the expense account
that you will have if you write off a client's balance is called uncollectible legal fees and
at the moment you write off the client's balance that expense account will increase
you also have to remove the client's balance from either the unearned legal fees or legal
fees receivable account and at the moment you remove the client's balance that account goes down
don't forget you also must remove the client's balance from the client records
not just the chart of accounts so here are your options for removing a client's balance
and writing them off as uncollectible first you could make a journal entry
or you could use the accountants tool to write off the uncollectible invoices
and you could use that tool if you were logged into quickbooks desktop as the accountant user
but these would be two options that accountants would use if you're the bookkeeper of the law firm
it is better to do the procedure that we will learn here it involves setting up an
item on the items list so that's uh so that you can use it anytime we must write off an
uncollectible client's money so how do we set up quickbooks to write off uncollectible clients well
first we must add an account to the chart of accounts called uncollectible legal fees and
we have to add an item to the items list called uncollectible balance write-off and then after
that we will discuss the procedures of writing it off first we'll go to the chart of accounts
click list chart of accounts account new this is an expense type of account leave cap locks on
and now we click save and close now on the items list we add an item called uncollectible balance
write off and we will connect it to the uncollectible legal fees expense account
that we just recorded so we click list item list item new even though it is not really a service
we make it a service type of item and the name of the account that we connect it to is this
expense account that we just made uncollectible legal fees and of course the name of the service
or the name of the item should be uncollectible balance write-off
barely enough characters click ok and now we're ready to write off an uncollectible client
so here are the procedures when we determine someone is uncollectible we must make a credit
memo for that client and on the credit memo we choose the item we just put on the list
called uncollectible balance write-off we input the balance of the client that will be
the bad debt expense and then after we record that credit memo we apply
the new credit memo to any open invoice that remains for example let's imagine on april 30
2017 we did legal work for betty worth ten thousand all right let's just record that invoice
so on april 30th it was betty and we click invoice and the date will be april 30 of 2017.
and the client is betty and we did legal services for betty in the amount
of ten thousand dollars click save and close click no now we can check the client balance detail and
see that betty has a ten thousand dollar balance and we can check open invoice and we can see
that uh payments and invoices have not yet been completely applied to each other
but we'll stick here at the balance for now the balance detail for now now let's imagine on may 1
betty passes away with no assets we have to write off her balance and make her inactive
so how do we do that well it's very simple okay get rid of all the open windows and we click
customer create credit memo now the date will be the date that we determine she was uncollectible
in this case may 1 of 2017 okay we have to make sure that we're choosing the correct account
and the only way to know if we're choosing the correct account is look over here
betty's balance you can clearly see that these invoices are in the unearned legal fees account
therefore that's the account you choose when you make the credit unearned legal fees because
that's where the balance of betty is laying is staying that particular receivable account
and then of course we choose betty boop and of course the item that we put is uncollectible
balance do you want to continue click ok and the amount of credit that we're putting
because that's the amount uncollectible as of may one
is ten thousand you could make extensive use of the description field or the memo field
in order to add more details about this event which basically writes off the client's balance
now when we click save and close just click ok and you can see we have successfully with this
credit memo made betty's balance zero if you look at the trial balance you can see
that uncollectible legal fees uh showed up for the first time as 10 000 and unearned legal fees
has uh basically become more negative as a result of writing off that balance you