were you ever notified that someone who owes you for past invoices is no longer able to pay well
then in that case you should watch this video 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 that was added to the course after the fact by popular demand I originally
did not put this as part of the course because I assumed it was safer to have an accountant right
off the invoices that are uncollectible but if many self-employed people wish to write them
off and record them by themselves I'm happy to add this to the end of the course just keep in
mind this is not a follow along step-by-step video it's not part of the continuous story
it was just added to the course after the fact and it's only a demonstration but you should be
able to learn from this demonstration and apply it to your own books and records when you write
off a customer's balance it's usually because you have determined that a customer's balance
is uncollectible usually it's for some reason like bankruptcy or they became disabled or passed
away or some other reason that prevents you from collecting on those invoices the invoices remain
in your records unpaid so how do you remove them well the name of the deductible expense that this
situation creates is called debt expense and it is a legitimate business expense that decreases
your net income on your profit and loss statement so what happens when you write off a customer's
invoice well accounts receivable where all customers balances are held will decrease
because you no longer have the customers balances as part of accounts receivable and the expense
that you can deduct from your taxes for clients who owe you for services that never paid that's
called bad debt expense and that will increase for each of the clients invoices that you write off
now there are two ways to write off a customer's invoice you can make a journal entry or you could
use the accountants toolbox if you choose to use the accountants toolbox to write off an invoice
you must be either logged in as the accountant user in your quickbooks online account or you must
be using the accountants edition of quickbooks online in order to get to the accountants toolbox
so first let's look at the trial balance that i set up and you can see there are only two numbers
here just to make this demonstration very simple the accounts receivable is the total of all open
invoices we can go back to the open invoice report and we can see three customers have two invoices
each for $1,000 just to make the money amounts nice and round so the demonstration is easy to
understand so here's our example let's imagine on May 6 of 2020 we determine that Priya the
procrastinator cannot pay now you will notice in her account she has two invoices for $1,000 each
and the first demonstration we'll be using the accountants toolbox to write off the earlier one
again remember that the trial balance has no bad debt expense now and has accounts receivable at
six thousand but after we do this accounts receivable we'll go down to five thousand
because I'm only going to write off one invoice using the accountants toolbox and when we come
back to the open invoice report we will see that invoice will be gone from Priya's balance we click
the accountants toolbox assuming you're using the accountants addition or logged in as the
accountant user and we click write-off invoices now we choose the date to be a custom date and
we choose May excuse me May 6th of 2020 after you set the date click refresh and here are the
invoices that appear all the invoices before this date now we want to remove just this one
the thousand dollars see now both of Priya's are uncollectible but I only want to use one to show
you how the accountants Edition would work so the name of the expense this is our chart of
accounts and I already put in the chart of an of accounts an account called bad debt which is an
expense so you simply select the invoice that is uncollectible and make sure you choose the
proper expense account you could choose the one that QuickBooks Online gave you or you could make
your own but this is where you would choose the account so after I click preview and write off
the trial balance will show accounts receivable has decreased down to 5,000 and $1,000 will show
up for the first time in bad debt expense click preview and write-off and then click write-off
okay now it says the write-off is complete we close and you see now it's gone and now when
I click reports and go to the open invoice report Priya only has one invoice left because the other
one has been written off what is the consequence to that well if we click reports and we go to the
trial balance you can see that bad debt expense showed up for the first time as one thousand an
accounts receivable has decreased from a moment ago when it was six thousand it is now down to
five thousand if you are not logged in as the accountant user or using the accountants edition
of QuickBooks Online then you must write off the invoices by using a journal entry you must know
how to make journal entries and you can watch videos that I have made on this very website
in order to do that and you must know that you have to include the customers name on the same
line as the accounts receivable account when you make the journal entry and when you make
the journal entry you're not finished after you make the journal entry you have to then apply
the journal entry to the invoice in the receive payment window so let's take a look at how you
would do it if you're not using the accountants tool you would have to click new and you'd have
to go all the way to the right and go down where it says journal entry now we agreed that the day
that we're writing it off is May 6th of 2020 and we know that it is the accounts receivable
account that is decreasing and we have to choose the specific customer so we choose Priya we also
have to know the amount that we're writing off because with the accountants tool you can choose
the specific invoice and it knows the amount but if you're making a journal entry you have
to remember the amount and you can even write off two at once and put the amount for two at once but
we're only gonna do one so it's a thousand dollars that we're decreasing Priya's account and accounts
receivable and the balancing account is bad debt okay we can get to bad debt here we go so bad debt
expense will increase by a thousand dollars for this other invoice that we're writing off and it
will become two thousand in the trial balance an accounts receivable will decrease from five
thousand to four thousand and Priya will have a zero balance click Save and new and now when
we take a look at the trial balance you can see accounts receivable decreased to four thousand
because we just lowered it by the invoice that we wrote off from Priya and bad debt expense
increase to two thousand but the interesting thing is on the open invoice report notice it
lists both the invoice and the journal entry and even though Priya's balance is zero the invoice or
the invoices that we wrote off with the journal entry will still show up on the open invoice
report until we use the receive payment window to apply the journal entry to the invoice we click
new receive payment we choose the customer notice QuickBooks remembers the date now notice we have
an invoice and a journal entry and they're checked off meaning were applying the journal entry to the
invoice so QuickBooks automatically place the check marks to assume that the invoice will be
applied to the journal entry and most important thing to note is make sure the amount received
is zero so the check mark is next to the invoice and the journal entry and make sure it says amount
receive zero before you click Save and new and now finally Priya has completely disappeared
from the open invoice report because one invoice was written off in the accountants tool the other
one was written off in a journal entry and the journal entry was applied to the invoice and
that would be the way to write off invoices if you're not using the accountants toolbox