do you sometimes have clients who simply just can't pay the invoices that they owe you well
then you should write off those clients using the best method in QuickBooks for writing off invoices
it's called 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 was
added to our receivables course after the fact by popular demand of students who took the course I
originally excluded writing off invoices because I assumed it would be better to have your accountant
right off the invoices using the accountants toolbox however there are many bookkeepers that
wish to write off invoices themselves and that's what this video is for you will not be able to
follow along step-by-step because this video is not part of the continuous story that we used
in our accounts receivable course where one video followed the next it's simply a demonstration for
you to be aware of how you would write off invoices if you chose to do it yourself so
what's the deal with writing off a customer's balance well first you have to determine that
a customer's balance is uncollectible for reasons like bankruptcy disability death or something else
right now the invoices remain in your customer records as unpaid invoices so how do you remove
them if you know you can't collect on them you have to create an account in the chart of accounts
that represents the expense that this costs you when you write off uncollectible invoices and the
name of that expense is bad debt expense now I have already added bad debt expense to this
little chart of accounts in this little QuickBooks file just to demonstrate how to write off invoices
so there are very few accounts in this chart of accounts because this file is just to demonstrate
the writing off method notice accounts receivable and sales are the only accounts that have a
balance in the chart of accounts just because I wanted to put the minimum in the file to be able
to demonstrate how to write off the invoices and here are the six open invoices that were created
that add up to the sales income and the accounts receivable now the bad debt expense lowers your
profit and lowers your net income on your profit and loss statement so what happens when you write
off a customer's invoice well accounts receivable where that customers balance is staying goes down
because you just wrote off invoices and lowered a customer's balance but on the other hand bad debt
expense goes up because that expense account represents all the money you lost for invoices
that you needed to write off the items method of writing off uncollectible invoices involves three
simple steps the first step only needs to be done once you set this up by creating an other charge
type of item on the items list and then connect it to the bad debt expense account so let's go
ahead and do that now here is the items list list items list and in the bottom left click item new
now the type is other charge and you can name it uncollectible x' you can name it anything you want
as long as you know what it is but you have to connect it to the bad debt expense account and
then click OK once you've done that your item is now on the items list ready for us to use in the
next two steps that we will do each time we write off invoices step 2 on the day that you write off
the invoice create a credit memo and use the bad debts other charged item that you just made and
the third step will be to apply that credit memo in the receive payment window you will apply the
credit memo that has the bad debt to the invoices that are being written off and that is what will
wipe it out of the customers balance so you will not see the uncollectible invoices in the open
invoice report so we only have to do step two and three each time we write off invoices for example
let's imagine on May 6th 2020 we determined that Alan RB cannot pay okay we will do step 2 and step
3 and we said it was May 6th so first we click custom well let's open the open invoice report
so that you can see what's going on here first we click customers create credit memo now we choose
the customer al and RV and the date is May 6th and the item that we put on the credit memo is the
uncollectible x' item that we just made just click okay we know what we're doing now how much should
we write off well if you look at open invoice balance balance is two thousand so even though
it's spread out between two uncollectible invoices you really should put in the credit memo the total
of the customers balance so this way you can wipe it out in one shot and all you have to do is click
Save and close and now we will click apply to an invoice now here's where step three comes in click
OK and we're going to apply the two thousand to each of these two and click done now you can see
that the two invoices have been written off and they no longer appear in the open invoice report
here's Betty and here's Priya but no alan and if you check the results in the trial balance
you'll see that bad debt expense showed up for the first time as two thousand an accounts receivable
that was six thousand a moment ago decreased down to four thousand and if you double click
you can see the last transaction for accounts receivable was this credit memo bringing it
down to four thousand dollar balance if you were writing off many uncollectible customers it might
save you a little time to use the accountants tool for write-offs which is called the client
data review instead of making a credit memo for each one but in order to use this tool you must
be logged in to your file as the accountant user or using the accountants edition of QuickBooks
desktop it uses the same item setup in the prior example so even if you are using the accountants
tool box you still have to put an expense account in the chart of accounts called bad debt expense
and you still have to create the other charge item and connect it to bed debt expense before using
the accountants tool to write off the invoices the accountants tool will just save you time so
you don't have to make a credit memo and then go applying that credit memo in the receive payment
window so for example on May 10 we determined that Priya cannot pay we will use the client
data review to write off the invoices and you will see it's the same way now before we do that
you'll notice that accounts receivable is 4,000 and bad debt expenses mm so accounts receivable
will decrease and bad debt expense will increase for Priya's invoices and you can see Priya has
two invoices for $1,000 each so that means that accounts receivable will go down by 2,000 bad debt
expense will increase and become 4000 and these two invoices will disappear from the open invoice
report to use that tool you click accountant client data review right off invoices now you can
see if you make a custom date and you go forward to make sure that you're in front of the date that
of the invoices that you're writing off I think it's May 10 and then we click refresh you see all
the invoices are eligible because they're within there all before that date and you could filter it
even further by putting amounts balance do less than and you can explore an experiment with the
filters on top but it saves you time if there are a lot because all you have to do is click
the check mark on the invoices you wish to write off and then choose the item from the items list
that we created before in order to write off and and you make sure that you go forward to the date
that you want the write-off transaction to be recorded you then click preview and write off
and then you know you double check you know to make sure that these are the ones you want no
more no less then click write off now they're gone and notice close when you go to the open invoice
report pre is invoices are no longer listed there pre are no longer has a balance and just as we
expected accounts receivable has decreased by 2000 and bad debt expense has increased to $4,000