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Manage Bad Debt

Periodically, you will need to write off bad debts, i.e., declare certain invoices as non-collectible and remove them from your previously stated income. Consult with your accountant and/or attorney to determine the best method for your business to manage bad debt before you make any changes.

Manage bad debt with the direct method

 

 

 

Manage bad debt with the accrual method

Generally accepted accounting principles (GAAP) recommend using the allowance method to manage bad debt if you are using accrual accounting. Each time you invoice customers, you debit a portion of the income to Bad Debt Expense and credit the same amount to Allowance for Bad Debts. When you write off a bad debt, you credit A/R and debit Allowance For Bad Debts.  You would use this method for two reasons:

  • This method matches your bad debt expense to your income.
  • The income statement shows the bad debt expense at the time of sale, not at the time of default.
  • You can distribute your estimated bad debt expense month-to-month, and reduce fluctuation in your P & L and B/S reports.
     

 

 

 

 

 

 

If this solution does not resolve the issue, please review other available QuickBooks support options for additional guidance. You can also read and post messages relating to your issue on the QuickBooks Community forums.

Cash basis bad debt

When you use cash basis accounting, you do not have bad debt because your customer has not paid you and you have not recorded income from the invoice. However, if you are entering accrual transactions (invoices), then you may want to clear your Accounts Receivable invoices that will not be paid.

 

 

KB ID# INF13005
7/30/2014 12:13:54 PM
PPRDQSSWS400 9102 Pro 2013 8da815