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Manage Bad Debt

Periodically, you will need to write off bad debts, that is, declaring invoices to be non-collectible and removing them from your Accounts Receivable and from your previously stated income.

Consult with your accountant and/or attorney about the pluses and minuses of each of the methods below to determine the best method for your business.

For any method that you choose, you will set up accounts. Please consult with your accountant to assure you set up the accounts correctly.

Manage bad debt case by case

 When an Invoice becomes non-collectible, write it off. However, this can lump bad debt into one period and does not match expense to income. 

Use the accrual method with an A/R contra account
Use the accrual method with an Other Current Asset account
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.

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