How to Write Off Bad Debt in QuickBooks

When a customer stops paying and you accept the invoice will never be collected, that amount becomes bad debt. Leaving it on the books inflates your accounts receivable, distorts your profit and loss reports, and creates reconciliation headaches. QuickBooks provides a structured process to write off these uncollectible amounts so your financials stay accurate. This guide covers the full procedure for both QuickBooks Online and QuickBooks Desktop, verified on QuickBooks Desktop 2022 through 2026 and the current QuickBooks Online interface.

What Is Bad Debt in QuickBooks?

Bad debt is money a customer owes you that you can no longer reasonably expect to collect. This happens when a client goes out of business, disputes the charge beyond a point of resolution, or simply stops responding. In accounting terms, once you determine an invoice is uncollectible, you write it off so it no longer sits in your accounts receivable balance as money you expect to receive.

QuickBooks does not have a single-click write-off button. Instead, the process uses a workaround that accountants have standardized over years of use: you create a credit note or credit memo for the exact invoice amount, categorize it under a bad debt expense account, and apply the credit directly to the open invoice. The result is a zero balance on the invoice and a deductible expense entry on your profit and loss report.

This matters because accrual-basis businesses, which recognize revenue when invoiced rather than when paid, need this mechanism to deduct uncollectible income from taxable revenue. If you skip the write-off, your tax liability could be overstated and your profit and loss report will not reflect actual business performance.

Why It Matters

Uncollected invoices left open in QuickBooks cause several downstream problems. Your accounts receivable balance overstates what the business actually has coming in. Tax reporting becomes inaccurate if you're on accrual accounting and cannot deduct the loss. Bank reconciliation gets harder because unpaid invoices show up in aging reports month after month. And if you're applying for a business loan or preparing for an audit, inflated receivables can misrepresent your financial position.

Writing off bad debt correctly keeps all three areas clean: your balance sheet reflects true receivables, your profit and loss report captures the real cost of uncollected income, and your aging report only shows invoices that are genuinely outstanding.

Before You Begin

Before starting the write-off process in either version of QuickBooks, complete these checks:

• Run the Accounts Receivable Aging Detail report and identify which specific invoices are uncollectible. Note the invoice amounts and the customer names.
• Confirm the invoice is genuinely uncollectible. Document your collection attempts. For businesses writing off larger amounts, consult your accountant or CPA before proceeding.
• Make sure you have administrator access to your QuickBooks account. Some of these steps require account settings access.
• If you are on QuickBooks Desktop, back up your company file before making any changes. Go to File > Back Up Company > Create Local Backup.
• Know whether you are on the cash or accrual accounting method. Bad debt write-offs are primarily relevant for accrual-basis accounting. Cash-basis businesses that never recorded the invoice as income generally do not need this process.

Step-by-Step Guide: QuickBooks Online

Step 1: Review Your Accounts Receivable Aging Report

Go to Reports in the left navigation menu. Search for "Accounts Receivable Aging Detail" in the search bar at the top of the Reports page. Open the report and review the outstanding invoices. Identify which customers and invoice amounts you are writing off.

Step 2: Create a Bad Debt Expense Account

You need a dedicated expense account to track bad debt. This account is what appears on your profit and loss report.

1. Click the Settings gear icon in the upper right
2. Choose Chart of Accounts under Your Company
3. Click New in the upper right corner
4. Under Account Type, select Expenses
5. Under Detail Type, select Bad Debts
6. In the Name field, type Bad Debt
7. Click Save and Close

If a Bad Debt account already exists in your Chart of Accounts, skip this step.

Step 3: Create a Bad Debt Non-Stock Item

QuickBooks Online needs a product or service item linked to the bad debt expense account. This item is used when creating the credit note.

1. Click the Settings gear icon
2. Choose Products and Services
3. Click New and select Non-inventory
4. In the Name field, type Bad Debt
5. In the Income Account dropdown, select the Bad Debt expense account you created in Step 2
6. Uncheck Is taxable if it is checked
7. Click Save and Close

Step 4: Create a Credit Note for the Bad Debt Amount

1. Click the + New button in the upper left
2. Select Credit note under the Customers section
3. In the Customer dropdown, select the customer whose invoice you are writing off
4. In the Product/Service column, select Bad Debt
5. In the Amount column, enter the exact amount of the unpaid invoice
6. In the Memo field, type Bad Debt Write-Off along with the original invoice number for reference
7. Click Save and Close

Step 5: Apply the Credit Note to the Open Invoice

1. Click + New and select Receive payment under Customers
2. In the Customer dropdown, select the same customer
3. Under Outstanding Transactions, check the box next to the open invoice you are writing off
4. Scroll down to the Credits section. The credit note you just created should appear there. Check its box.
5. Verify that the Amount Received field shows 0.00 (the credit covers the full invoice amount)
6. Click Save and Close

The invoice is now closed. The bad debt amount will appear in your Bad Debt expense account on the Profit and Loss report.

Step 6: Verify the Write-Off in Your Reports

Go to Reports and run the Profit and Loss report to confirm the bad debt expense appears in the correct period. You can also go to Chart of Accounts, find the Bad Debt account, and click Run Report to see a QuickReport showing all transactions recorded against that account.

Step-by-Step Guide: QuickBooks Desktop

QuickBooks Desktop uses credit memos instead of credit notes, and the navigation paths are different from Online. The steps below are verified on QuickBooks Desktop 2022 through 2026.

Step 1: Review the AR Aging Report

Open QuickBooks Desktop and go to Reports > Customers and Receivables > A/R Aging Detail. Review the outstanding invoices and note which ones are candidates for write-off.

Step 2: Create a Bad Debt Expense Account

1. Go to Lists > Chart of Accounts (or press Ctrl+A)
2. Click the Account button at the bottom left and select New
3. Choose Expense as the account type and click Continue
4. In the Account Name field, type Bad Debt
5. Click Save and Close

Skip this step if a Bad Debt expense account already exists.

Step 3: Create a Bad Debt Item

1. Go to Lists > Item List
2. Click the Item button at the bottom left and select New
3. Choose Non-inventory Part as the item type
4. In the Item Name/Number field, type Bad Debt
5. Uncheck This item is used in assemblies or is purchased for a specific customer:job if it appears
6. In the Account dropdown, select your Bad Debt expense account
7. Uncheck Is Taxable if applicable
8. Click OK

Step 4: Create a Credit Memo

1. Go to Customers > Create Credit Memos/Refunds
2. In the Customer:Job dropdown, select the customer whose invoice you are writing off
3. In the Item column, select Bad Debt
4. In the Amount column, enter the exact amount of the unpaid invoice
5. In the Memo field, type Bad Debt Write-Off and note the original invoice number
6. Click Save and Close

QuickBooks will ask how you want to apply the credit memo. Select Apply to an Invoice.

Step 5: Apply the Credit Memo to the Invoice

In the Apply Credit to Invoices window that appears:

1. Check the box next to the invoice you are writing off
2. Verify the amount matches the credit memo amount
3. Confirm the balance on the invoice is 0.00 after applying the credit
4. Click Done

If the prompt does not appear automatically, go to Customers > Receive Payments, select the customer, check the open invoice under Outstanding Transactions, then select the credit memo under Credits and save.

Step 6: Confirm the Write-Off

Run the Profit and Loss report from Reports > Company and Financial > Profit and Loss Standard to confirm the bad debt expense appears correctly. The bad debt amount should now appear as an expense under your Bad Debt account.

Tips and Variations

Partial write-offs: If you want to write off only part of an invoice (perhaps the customer paid some of it), create the credit note or credit memo for only the uncollectible portion. Enter the partial amount in the Amount field rather than the full invoice total.

Multiple invoices for the same customer: You can apply one credit note to multiple open invoices from the same customer, as long as the credit note amount covers the total. In the Receive Payment screen, check multiple invoices and apply the credit across them.

Write-offs at year-end: Many businesses batch their bad debt write-offs at year-end for tax purposes. Keep a running log of invoices you've flagged as uncollectible throughout the year so the year-end process goes quickly.

QuickBooks Online Advanced: If you use QuickBooks Online Advanced, the same steps apply. There are no additional tools specific to bad debt in the Advanced tier.

After a write-off, the customer pays: This does happen occasionally. If a previously written-off customer sends payment, you need to reverse the write-off. Create a new invoice for the same amount and apply the payment to it. Then create a journal entry to reverse the bad debt expense. Consult your accountant on the correct period to record the recovery.

Common Mistakes

Not creating a dedicated bad debt account: Some users select a generic expense account or miscellaneous category. This makes reporting inaccurate and complicates tax time. Always create or use a specific Bad Debt expense account.

Deleting the original invoice instead of applying a credit: Deleting invoices removes the transaction history and can cause reconciliation errors, especially if the invoice was in a closed accounting period. The credit note or memo approach is the correct method because it preserves the original transaction.

Applying the credit to the wrong customer: QuickBooks will only show invoices for the customer selected in the credit note or memo. If you select the wrong customer, the credit will not match any open invoices. Double-check the customer name before saving.

Forgetting to set the Bad Debt item's income account correctly: In Step 3 of the Online process, if you assign the item to the wrong account (such as an income account instead of the Bad Debt expense account), the write-off will post to the wrong place on your reports. Verify the account assignment before saving the item.

Writing off in the wrong period: If you are on accrual accounting and writing off at year-end, the credit note date should fall in the same period as the write-off decision. Back-dating to a closed period can cause issues with prior reports and tax filings.

When to Call Support

If you complete all the steps above and the invoice still shows a balance, or if a credit note or credit memo is not appearing in the Credits section during the Receive Payment step, the issue may be a data integrity problem in your company file. Contact QuickBooks support phone number for direct assistance. You can also reach Intuit support through the Help menu inside QuickBooks or at the QuickBooks Contact page.