Write-off a sales invoice to bad debt

In doing business, you may occasionally need to account for doubtful and bad debts. Doubtful debt is money owed to you (an outstanding sales invoice balance) that is unlikely to be paid. For example, this may occur if a customer's company has closed or if there is a dispute. If you are doubtful of receiving payment, you can move the outstanding balance from the customer's account to the Doubtful Debts ledger account. Once you are sure that you will not be paid, you can write-off the balance by moving it from the Doubtful Debt account to the Bad Debt ledger account.

This article describes how to move the outstanding balance to the Doubtful Debt ledger account and then to the Bad Debt account. Before following the procedures below, first verify that the necessary ledger accounts are visible and available for selection in the applicable areas.

Checking ledger account visibility

  1. Go to Settings, Business settings.
  2. Under Financial Settings, click Chart of Accounts.
  3. Search for the Doubtful Debt ledger account by entering 1150 in the Search field.
  4. Click the Doubtful Debt account to open the Edit Ledger Account window.
  5. Under Visibility, select Sales - Invoice / Credit, Product / Services / Customer defaults.
  6. Click Save.
  7. Search for the Bad Debt ledger account by entering 6150 in the Search field and then repeat steps five and six.

Moving the outstanding balance

If you have a customer with a doubtful debt, you must create a Quick Entry to move the outstanding balance from the customer's account to the Doubtful Debt Provision ledger account. A Quick Entry is an internal journal entry that adjusts the Sales (or Expense) ledger account without creating an external, legal document (such as a credit note).

Example

For example, you have a customer with an overdue sales invoice in the amount of $120.00. According to your business' accounting practices, the outstanding balance now qualifies as doubtful debt. Later, you will write-off the amount as a bad debt. You would create the following Quick Entry to clear the customer's account:

Entry Type Ledger Account Number Description Amount
Debit N/A Customer's Account $120.00
Credit 1150 Doubtful Debts $120.00

To create the Quick Entry:

  1. Go to Sales and then select Quick Entries.
  2. Click New Quick Entry and complete the following:
  3. Select Cr. Note in the Type field.
  4. Use today's date or enter a different one in the Date field.
  5. Enter (or select) the name of the contact.
  6. Enter a reference in the Reference field.
  7. Select the Doubtful Debts account 1150 in the Ledger Account field.
  8. Enter the amount of the outstanding balance in the Subtotal field.
  9. Click Save.

Posting the bad debt amount

When you are sure that the debt is unrecoverable, you must create a journal entry to move the amount from Doubtful Debt to Bed Debt.

Example

To move the amount from the previous example, you would create the following journal entry:

Entry Type Ledger Account Number Description Amount
Debit 6150 Doubtful Debts $120.00
Credit 1150 Bad Debts $120.00