Home > Customers, Journal Entries, Migrated > How to write off a customer balance in QuickBooks

How to write off a customer balance in QuickBooks

Hi! This is something that comes up often enough and someone asked the question on twitter, so I thought it would be helpful to post on the subject of how to write off a customer’s balance in QuickBooks. The process can be accomplished in a few simple and quick steps. But first a word on what not to do.

The temptation might be to post a discount on the customer’s invoice to reduce that invoice’s balance to zero. This works in theory, but here’s the problem with that. Ultimately as you create your set of books you are leaving a trail of crumbs for someone else to pick up on and look at later. It may be the person preparing your taxes and it may be someone looking to buy the company who’s books you are compiling as you do the bookkeeping each day. So it is really important to tell the right story. If I discount a customer’s invoice to zero that suggests that everything was ok and I decided for whatever reason to create some goodwill by giving that customer a discount. This paints a very different picture compare with when I am writing off a customer’s balance as Bad Debt because they chose not to pay.

So the correct way to handle this transaction in proper context is to record a journal entry and write the balance off as Bad debt. In QuickBooks it is simple and the video tutorial will demonstrate how to do this. First here is a screen shot of what it looks like in QuickBooks:

Then you have to apply the credit produced by going into Customer Payments and applying the credit of $13,500 for this customer.

Description:

Video Tutorial:

Click to watch the web cast
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  1. Ralph
    December 22, 2011 at 3:08 PM

    Dear Seth

    Thanks for the information on QB write-offs. I completely agree that it is not a discount which is given to good customers. The problem I am having is that whether I use a journal entry of create a credit memo, I can “zero” the customer’s account balance which is good, but when I go to apply it (remove invoice from account receivable) it ADDS it to my income which obvioulsy is not the case. What am I missing????

    Thanks
    Ralph

    • December 27, 2011 at 2:13 PM

      Thanks Ralph! Sorry for the delay on this. My blog is now actually located at http://www.nerdenterprises.com/blog You’re journal entry should not go to income. You Debit Bad Debt Expense and Credit Accounts Receivable. Don’t create a credit memo b/c that is what you do when you want to give the client a refund. After posting the journal entry you go to enter a payment for that customer and you will have a credit that can be applied to the invoice.

      Let me know if you need additional assistance.

  2. Amber
    June 29, 2012 at 2:21 PM

    Great video. Thank you so much!

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