How to Write Off Unpaid QuickBooks Invoices
We frequently receive queries from QuickBooks users about the process involved in writing off old A/R balances. Some users want to create a credit with the date of the open invoice; other users ask whether they should use the current date. Some users ask whether they have to use the same item used on the original invoice.
For the question about dates, the rule is simple. NEVER enter a QuickBooks transaction dated in a previous tax year. Your books match your tax return so the numbers can’t be changed.
For the question about the item to use, I prefer to create a QuickBooks item named Writeoffs and link it to an Income account named Writeoffs or Prior Year Writeoffs (posting credits to this account produces a negative income total, and your accountant may prefer to make this account an Expense account). The advantage of this is that it makes it easy to track and report on your write-offs. If you’re writing off receivables that are several years old, the amount may be substantial. Since this lowers your net profit, your accountant (or the IRS) may want to know why this year’s net profit is lower than previous years. The ability to isolate the write-offs (with an Item report or a report on the Write-offs Income account) makes what you did quite clear.
After you create the credits, you have to use Receive Payments to apply the credits to the open invoices. If you don’t, the old invoices will continue to appear on QuickBooks aging reports, even though the customer now has a zero balance.
Remember that write-offs are not the same as Bad Debts. If you file taxes on a cash basis, you don’t have bad debts. Consult your accountant about the way to proceed before you decide to write off overdue amounts in QuickBooks.