Bad Debts

The prescient business person sells only to customers who are going to pay. The rest of us sometimes get stuck with bad debts. In QuickBooks? , several methods can be used to handle these involuntary discounts. The more complex case involves the combination of accrual method accounting (and tax reporting) and recording of the invoice in a prior tax year. Two procedures are enumerated.

In any event, a Bad Debts account is needed. If it does not exist, it must be set up.

If the sale was not taxable, we can use the Discounts box.

1. Bring up Receive Payments, and select the customer. This is another case where the Amount is left at zero. (Yes, that is the problem.)
2. The invoice must be selected for action, by clicking in its line, in the Payment column. Then click Discount Info.
3. The Amount of Discount is the entire balance, and the Discount Account is the bad debts account. When these are entered, click OK.
4. With the entire amount discounted, the balance will be zero, so record the form called Customer Payment by clicking OK.

Taxable sales preclude the use of this method. It would leave you paying sales tax that you never could collect. A credit memo must be set up, mirroring the invoice, including a sales tax entry. This CM must be handled in the manner described above, ignoring the parts about refunds. Use Receive Payments to connect the CM to the invoice, as is described above, for refunds.