Write Off Bad Debt in QuickBooks: Clear Uncollectible Invoices

To write off bad debt in QuickBooks Online, create a Bad debts expense account, make a non-inventory item called Bad debt that points to it, then issue a credit memo to the customer for the unpaid amount and apply that credit to the open invoice through Receive Payment. This clears the receivable to zero without deleting the original invoice, so your income, sales history, and reports stay accurate. On accrual basis it also records the loss as an expense; on cash basis there is no deduction because the income was never counted.

Last updated July 2026.

Bad debt cleanup usually shows up during a reconciliation, when an old invoice sits open month after month and never matches a deposit. If you are getting your books current from PDF statements, our tools to import a bank statement into QuickBooks Online convert those statements into a .qbo file you can bring in and reconcile, which is often how these stale receivables surface in the first place. Firms handling client cleanup can start from the bank statement to QuickBooks workflow for accountants.

What bad debt actually is

Bad debt is money a customer owes you that you have decided you will not collect. You already sent the invoice, so QuickBooks recorded it as income and added it to accounts receivable (A/R). When it becomes clear the customer will never pay, that receivable is no longer a real asset. Writing it off removes the amount from A/R and, on accrual basis, books the loss as an expense so your balance sheet and profit and loss both tell the truth.

Chasing the balance first is worth the effort. Before an overdue invoice becomes uncollectible, an automated accounts receivable follow-up can often recover it, and a write-off should be the last step, not the first. A write-off is also different from a refund. If the customer paid and you are giving money back, follow our guide to record a customer refund in QuickBooks instead, because that reduces cash rather than clearing an unpaid receivable.

How to write off bad debt in QuickBooks Online

This is the standard accrual-basis method Intuit documents, in four steps.

1. Create a Bad debts expense account

Go to the Chart of accounts and select New. Set the Account type to Expenses and the Detail type to Bad debts, then name it Bad debts. This gives the write-off somewhere to land so it does not get buried in an unrelated expense line.

2. Create a Bad debt item

Open Products and services and add a new non-inventory item named Bad debt. In its Income account field, choose the Bad debts expense account you just made. QuickBooks only lets a product or service point at an account through that Income account field, so selecting the expense account there is expected and correct; it routes the credit memo straight to bad debt expense.

3. Create a credit memo

Select New, then Credit memo. Pick the customer, choose the Bad debt item in the Product or Service column, and enter the unpaid amount. Type Bad Debt in the message box so the reason is visible later. Save it. The credit memo now sits as an available credit for that customer.

4. Apply the credit memo to the invoice

Select New, then Receive payment. Choose the same customer, tick the open invoice under Outstanding Transactions, and tick the credit memo under Credits. The two offset each other, the payment total stays at zero, and you Save. The invoice is now marked paid, the receivable is gone, and no cash changed hands.

Why you should not just delete the invoice

Deleting the unpaid invoice looks faster, and it is the most common mistake. When you delete it, you erase the sale from history. Any income you reported in a prior period drops, reports you already sent to a lender or filed with a return no longer reconcile, and if the invoice charged sales tax, that liability gets tangled too. The credit memo method keeps the original invoice intact and records the loss as its own line, which is exactly what an auditor or a future you wants to see.

Cash basis versus accrual basis

The tax result depends on your accounting method. On accrual basis you counted the invoice as income when you sent it, so writing it off gives you a real expense and a corresponding deduction. On cash basis you only count income when you actually get paid, so an unpaid invoice was never income to begin with. There is nothing to deduct because there was never any recognized revenue to reverse. The IRS puts it plainly: to deduct a bad debt you must have already included the amount in income.

Cash-basis users still clean up A/R the same way, using a credit memo or by voiding the invoice, purely to stop the fake receivable from inflating the balance sheet. Just do not expect a tax write-off from it. If you are unsure which method your books run on, check your reporting basis before you assume there is a deduction waiting.

What about the sales tax you charged?

If the original invoice included sales tax, the write-off gets more delicate. Clearing the invoice with a bad-debt credit memo does not always reverse the sales tax liability you already reported, so you can end up having remitted tax on money you never collected. Many states allow a bad-debt adjustment or credit on a later sales tax return to recover that, but the rules and timing vary by state, so confirm your own state's process. For how the underlying liability behaves in QuickBooks, see our guide to record sales tax in QuickBooks. When real dollars are involved, ask your accountant.

Direct write-off versus the allowance method

The four steps above are the direct write-off method: you wait until a specific invoice is clearly dead, then remove it. It is simple, and it is what most small businesses use. The allowance method is different. You estimate a percentage of receivables that will likely go bad and park it in a contra-asset account called Allowance for Doubtful Accounts, before you know which invoices will fail. GAAP prefers the allowance method because it matches the expected loss to the same period as the sale. For a small business on a tax basis, direct write-off is usually enough and easier to run.

Writing off bad debt in QuickBooks Desktop

The concept is identical in QuickBooks Desktop. Create a Bad Debt expense account, then either use a Credit Memo with a bad-debt item or record a journal entry that debits Bad Debt Expense and credits Accounts Receivable. To clear the open invoice, open Receive Payments, select the invoice, and use Discounts and Credits to apply the credit or discount so the balance goes to zero. As in the Online version, keep the original invoice; do not delete it.

Keep a record of who did not pay

After the write-off, keep a trail. Run a report filtered to your Bad debts item or expense account so you can see every customer you have written off and how much. Some bookkeepers add a note or a Bad Debt tag to the customer profile. That record matters if the customer comes back wanting credit, or if any of the amount is later recovered and has to be booked back as income.

Frequently asked questions

How do I write off bad debt in QuickBooks Online?

Create a Bad debts expense account, then a non-inventory Bad debt item pointing to it. Issue a credit memo to the customer for the unpaid amount using that item, then open Receive Payment and apply the credit memo to the open invoice. The invoice clears to zero and the loss posts to bad debt expense.

Is writing off bad debt an expense?

Yes, on accrual basis. The uncollectible amount posts to a Bad debts expense account, which reduces your net income and reflects the real loss. On cash basis it is not an expense, because the invoice was never counted as income in the first place, so there is nothing to deduct when it goes unpaid.

Should I delete an unpaid invoice in QuickBooks?

No. Deleting the invoice erases the original sale, which distorts prior-period income, breaks reports you already filed, and can tangle sales tax you reported. Use a credit memo with a bad-debt item instead. That keeps the invoice in your history, marks it paid by credit, and records the loss cleanly.

What account do I use for bad debt?

Use an expense account named Bad debts, set to the Expenses account type with the Bad debts detail type. In QuickBooks Online you also create a non-inventory item called Bad debt whose income account field points to that expense account, which is how the credit memo routes the amount to the right place.

Can I write off bad debt on cash basis?

You can clean up the receivable, but you cannot take a tax deduction. Cash-basis accounting only recognizes income when you are paid, so an unpaid invoice was never income. With no income recorded, there is no loss to deduct. You can still void or credit off the invoice to keep accounts receivable accurate.

Once the write-off is booked, reconcile the account it touched so your reports match reality. If you are rebuilding books from statements, converting the PDF into a clean .qbo file first makes reconciliation faster and stale receivables easier to spot.