There are different ways of handling the issue of writing off open Accounts Receivables due to customers not paying you for whatever reasons. This issue can also be resolved differently if you are an accrual or cash basis tax filer and also if the Accounts Receivables to be written off (to a Bad Debt Expense account) are from previous closed tax and/or fiscal periods.

So, please keep all of this in mind and consult with a Certified Public Accountant before attempting to write off open customer invoices, especially if there are sales tax implications involved.

One of the more simpler methods of writing off open uncollectible customer invoices in QuickBooks Online is the following:

1. Create a credit memo utilizing a Bad Debt Expense item. To get started here, first create the Bad Debt Expense item:
   1. Go to the gear icon and click on Products and services underneath the Lists menu.
   2. Click on “New” at the top and choose a Service type of item to create.
   3. Name your item “Bad Debt Expense” or something similar.
   4. Checkmark BOTH the “I sell this product/service to my customers” choice and the “I purchase this product/service from a vendor” choice. This is important because we will be using credit memos (AR stuff) to book things to an expense account.
   5. You will need to choose an Expense account (for BOTH the income and expense side of this item); this is important as this is the account where your Bad Debt Expenses will get booked to. So either choose an appropriate account or create a new one (if you don’t already have one).
   6. Click Save and close.
2. Now you will create the credit memo for the particular customer whom you want to write off an uncollectible invoice from. IMPORTANT: Before you do this, be sure you don’t have an automation setting in your QuickBooks Online set to “Automatically apply credits”.
   1. Go to: New>Credit memo (underneath the Customers list).
   2. Fill out all of the appropriate fields within the credit memo:
      1. For the Product/Service item, be sure to choose that same Bad Debt Expense item you created earlier.
      2. Click Save and close.
   3. Now we are going to apply this Bad Debts Expense credit memo to the open invoice we are going to write off:
      1. Go to the customer’s profile and their list of transactions.
      2. Find the open invoice you want to write off and choose “Receive Payment” or “Mark as Paid”, whichever is available.
      3. The payment date should be the same (or after) the date of your credit memo.
      4. For “Reference Number”, I would type something in like “bad debt”.
      5. Be sure you checkmark the invoice you are wanting to write off and also be sure the payment amount is EXACTLY the same as the credit memo amount. The credit memo should also be check-marked as well. In fact, ONLY the uncollectible invoice and the credit memo should be the only two options that are check-marked here. Also, be sure the “Amount received” towards the top on the right side is for zero dollars; if it is not, then just change the payment amount to apply to the invoice (again, it should be the same as the credit memo amount).
      6. Be sure the Amount to Apply towards the bottom on the right side is the exact same as the credit memo amount. The “Amount to Credit” should be zero.
      7. Click Save and close.
      8. To check your work, simply process an Income Statement and you should see an amount listed next to your Bad Debt Expense account.