New Business Direction LLCIf you are using the Accrual method of accounting and you extend credit to your Customers, as soon as you create an Invoice it is recorded in QuickBooks® as an Accounts Receivable.
Unfortunately, you will not always collect all credit you have extended. From time to time you will have Bad Debt – money you billed to a Customer that will never be collected.
Generally, you should write off bad debt only after exhaustive efforts to collect. For any significant amounts, you should call the customer until you are convinced that the customer cannot or will not pay.
At the end of the year, you will want to write off the outstanding customer invoices you know are not going to be paid.
First, check to see if this account and item have already been set up in your QuickBooks® file. Go to Lists, Chart of Accounts and look for an account named Bad Debt Expense. Go to your Item List and look for an Other Charge Item called Bad Debt or Write Off. If these are already on your lists, you can skip both Step 1 and Step 2.
Step 1: Create an Account for tracking Bad Debt Expense
This is a one-time setup task.
- Go to the Lists menu and click Chart of Accounts
- Click Account at the bottom of the list and then click New
- Under Account Type choose Expense and then click Continue
- If you are using account numbers, enter the number in the Numbers field
- In the Account Name field, enter “Bad Debt Expense”
- Click Save & Close
Step 2: Create an Item that points to your Bad Debt Expense account
This is also a one-time setup task.
- Go to the Lists menu and click Item List
- Click Items at the bottom of the list and then click New
- Under Type choose Other Charge and name it “Bad Debt”
- In the Amount or % field, leave a zero
- From the Tax Code list, choose Non (if you use Tax Codes)
- In the Account field, select the account you created in Step 1 – Bad Debt Expense
- Click OK
Step 3: Use the Item you created in Step 2 to generate a Credit Memo*
- Click Customer Center
- On the Customers & Jobs tab, select the customer whose account you will not be able to collect
- Right-click and choose Create Credit Memos/Refunds
- Use the Bad Debt item for the amount of the unpaid invoice (s) that you are writing off
- Click Save & Close
*Creating a Credit Memo is the preferred method to write off Bad Debts, especially if the original sale included Sales Tax. We have not included the specific procedures for writing off a bad debt with Sales Tax. Please call for additional guidance if you are presented with this issue.
Step 4: Apply the Credit
In the available credit window that appears when you Save & Close the Credit Memo, it asks “what would you like to do with this credit?”
- Click Apply to an Invoice
- Click OK
- Select the Invoices that you are writing off
- Click Done
Every bad debt has a story and you need to talk to customers who refuse to pay their invoice. Discussing the reason for nonpayment may provide you the information necessary to prevent the problem from occurring again. Be proactive and contact the customer as soon as the invoice is late.
This article of QuickBooks Tips and Tricks was based on the 2012 version of QuickBooks.
Non-sufficient funds (NSF) is a term used in the banking industry to indicate that a demand for payment (a check) cannot be honored because insufficient funds are available in the account on which the instrument was drawn. An NSF check is often referred to as a bad check or a bounced check.
When a customer’s check is returned for insufficient funds, perform the following steps in QuickBooks®
First, check to see if these items have already been set up in your QuickBooks file. Go to Lists, Item List and look for Other Charge Items called Bounced Check and Bounced Check Fee. If they are already on your Item List, you can skip step 1.
Step 1: Create items for tracking bounced checks and their associated charges: This is a one-time setup task.
- Go to the Lists menu and click Item List
- Click Items at the bottom of the list and then click New
- Under Type choose Other Charge and name it “Bounced Check”
- In the Amount or % field, leave a zero
- From the Tax Code list, choose Non (if you use Tax Codes)
- In the Account field, select your bank account (for example, Checking)
- Click Next.
- Create a second Other Charge item titled “Bounced Check Fee” for the service charge you assess your customers for bouncing checks
- In the Amount or % field, leave a zero
- From the Tax Code list, choose Non (if you use Tax Codes)
- In the Account field, choose Bank Service Charges
- Click OK
Step 2: Use the items you created in Step One to re-invoice the customer for the bounced check, plus any bank fees you want to recover.
- Click Customer Center
- On the Customers & Jobs tab, select the customer with the bounced check
- Right-click and choose Create Invoices
- For the first line item on the invoice, use the Bounced Check item for the amount of the bad check
*Note: Because this item is linked to your bank account, this will reduce your bank account by the amount of the bounced check.
- For the second line item on the invoice, use the Bounced Check Fee item for the amount of any bank fees that you want to recover from the customer
- Complete filling out the invoice as usual
Step 3: QuickBooks® has a Bounced Check Letter that you can send along with the new invoice
- Select the customer in the Customer Center
- Go to the Word menu at the top of the Customer Center and click Prepare Letter to Customer
- Follow the onscreen instructions in the Letters and Envelopes wizard
- In the Choose a Letter Template window, choose Bounced Check
Step 4: Enter your bank’s bounced check charge when you reconcile your bank statement
When you reconcile your bank statement:
- Include your bank’s charge for the bounced check in the Service Charge field
- In the Service Charge Account field, enter Bank Service Charges
This article of QuickBooks Tips and Tricks was based on the 2012 version of QuickBooks.
Each January we rush around to gather tax information on the independent contractors we paid in the prior year in order to send them a 1099. Here are some basic tips for making it easier and less hurried for next year.
Form W-9
As a trade or business, you are required to obtain a Form W-9 from your independent contractors before you pay them, better yet – before they do any work for you. This is regardless of how much money you pay them. This form will give you the name, business name, address, entity type and taxpayer identification number.
Who Needs a 1099?
Service Providers – Anyone you pay in the course of your trade or business for services rendered. This includes Accountants, Consultants, Architects, Engineers, Designers, Contractors, Plumbers, Electricians, Installers, Landscapers, Snow Removal companies, Cleaning companies, the Auto Repair technician, Entertainers – anyone who performs a service or casual labor for your business who is not your employee.
Rents – If your business pays rent for office space or land or equipment, you are required to send the recipient a 1099 for the amount of rent you have paid them.Exclusions – Sole proprietorships, partnerships and LLC’s that are taxed as sole proprietors and/or partnerships receive a 1099. You are not required to send 1099’s to a Corporation or a Tax Exempt entity. The Form W-9 will provide information regarding the entity type.
Threshold – Send to recipients to whom you have paid $600 or more during the calendar year.
Deadline
January 31st of the following year to recipients. February 28th to the Internal Revenue Service.
This article of QuickBooks Tips and Tricks was based on the 2012 version of QuickBooks.
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Tips & Tricks in QuickBooks®
