1. Create a Bad Debts expense account

If a Bad Debts expense account doesn't already exist in your accounts list, you need to create one as described below. Or, if you account for bad debts by posting a provision to an asset account, create a 'Provision for Bad Debts' asset account instead.

1. Go to the Accounting menu and choose Chart of accounts.
2. Look for an account called Bad Debts. It'll have an account number starting with 6-. If it's there, great! Skip down to task 2 to create a customer return for the debt.
3. If the account doesn't exist, click Create account.

4. Create a new expense account as shown in the following example. This is an example only - you can use an account number and name that suits your accounts list.

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   You can select any Tax code when creating this account, because when you create the customer return (in the next task), you need to select the same tax rate used on the invoice which is being written off.

5. Click Save. The account is added to your accounts list.

2. Create a customer return for the value of the debt

A bad debt is applied to a customer's account by first creating a customer return. You can then apply the return to the outstanding invoice to write it off.

1. Go to the Sales menu and choose Create invoice. An Invoice number is automatically generated, based on the last number used. If you want, you can change this number.

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   Changing the numbering If you change the number, you’ll change the automatic numbering. For example, if you change the number to 000081, the next time you create a return, the new number will be 000082.

2. Choose the Customer whose debt you're writing off.

3. Click Field layout and select Services.
   

4. Enter a Description of what's being written off.
5. In the Account column, choose the Bad Debts expense account.
6. In the Amount column, enter the amount being written off as a negative number.
7. For the Tax code, choose the same tax code used on the invoice being written off.
8. Click Save.

Here's our example return:

3. Apply the customer return to the unpaid invoice

OK, here's the final task. You just need to apply the customer return to the outstanding invoice to write it off.

1. On the Sales menu, click Customer returns.
2. Find the customer return you created in the previous task, then click Apply. Need help finding the return?
   
3. Enter a Description of transaction, such as "writing off invoice", or similar.
4. Enter the Amount applied for the invoice being written off. The return can be applied to one or more invoices, so long as the Total Amount Applied matches the total Balance due on the invoices.
   
5. Click Record. The bad debt is written off.