Bad debt / write-off

How do you write-off an amount on the invoice?

  1. Create account in your Chart of Accounts called Bad debts
  2. Go to Journal Entries tab to create new journal entry
  • Credit Accounts receivable → Sales Invoice #123
  • Debit Bad debts

Thanks mate. Pretty easy.

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Under which category should I create the bad debt account? Liabilities? Assets?

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Bad debt is an expense so create it under Expenses category

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Thanks Lubos, thanks for the prompt reply :slight_smile:

Have followed your instructions for write off bad debts but the sales invoice now shows as “paid in full” which is confusing, instead of “written off”.

Could you please explain why written off as a bad debt is shown as paid in full as this is hampering my end of year submission to the accountant. When I look at ‘customer’ I need to see what was written off. Thanks

Don’t pay attention to what “status” says. We need to rename status to something more generic such as “open” / “closed”. So all these “Paid in full” statutes would simply say “Closed”.

If your accountant needs to see list of written-off invoices, then he can simply view ledger for Bad debts account which shows all relevant debits. Keep in mind, you should only write-off an invoice through bad debt if the customer went to liquidation. If they didn’t, to write-off an invoice you should issue customer a credit note and the credit from credit note should be applied against relevant invoice(s).

How would you handle a customer that just disappeared with inventory item you sold and never paid as agreed. You can not do credit then the item will go back to inventory if I’m correct?
Will you credit and write off the Item?
If its labour sales invoice item and have to write of you can do credit even though you have done the job?

There are rules country to country which determine when can you write-off invoice as a bad debt. Bad debts is a tax-deductible expense but in order to get tax deduction, there are rules what can be written-off.

The second option is to have Debt forgiveness expense account but expenses posted to this account might not be tax deductible. So careful with forgiving debts lightly.

Everything what I’m saying regarding tax implications of bad debts and debt forgiveness is general advice only. You need to seek an accountant to give you advice specific to your country as details might vary. (for example I might say you can only write-off as bad debt when company goes to liquidation but in your country you might be able do the write-off as long as you are convinced that you will never collect the payment from customer)

Thank you - I shall change my write offs to credit notes then when I produce the ledger for an individual customers account it will show both invoices and credit notes.

I agree with lubos

A financial asset should be impaired if, and only if, there is objective evidence of impairment. [According to International Auditing Standard 39 or IAS 39]

If the customer disappeared there should be objective proof that the monies could not be obtained and will not be for the future.

However, a credit note will not be sufficient, seeing that it implicates inventory and sales.
The sale did take place, the inventory item was sold, the monies just was not received.
According to IAS 39 the outstanding debt should remain outstanding, unless objective evidence states otherwise.

The bad debt should be processed by journal [as lubos said] on the first reply.

As soon as the objective evidence is received, the bad debt will be allowed to be deducted as
a taxable expense.


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Since I have also a write-off, I would like to check if I did it correctly. I’m a pedicab-driver and I bought and paid my pedicab. I put it in “fixed assets”. I don’t know exactly how anymore, but I choose “accumulated depreciation”. There I put 1/5th of the paid amount. I could not make the write-off automatically.
Is this the correct way?

Lubos, I have followed your instructions but when I click “Create” Nothing happens. What am I doing wrong?

See Write off bad debts | Manager

I have done this several times but I can’t get it to create? My journal entry is identical to the example given, I have a RED “0”, Is this the error?


screenshot please

Thank you


do not understand what Wish has to do with Manager.