How write-off works
Before writing off a balance, a business usually exhausts reasonable collection efforts: reminder statements, calls and sometimes a formal demand letter. Once an amount is judged genuinely uncollectible, such as a customer that has gone out of business, the invoice balance is removed from accounts receivable and charged to a bad debt expense account.
Write-offs also apply outside accounts receivable, including obsolete or damaged inventory that can no longer be sold and small cash discrepancies. A write-off does not mean a business stops trying to collect entirely; some businesses keep a separate memo record and reverse the entry if payment arrives later, recording it as a bad debt recovery.
Example
A landscaping company has a $1,800 invoice outstanding from a customer for eight months, and repeated calls and a final notice go unanswered. The bookkeeper writes off the balance, debiting bad debt expense $1,800 and crediting accounts receivable $1,800. If the customer later sends a $1,800 check, the company records it as a recovery rather than reopening the original invoice.
Write-off in QuickBooks Online vs Xero
In QuickBooks Online, a write-off is usually recorded using a credit memo or a discount line item applied against the open invoice, tagged to a bad debt expense account. In Xero, the same result comes from applying a credit note or using the write-off option in the invoice's Receive Payment screen against a bad debt account.
Common mistakes
- Writing off a balance too quickly without exhausting reasonable collection efforts first, which gives up on cash that a reminder call or payment plan might have actually recovered.
- Simply deleting an uncollectible invoice instead of recording a proper write-off against bad debt expense, which understates expenses and leaves no record of what was actually lost.
- Letting old, uncollectible balances sit open on the aging report indefinitely instead of writing them off, which makes accounts receivable look larger and healthier than it really is.
Why it matters
An accounts receivable balance cluttered with uncollectible invoices overstates what a business or provider actually expects to collect, which can mislead an owner planning cash flow or a lender evaluating creditworthiness. Recording write-offs properly against bad debt expense keeps the aging report focused on receivables genuinely worth pursuing, and gives a tax preparer an accurate figure for deductible bad debt at year end.
Related terms
How LedgerBPO handles write-off
During a bookkeeping cleanup, we review aged receivables with you, flag balances that are genuinely uncollectible and record write-offs correctly against a bad debt expense account rather than leaving them sitting open on the aging report. This keeps your accounts receivable balance accurate and your financial statements a true picture of what is actually collectible.