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QuickBooks Online Bad Debt refers to money your business can’t collect from a customer. When an invoice becomes uncollectible, you record it as bad debt so your books stay accurate. In QuickBooks Online, you first create a Bad Debt expense account and a Non-taxable Bad Debt item. Then you create a credit memo using that item and apply it to the unpaid invoice. This process reduces your accounts receivable and records the loss properly. Using bad debt tracking helps keep your financial reports accurate and ensures your income statements reflect only the money you actually earned. It also makes year-end tax reporting easier and more accurate.