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Bad Debt

I have my first returned check for my business. I looked up how to record this and I need to add a category for bad debt. Should this category be income or expense? Or should it be connected as a sub category of another category?

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In my Category List, Bad Debt appears as a main category within the Business Expenses group, using a Schedule C tax line item

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In my Category List, Bad Debt appears as a main category within the Business Expenses group, using a Schedule C tax line item

If the returned check was for services or goods you rendered then I'd simply record it as a reduction in your checking Account, (I'd make it as a distinct entry in the checking Account, using the memo field to refer to the original check and noting it as a "Bad Check"), with the offset being whatever Category you originally used, or you can create a new "Bad Debt" expense Category. Then, back at the original deposit transaction, I'd add "Returned" in the memo field and perhaps refer the the reversing entry. Then both the original check and the reversing entry would get a "c" in the Clr column. Your next reconciliation will covert those "cs" to "Rs."

The give you a very clear audit trail as to the course of events.

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