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How to record a bounced check in QuickBooks Desktop and Online?

When there are insufficient funds in your bank account,

When there are insufficient funds in your bank account, that is, not enough money to pay the amount on the check, a check bounces, and your bank will charge you when this occurs. The way you approach the fees will determine how you approach the accounting. 

While handling financial transactions, there is always a chance that the check will bounce. If this happens, it’s not just due to insufficient funds but also due to closed accounts or a mistake in the check details. When this happens, the bank charges a certain amount to the check writer. Along with the charges, other penalties may include legal trouble or a negative credit score. 

If you are looking for a solution on how to record a bounced check, then you should also know that a bounced check is known by different names, such as Non-sufficient funds (NSF) or returned payment or bad check. When this situation occurs, it leads to a significant impact on both the issuer and the payee.  The issuer and the payee may have to deal with serious repercussions from this circumstance. Financial consequences like overdraft fees, penalties, and potential harm to their credit score could befall the provider. The inconvenience can risk the connection with the payee.

However, if the payee was reliant on the money from the returned check, they might experience problems in addition to any financial losses. The payee may incur bank fees for the returned check, which would put additional strain on their finances.

What details do we need to record while recording a bounced check?

In order to make sure that the accounting record in QuickBooks is correct, you need to have a clear understanding of what happened.

So, you need to record the following details:

  • Record the amount of the customer’s check deducted from your bank balance.
  • Show the bank charged you a fee.
  • Mark the customer’s Invoice they were supposed to pay as “open” and unpaid.
  • Charge your customer a fee for the inconvenience (this is as per the business requirement).
  • Share the statement to tell the customer what they owe you for the original Invoice and any fees.

How to record a bounced check in QuickBooks Desktop and QuickBooks Online

Whether using QuickBooks Desktop or QuickBooks Online, it is essential to record a bounced check in order to keep accurate financial records and efficiently manage cash flow. Certain capabilities are available in both QuickBooks versions to manage the reversal of a deposited check that has been returned for insufficient funds. Reversing the initial Deposit, deducting any bank fees, and updating the customer’s account to reflect the outstanding balance are all part of the procedure. 

Knowing the actions in each version can help business owners maintain order in their accounts and rapidly resolve customer issues. Before going ahead with the steps on how actually to record a bounced check in QuickBooks, there are different ways to record a bounced check in QuickBooks:

  • Record a customer’s bounced check with a bounce record feature
  • Record a customer’s bounced check with manual entry
  • Record a customer’s bounced check with a journal entry
  • Record a customer’s bounced check with an expense
  • Record a customer’s bounced check with an invoice.
  • Record a bounced check that you wrote.

Record a customer’s bounced check with a bounce record feature

When a customer’s bounced check is recorded using QuickBooks’ bounce record feature, the process is streamlined, and accuracy is guaranteed. This tool allows you to swiftly reverse the initial Deposit by immediately creating the required journal entries for the returned funds. 

It also logs any related bank fees as a cost to guarantee that your financial statements accurately represent your financial situation. Furthermore, the bounce record feature changes the client’s account to reflect the outstanding balance, which facilitates easier customer communication and collection management. This function can lower the possibility of accounting errors and maintain correct records with less work.

QuickBooks Desktop

How to record a bounced check in QuickBooks
  1. Navigate to Customers and choose the Customer Center.
  2. Click on the Transactions tab and select Received Payments.
  3. Double-click it to mark a payment as NSF.
  4. Choose the Record Bounced Check icon located on the Main ribbon tab of the receive payments window.

Note: Since the check would need to have cleared the bank in order to bounce, it cannot be waiting to be cleared in the Undeposited Funds account.

  1. Enter the following data in the Manage Bounced Check window, then click Next.

Note: These are all optional fields. If the bank didn’t charge you anything extra or you don’t want to bill your customer for it, you can leave them empty.

  • Bank Fee
  • Date of the Bank Fee 
  • Expense Account of bank fee
  • Customer Fee
  1. QuickBooks will display the bounced check summary so you can see what’s going on behind the scenes. 
  2. Choose “Finish.”

Record a customer’s bounced check with manual entry

Manually entering a customer’s bounced check into QuickBooks requires a number of detailed processes to assure accuracy. Let the customer know about the returned check and any other costs or penalties they could be responsible for. Thanks to this manual approach, your financial records are accurate and current.

QuickBooks Desktop

  1. For the purpose of monitoring returned checks and the associated costs, create an item and revenue account.

Important: If you’ve already set this up, skip to step 2 and need to do it once.

  1. Make an income account:
  • Account Name: Bounced Checks Income; 
  • Account Type: Income Account
  1. Make a faulty check Item of charge:
    • Name of Item: Bad Check Charge 
    • Amount or Percentage: Keep it at 0.00.
    • Tax Code: Not subject to taxes
    • Account Choose the Income from Bounced Checks.
  2. To undo the first payment, make a diary entry.
  3. Choose “Make General Journal Entries” from the Company menu.
  4. Debit your account receivables for the same amount as the NSF check in the General Entries window.
  5. In the Memo field, write a note outlining the transaction.
  6. In the Name field, type the name of the client or job that is linked to the NSF check.
  7. Give credit to the bank or checking account that initially gathered the Deposit.
  8. Click Save & Close.
  9. Transfer the invoice payment to the reversed journal item.
  10. Select Customers Receivables from the Reports menu, then click Customer Balance Detail.
  11. Double-click the NSF transaction’s original payment line.
  12. Transfer the Invoice’s check mark to the reversal journal entry in the Receive Payments pane.
  13. Click Save & Close. 

Record a customer’s bounced check with a journal entry

In order to use a journal entry in QuickBooks to document a customer’s bounced check, you must precisely reverse the original Deposit and take into consideration any related bank costs. To start, make a journal entry indicating the remaining amount the client owes by debiting the accounts receivable by the amount of the bounced check. 

This procedure guarantees the accuracy of your financial records and gives you a transparent record of the unsuccessful transaction for future use.

QuickBooks Desktop

Step 1: Make an item for bounced check fees from your bank

  1. Click on Settings, then Products & services
  2. Select New, then select Service.
  3. Name the item Bounced Check Fees.
  4. Choose an account you use to track bounced check fees from the Income account dropdown list.
  5. Select Save and Close.

Step 2: Record the bounced check in a journal entry

  1. Select + New.
  2. Go to Under Other and select Journal Entry.
  3. Enter the date of the check bounced in the Journal date field.
  4. On the first line, select Accounts Receivable from the Account menu.
  5. In the Debits column, enter the amount of the bounced check.
  6. Select the customer from the menu in the Name column.
  7. On the second line, select the bank account from the Account menu.
  8. The amount should appear automatically in the Credits field.
  9. Enter a note explaining the reason for the journal entry in the Memo field.
  10. Select Save.

Step 3: Clear the original Invoice and link the bounced check to the journal entry

  1. Go to Sales, then click on Customers. 
  2. Pick the name of the customer who allocated the bounced check to open the Transaction List.
  3. Find and select the bounced check.
  4. Clear the checkbox of the Invoice to which the check was originally used, and select the Journal Entry.
  5. Select Save.

Step 4: Enter the bank service fee for the bounced check

  1. Select + New.
  2. Beneath Vendors, click on Expense.
  3. In the Payee field, enter your Financial Institution’s name.
  4. In the Settlement date field, enter the date the check bounced.
  5. Enter the Non-Sufficient Funds fee in the Ref no. field.
  6. On the first line, beneath Category, select the Bank Charges expense account.
  7. Enter the amount your bank charged you for the bounced check in the Amount column.
  8. Select Save.

Step 5: Create an invoice for the bank service fee

  1. Select + New.
  2. Under Customers, select Invoice.
  3. Select the Customer name and enter the date the check bounced in the Invoice date field.
  4. In the Product/Service column, select the Bounced check fee item you created from the dropdown list.
  5. Document the amount to charge the customer for the bounced check.
  6. Select Save and Close.

Step 6: Print a statement to send to the customer

  1. Click on Sales, then select Customers. 
  2. Select the name of the customer who issued the bounced check to open the Transaction List.
  3. The next step is to create service items for bounced checks and fees to record these charges.
  4. Select the Statement Type to create from the dropdown list.
  5. Set the Statement Date, Start Date, and End Date.
  6. Select the checkbox beside the recipient’s name.
  7. Select Print to generate a copy of the statement, or select Save and Send to create an email with the statement attached to send to the customer.

Step 7: Receive the customer’s Payment for the new Invoice

  1. Select + New.
  2. Under Customers, choose to Receive payment.
  3. Select the customer from the Customer dropdown list.
  4. Document the Payment date and Payment method for the new payment.
  5. Choose the Deposit to Account from the dropdown list.
  6. Enter the amount received.
  7. Select the Invoice you created from the Outstanding Transactions list.
  8. Select Save and Close.

QuickBooks Online

In order to enter a bounced check in a journal:

  1. Press “+ New.”
  2. Select “Journal Entry” from the “Other” menu.
  3. In the “Journal date” section, provide the date the check was returned.
  4. Select “Accounts Receivable” from the “Account” dropdown menu on the first line.
  5. Enter the amount of the bounced check in the “Debits” column.
  6. From the dropdown option in the “Name” column, choose the customer.
  7. Select the relevant bank account from the “Account” dropdown menu on the second line. The sum should appear automatically in the “Credits” box.
  8. Provide a brief justification for this entry in the “Memo” area.
  9. Click “Save.”

By doing this, you can make sure the bounced check is correctly documented and recognized. After that, you must settle the initial Invoice and link the check to the newly made journal entry:

  1. Go to “Sales” and select “Customers.”
  2. To access the “Transaction List,” click the name of the client who issued the check that bounced.
  3. Locate and select the check bounce record.
  4. After unchecking it, click “Journal Entry” to link the Invoice that was originally paid for by the check.
  5. Select “Save.”

You have now linked the journal entry to the bounced check. The last step is to enter the bank’s bounced check service charge as a cost.

Record a customer’s bounced check with an expense

Recognizing the financial effect of the returned payment on the business’s records is necessary to record a customer’s rejected check as a cost. When a check bounces, the bank reverses the Deposit, lowering the company’s cash balance. The company needs to record the loss in a journal entry to account for this. 

The usual procedure for this is to debit an expense account, like “Bad Debt Expense” or “Bounced Check Expense,” and credit the accounts receivable with the same amount to reflect the fact that the payment is still owed. The cash account should also be further adjusted with any bank fees that were incurred as a result of the bounced check by recording them as expenses. By doing this, the company’s financial status and the effect of the bounced check are guaranteed to be appropriately reflected in the financial accounts.

QuickBooks Online

The first way to document a check that bounces is to:

  1. Modify the amount owed.
  2. Assign and create items related to bank charges.
  3. Change the status of the client account.

To keep things accurate and financially, you have to:

  1. For bank service charges and bounced check costs, enter service items.
  2. Record the NSF fee that was assessed to the client.
  3. Make a note of any changes to your income account.
  4. Notify the client and make a reimbursement request.

To record returned checks in QuickBooks Online, follow these steps:

  1. Select “+ New.”
  2. Select “Expense.”
  3. Find the “Payee” field and choose the client who sent the check back.
  4. Select the account that will be used for the Deposit using the “Payment Account” dropdown menu.
  5. Enter the date on which the check bounced in the Payment date column.
  6. Extend the dropdown list labeled “Category details.”
  7. To select “Out of Scope of Tax,” click in the “Amounts are” section.
  8. Click on the “Accounts Receivable” category.
  9. In the “Description” column, enter a note like “bounced check” or “NSF check.”
  10. Enter the amount on the check in the “Amount” field.
  11. Lastly, select “Save and Close.”

Record a customer’s bounced check with an invoice

In order to guarantee accurate financial records and timely follow-up, a number of crucial processes are involved in recording a customer’s bounced check together with an invoice. To update the customer’s account, the payment entry that was first made when the check was received must be reversed. 

For record purposes, clearly identify the invoice with a reference to the bounced check. Inform the client of the returned check and the updated invoice, and give them choices for paying the remaining balance, such as another way to make payments. 

QuickBooks Online

How to record a bounced check in QuickBooks

Step 1: Make two service items.

  1. Make a product to undo the payment.
  2. Instead of linking it to an income account, you must establish a new service item and attach it to your bank account. It reverses the check in your bank register when you utilize it on an invoice.
  3. To access Products and services, navigate to Settings .
  4. After choosing New, choose Service.
  5. Put ‘Bounced cheque’ in the Name field.
  6. Choose the bank account that you used to receive the returned check from the Income account menu.
  7. After choosing Save, click Close.

Step 2: Make an invoice for the amount due and the returned check.

  1. Click Add New and choose Invoice.
  2. Choose the name of the customer who wrote the cheque that bounced from the Customer menu.
  3. Enter the date the check bounced by selecting the Invoice date column.
  4. Choose the item “Bounced check” from the dropdown menu under “Product/Service.”
  5. In the Amount field, enter the amount of the returned check.
  6. Select a different Product/Service from the dropdown menu, then select “Bounced check fees.”
  7. In the Amount field, enter the amount you will charge the customer for the returned check.
  8. After choosing Save, click Close.

Step 3: Document the bank’s returned check charges.

  1. Click Add New and choose Expense.
  2. Choose the bank account that you used to record the bounced check from the Payment Account menu.
  3. Enter the date the check bounced after selecting the Payment date column.
  4. Put ‘Bounced cheque fees’ in the Ref no. field.
  5. Choose the income account labeled “Bounced cheque fees” or the expense account that you use to monitor bank costs from the Category  menu.
  6. You must choose the same account that you used to generate the ‘Bounced Cheque Fees’ item.
  7. In the Amount area, enter the amount your bank charged you for the returned check.
  8. After choosing Save, click Close.

Step 4: Keep track of your customer’s payment.

  1. Choose Receive money after selecting + New.
  2. Choose the customer who made the payment with the bounced check from the Customer selection.
  3. For the new payment, provide the Payment date and Payment method.
  4. Choose the bank account that you used to receive the returned check from the Deposit  dropdown menu.
  5. From the list of outstanding transactions, select the Invoice you made and fill in the Payment field with the amount you were paid.
  6. After choosing Save, click Close.

Record a bounced check that you wrote

Writing down a check that bounces can be an unpleasant chore that frequently annoys you. This procedure usually begins with recording the bounced check as returned or unpaid in your online banking platform or checkbook ledger. You might also have to check your bank statement to see if there are any additional fees related to the returned check. 

It also acts as a reminder to be cautious and diligent when checking the balances on your accounts in order to avoid repeating the same mistakes. 

QuickBooks Desktop

Step 1: Enter a reversing journal entry

  1. From the Company menu, choose Make General Journal Entries.
  2. Make sure the Entry Number and Date are correct.
  3. Debit the checking account for the amount of the NSF check.
  4. Credit the A/P account for the amount of the NSF check.
  5. Enter the Vendor name.
  6. Enter memos and classes. (Optional)
  7. Select Save & Close.

Step 2: Un-link the bill from the payment check and link it to the journal entry

  1. Open the original bill payment check.
  2. Uncheck the bills originally paid using the bill payment check.
  3. Check the Journal Entry created in Step 1.
  4. Enter a memo to indicate that the check was returned for NSF.
  5. Select Save & Close.

Step 3: Enter a bill for the overdraft charges

You have to do this step only if the vendor charges you for the overdraft fee.

  1. From the Vendors menu, select Enter Bills.
  2. Enter the Vendor name.
  3. On either the Expenses tab or the Item tab, document the overdraft charges using the appropriate account or item.
  4. Enter a Memo to show that these are charges for an NSF bill payment check.
  5. Select Save & Close.

Step 4: Create a new bill payment check

Rest assured, since you un-linked the original bill payment check from the bills, they were marked unpaid and should re-appear in the Pay Bills window for your convenience.

  1. From the Vendors menu, select Pay Bills.
  2. Select the bills that were originally paid by the NSF bill payment check and the bill for the overdraft charge.
  3. Complete all other required information.
  4. Select Pay Selected Bills.

QuickBooks Online

  1. Select “Make General Journal Entries” from the “Company” menu.
  2. Check to make sure the “Date” and “Entry No.” fields are filled in accurately.
  3. Debit the checking account with the amount of the returned check in the journal entry.
  4. The identical amount should be credited to the accounts payable (A/P) account.
  5. Type the “Vendor name” in.
  6. Then, click on Save & Close.

You now need to attach the bill payment to the journal entry and reassign it:

  1. View the original check used to pay the bill.
  2. From the bill(s) that were originally paid with the bill payment check, remove the option.
  3. When you record a reversal journal entry, note this in the “Journal Entry” that you created.
  4. Make a notation indicating there were not enough funds to cover the check’s return in the “Memo” section.
  5. Select “Save & Close.”

Conclusion

To guarantee accurate financial records, there are a few crucial processes involved in recording a bounced check in QuickBooks. If your version of QuickBooks has the “Record Bounced Check” tool, you can use it to accomplish this instead of creating a journal entry. Make sure to include the bank’s bounced check fee in the list of expenses. 

Subsequently, create an invoice or memo and update the customer’s account to reflect the remaining amount owed. Lastly, let the consumer know about the returned check and any related costs. This is how you can easily maintain the financial records in QuickBooks.

By : July 8, 2024
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