Returned or bounced checks are a common part of business transactions. Whether a customer’s payment didn’t clear or your own issued check got returned, handling these events correctly in your accounting software is essential to maintain accurate books. If you’re using QuickBooks Online or QuickBooks Desktop, understanding how to properly record a returned or bounced check ensures your financial records stay clean and up to date.
In this guide, we’ll walk you through the steps of how to record returned or bounced checks in QuickBooks, explain why it's necessary, and help you avoid common pitfalls. Whether you’re an accountant, bookkeeper, or business owner, this comprehensive resource will support you in handling NSF (Non-Sufficient Funds) transactions like a pro.
What Is a Returned or Bounced Check?
A returned check, often referred to as a bounced check, is a payment that cannot be processed because the account it was drawn from does not have sufficient funds. Banks may charge you a fee when this happens, and you’ll need to reverse the original deposit recorded in your accounting software.
Common reasons for bounced checks include:
- Non-sufficient funds (NSF)
- Closed or frozen accounts
- Errors in the check writing
- Stop payments issued by the customer
Regardless of the cause, it’s important to record the bounced check in QuickBooks accurately to reflect the true status of your financials.
Why Properly Recording Bounced Checks Matters
If a bounced check isn’t recorded properly, it can cause:
· Inaccurate income reporting
· Misstated cash flow
· Confusion during reconciliation
· Incorrect customer balances
By learning how to record returned or bounced checks in QuickBooks, you protect your financial integrity and avoid potential compliance issues, especially during tax time.
How to Record a Returned Check in QuickBooks Online (QBO)?
QuickBooks Online provides an efficient process to manage bounced checks. Follow these steps to reverse a customer’s payment that was returned.
Step 1: Create a Journal Entry
· Go to + New > Journal Entry.
· Enter the date of the returned check.
· In the first line:
· Account: Use the bank account where the check was originally deposited.
· Debits: Enter the amount of the bounced check.
· Name: Enter the customer’s name.
· In the second line:
o Account: Use Accounts Receivable (A/R).
o Credits: Enter the same amount.
o Name: Enter the same customer.
See More: QuickBooks Desktop 2024
Step 2: Apply the Journal Entry to the Original Invoice
· Go to + New > Receive Payment.
· Choose the customer.
· Check the box for the original invoice and the journal entry.
· Ensure the payment total is $0.00 and Save.
Step 3: Record Any Bank Fees
· Go to + New > Expense.
· Choose the bank account affected.
· Add a line item:
o Payee: Your bank
o Category: Bank Fees
o Amount: Enter the fee amount.
· Save the transaction.
o This method ensures the original payment is reversed and the customer balance is restored.
How to Record a Returned Check in QuickBooks Desktop?
QuickBooks Desktop users can also record a bounced check easily using the built-in feature.
Step 1: Locate the Customer Payment
· Go to Customers > Customer Center.
· Find the customer and open the payment that bounced.
Step 2: Use the Bounced Check Feature
· In the Receive Payments window, click Record Bounced Check at the top.
· Enter the date the check bounced.
· Add the bank fee amount and optionally any chargeback fee you plan to invoice the customer for.
· Click Next, then Finish.
QuickBooks will automatically:
· Create a new invoice for any fees you wish to charge the customer.
· Record the bank fee in your expenses.
· Remove the original payment from your records.
Handling Bank Fees for Bounced Checks
When banks charge you for a returned check, you should record this fee in your books.
In both QuickBooks Online and Desktop:
- Categorize bank charges under an expense account named Bank Service Charges or similar.
- Always separate the bank fee from customer charges to keep reports clean.
If you charge your customer a fee for the bounced check, use an income account such as Returned Check Fees to track it separately.
Know More: Upgrade QuickBooks Desktop 2024
How to Inform Customers of a Returned Check?
Communicating a returned payment can be sensitive. Here’s how to do it professionally:
1. Send an Email or Letter explaining the payment was returned due to insufficient funds.
2. Attach the Invoice for any additional fees.
3. Request Payment by Alternative Method, such as a certified check, credit card, or ACH.
4. Keep Records of your communication for legal and accounting purposes.
Tips to Avoid Future Returned Payments
Preventing returned checks is better than correcting them. Here are some tips:
· Screen Customers before extending credit terms.
· Use ACH or Credit Card Payments to reduce bounce risks.
· Enable Payment Reminders through QuickBooks.
· Charge Return Check Fees to encourage prompt resolution.
Frequently Asked Questions (FAQ)
Q1. Can I delete the original payment if a check bounces?
No. Always reverse the payment using a journal entry or the bounced check feature. Deleting the payment will cause discrepancies in your reconciliation and reporting.
Q2. How do I charge the customer a fee for the bounced check?
You can create a new invoice or add a service item labeled "Returned Check Fee" and assign it to an income account.
Q3. What if the customer sends a new payment later?
Once the customer pays again, apply the new payment to the open invoice created when reversing the bounced check. Make sure to also record any additional charges paid.
Q4. How do I track returned checks in QuickBooks?
Use tags, classes, or memo fields when recording the reversal. Additionally, run reports like Customer Balance Detail to track outstanding and reversed transactions.
Q5. Can I use a third-party app to manage bounced checks in QuickBooks?
Yes, there are apps available in the QuickBooks App Store that automate returned check tracking, but most users find the built-in features sufficient.
Conclusion
Handling returned or bounced checks in QuickBooks doesn’t have to be stressful. By following the right steps in QuickBooks Online or QuickBooks Desktop, you can maintain accurate records, recover bank fees, and ensure your customer balances reflect reality.
Whether you’re reversing a payment using a journal entry or utilizing QuickBooks Desktop’s built-in bounced check feature, the key is to act promptly and record everything correctly. With the tips and steps outlined in this guide, you’re well equipped to manage any bounced check scenarios that come your way.
If you're still unsure how to record returned or bounced checks in QuickBooks or need expert assistance, don’t hesitate to contact our QuickBooks-certified professionals today.
