Welcome to the Fit Small Business QuickBooks Online training course! In this lesson, we’re going to cover how to handle bounced checks from customers in QuickBooks Online.

You can follow along on your own QuickBooks Online account. If you don’t have one already, click here to sign up for a free 30-day trial and follow along below.

To complete this lesson, you can either watch the video below, read through the step-by-step instructions, or do both. Let’s begin!

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What is a Bounced Check?

When you deposit a check that you received from a customer and there are not enough funds in their bank account, the check is returned to your bank due to non-sufficient funds to pay the check amount.  Sometimes, it can be a real hassle because you are penalized by your bank who will charge you a fee for the bounced check.  In addition, you’ve got to contact your customer and either have them write you another check or provide another form of payment.  In this lesson, we will walk thru how to correctly handle bounced checks.

Why Is It Important to Handle Bounced Checks in QuickBooks Online?

When a customer’s check bounces, it has the following impact:

• Your bank account is reduced by the amount of the bounced check.
• Your accounts receivable will increase since the customer’s payment did not go through.
• The bank charges you a fee for non-sufficient funds (NSF fee).

In an effort to avoid fees and ensure that your financial statements are accurate, we will walk through step by step in this lesson to show you how to record a transaction in QuickBooks for each of the above items.  

How Do I Handle Bounced Checks in QuickBooks Online?

Step 1 – Record the decrease in the bank balance for the bounced check amount

From the Home page, click on the plus sign at the top, and below the Vendors column, select Check as indicated below.

The write check window will display as indicated below:

1. 1. Payee: from the drop down, select the customer whose check bounced.
   2. Bank Account: from the drop down, select the bank account where the check bounced.
   3. Payment date: enter the date the check was returned.
   4. Account: from the drop down, select Accounts Receivable.
   5. Description: enter the bounced check info.
   6. Memo: enter any additional information about the customer’s bounced check.
   7. Amount: enter the amount of the bounced check.
      TIP: Do not include the NSF fee charged by the bank.  We will enter that in the next step.
   8. Check no: enter NSF in this field.

Save and close this check.

Step 2 – Record the NSF fee that the bank charged you

From the Home page, click on the plus sign at the top, and below the Vendors column, select Expense as indicated below.

The expense window will display. Complete the fields as indicated below.

1. Payee: from the drop down, select your bank.
2. Bank account: from the drop down, select the bank account where the check bounced.
3. Payment date: enter the date the check was returned.
4. Ref no: enter Bank NSF Fee in this field.
5. Account: select the expense account you use to track bank fees.
6. Description: enter NSF fee in this field.
7. Amount: enter the amount of the bank charge.

Once all fields are completed, you can save and close.

Step 3 – Bill your customer for the NSF fee (Optional)

As indicated above, this step is optional. However, I recommend that you bill your customer for the NSF fee that you were charged by the bank.  Some businesses charge a little more just for the inconvenience, but that is up to you.

To bill the customer for the NSF Fee, from the Home page, click on the plus sign at the top. Below the Customers column, select Invoice as indicated below.

The create invoice window will display. Complete the fields as indicated below.

1. Customer: from the drop down, select the customer who bounced the check.
2. Invoice date: select the date you want to bill your customer for this fee.
3. Product/Service: In order to track Customer NSF Fees, we want to set up a service called Customer NSF Fee. From the drop down, click on Add New.  Complete the following fields to set up this fee as indicated below.
   • A. Item type: From the drop down, select Service.
   • B. Item description: Type in “Customer NSF Fee.”
   • C. Income account: From the drop down, select Other Income. If you do not have an Other income account set up, you can do so by clicking the Add New option.  Be sure to watch our video tutorial on how to set up the chart of accounts.
4. Description: Include a description of the check that was returned so that the customer is aware of what this fee is for.
5. Amount: Enter the amount you are charging your customer for the bounced check (NSF Fee + any additional inconvenience fee).
6. Message to display on invoice: Include a message to your customer that will appear on the invoice as to why they are being charged.

Once all of the fields are complete, save and close the invoice.

What Impact Does Recording Bounced Checks Have on My Financial Statements?

When a deposit is recorded in QuickBooks, your accounts and financial statements are affected as follows:

Wrap Up

That wraps up the section on how to handle QuickBooks bounced checks. The next lesson in our QuickBooks Online Training Course will be how to reconcile bank accounts. In this lesson, we will walk you through how to reconcile your checking and savings accounts in QuickBooks Online.

To access this lesson or any of the others in the series, click here. Or, click here for a free 30-day trial of QuickBooks Online.

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