Welcome to the Fit Small Business QuickBooks Online training course. In this lesson, we’re going to cover how to record a bounced check in QuickBooks Online. You can follow along on your own QuickBooks Online account. If you don’t have one already, 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 a Bounced Check Is
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. This is a bounced check which can be a real hassle to keep track of on the books.
Your bank will charge you a fee for a bounced check, you’ve got to contact your customer to inform them that their check has bounced and to request another form of payment. In this lesson, we will walk through how to correctly handle bounced checks using QuickBooks Online.
The Importance of Recording a QuickBooks Bounced Check
It’s important to record a QuickBooks bounced check because it will impact not only your bank account, but also your accounts receivable (A/R) balance and expenses. In order to reconcile your bank account, you must record the returned check plus any additional fees charged by the bank. You must also reverse the customer’s payment which will increase your A/R balance.
When a customer’s check bounces, it has the following impact:
- Bank account: Your bank account is reduced by the amount of the bounced check.
- Accounts receivable: Your accounts receivable balance will increase since the customer’s payment did not go through.
- Bounced check fees: The bank charges you a fee for non-sufficient funds (NSF fee).
In an effort to 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 to Record a Bounced Check in QuickBooks Online in 5 Steps
In order to properly record a bounced check in QuickBooks Online, you need to record the decrease to the bank account for the total amount of the check. Next, you need to record the non-sufficient funds (NSF) fee charged to your account by the bank. Finally, you need to bill the customer back for the NSF fee. Billing the customer for the fee is optional, but I recommend that you do so to offset the NSF fee charged by the bank.
Follow the five steps below to record a bounced check in QuickBooks Online:
1. Record the Decrease in the Bank Balance
In this step, you will navigate to the “Write Checks” window to record the decrease in the bank balance for the total amount of the bounced check. The bank has deducted this amount from your bank account which is why we need to record it in QuickBooks.
From the Homepage, click on the plus sign at the top, and below the “vendors” column, select “Check” as indicated below:
Navigate to Write Checks in QuickBooks Online
The write check window will display as indicated below:
Record the Decrease in the Bank Balance in QuickBooks Online
A brief description of the information you will provide is below:
- Payee: From the drop down, select the customer whose check bounced
- Bank account: From the drop down, select the bank account where the check bounced
- Payment date: Enter the date the check was returned
- Account: From the drop down, select accounts receivable
- Description: Enter the bounced check information
- Memo: Enter any additional information about the customer’s bounced check
- 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
- Check no: Enter NSF in this field
- Save: Save and close the check window
2. Navigate to the Expense Menu
From the Homepage, click on the plus sign at the top, and below the Vendors column, select Expense as indicated below:
Navigate to the Expense Menu in QuickBooks Online
3. Record the NSF Fee Expense in QuickBooks Online
In this step, we will record the NSF fee charged by the bank for the bounced check. The NSF Fee will be entered into QuickBooks as an expense. To record an expense you will need to enter the name of the payee which would be the bank in this example. You will also need to enter a reference number, a brief description and the amount.
Complete the fields in the expense window as indicated below:
Record the NSF Fee Expense in QuickBooks Online
The information you will need to provide to record the NSF fee is:
- Payee: From the drop down, select your bank.
- Bank account: From the drop down, select the bank account where the check bounced.
- Payment date: Enter the date the check was returned.
- Ref no: Enter “Bank NSF Fee” in this field as your reference number.
- Account: From the dropdown, select the expense account you use to track bank fees.
- Description: Enter “NSF fee” in this field as a description.
- Amount: Enter the amount the bank charged you for the bounced check.
- Save: Once all fields are completed, you can save and close this window.
4. Navigate to Invoices in QuickBooks Online
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.
From the Homepage, click on the plus sign at the top. Below the Customers column, select Invoice as indicated below:
Navigate to Invoices in QuickBooks Online
5. Bill the Customer for the NSF Fee (Optional)
To bill your customer for the NSF fee, you will need to create an invoice in QuickBooks. You will complete the fields like you would if you were billing the customer for services, but instead we will use a special item called Customer NSF Fee.
As indicated below, there are several fields that need to be completed to bill the customer for the NSF charge:
Bill the Customer for the NSF Fee in QuickBooks Online
Complete the following fields in the invoice form to bill the customer for the NSF fee:
- Customer: From the drop down, select the customer who bounced the check.
- Invoice date: Select the date you want to bill your customer for this fee.
- Product or 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” and complete the following fields to set up this fee:
- Item type: From the drop down, select “service.”
- Item description: Type in “Customer NSF Fee.”
- 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.
- Description: Include a description of the check that was returned so that the customer is aware of what this fee is for.
- Amount: Enter the amount you are charging your customer for the bounced check (NSF fee plus any additional inconvenience fee).
- Message to display on the invoice: Include a message to your customer that will appear on the invoice as to why they are being charged the fee.
- Save: Once all of the fields are complete, save and close the invoice.
Impact of Recording QuickBooks Bounced Checks on Financial Statements
Bounced checks impact several accounts and a couple of key financial statements. Accounts receivable will go up because the invoice is no longer paid, your cash on deposit will go down because the funds have been removed from your bank account. Plus, your expenses will go up because of the NSF fee. As a result, both the balance sheet report and the profit and loss statement area affected when recording QuickBooks bounced checks.
When a bounced check is recorded in QuickBooks, your accounts and financial statements are affected as follows:
| Step | Accounts Affected | Financial Statement |
|---|---|---|
| Record bounced check | Increase: Accounts Receivable Decrease: Checking Account | Balance Sheet |
| Record NSF Fee | Increase: Bank Service Charge Decrease: Checking Account | Profit & Loss Statement and Balance Sheet |
| Bill your customer | Increase: Accounts Receivable Increase: Other Income | Profit & Loss Statement and Balance Sheet |
Frequently Asked Questions (FAQs) About How to Record a Bounced Check in QuickBooks Online
We have included the most frequently asked questions about how to record a bounced check in QuickBooks Online. If you don’t see your question, visit our Fit Small Business Forum and post your question there. One of our industry experts will promptly respond to your question.
The most frequently asked questions about how to record a bounced check in QuickBooks Online are:
How do you record a returned check in accounting?
To record a returned check, you need to record the total amount of the bounced check plus the non-sufficient funds (NSF) fees the bank charged you for the returned check. If you use an accounting software like QuickBooks, you will record the bounced check amount and the NSF fee in the check register.
How do I record a handwritten check in QuickBooks Online?
To record a handwritten check in QuickBooks Online, navigate to the check register. Select new transaction and enter the transaction type (check), the check number, check amount, payee and select the account that represents what was purchased (e.g., office supplies, telephone expense).
How do I record a returned ACH payment in QuickBooks?
A returned ACH payment is handled similarly to a returned check in QuickBooks. Record the total amount of the returned ACH payment and any fees charged by your bank. In QuickBooks, navigate to the check register to record the returned ACH payment and any additional fees charged by your bank.
Wrap Up
Now that you have a better understanding about how bounced checks impact your books and how to properly record them, you are ready to reconcile your bank account. 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.
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