How to Record a Bounced Check Received from a Customer in QuickBooks

Bounced checks are popularly known as Non-Sufficient Funds (NSF) checks. These checks can pose significant obstacles for businesses if recorded inaccurately. Whether it’s a small or large-scale financial enterprise, it is crucial to record a bounced check in QuickBooks for accurate financial reports properly.

Properly recording bounced checks ensures that the Accounts Receivable (A/R) and bank account balances remain correct. When such transactions are unrecorded, it results in irregularities in bookkeeping, impacting the integrity of financial statements.

Since recording NSF checks in QuickBooks requires precision, detailed guidance is needed. This guide shares the step-by-step guidelines to record bounced checks in QuickBooks Desktop and Online. Implementing the steps systematically is crucial for precise and up-to-date accounts.

Understanding Recording of a Bounced Check in QuickBooks

QuickBooks classifies transactions into:

• Sold products and services
• Company expenditures
• Regular sales and receipts
• Returned checks (Bounced Checks)
• Refunds and cancellations

Hence, recording a bounced check in QuickBooks guarantees a correct bank balance, A/R monitoring, and tax compliance. Consistent reconciliation ensures financial integrity and prevents discrepancies.

In the QuickBooks accounting application, users can:

• Access bank feeds– Modify the bounced payment entry and allocate a bounced check expense.
• Work without bank feeds– Record through a journal entry or expense to recover the customer balance and include bank charges.

Why do Checks get bounced? Key Reasons

A bounced check happens when an entry is rejected by a bank due to inadequate funds (NSF) or corresponding challenges.

Here is the list of the common reasons why checks get bounced:

• Inadequate funds
• Inaccurate account information
• Account limitations
• Overdue checks beyond 6 months
• Signature inconsistency
• Banking issues
• Payment cancellation requests
• Disable or idle accounts

Note: Precise balance tracking and transaction monitoring in QuickBooks guarantees financial management. Consequently, bounced check instances have reduced significantly.

Information Needed to Record Bounced Checks in QuickBooks

While performing a bounced payment entry in QuickBooks, ensure you have access to certain details. These details can ensure precise bookkeeping and accurate A/R monitoring:

• Review the check bounce date to maintain systematic financial records.
• Issuer Information- Identifies a reliable business or customer.
• Invoice status- Highlight the specific invoice as unpaid.
• Outstanding Balance Statement- Outlines the amount payable, including additional charges.

Note: Adding these details guarantees correct financial statements, correct customer monitoring, and improved cash management.

How to Record Bounced Checks in QuickBooks Online?

QuickBooks Online makes bound check management seamless. Before commencing, review the returned check and perform steps to update the A/R, bank balance, and charges properly.

Here are the different solutions to record bounced checks in QuickBooks Online:

Step 1. Use the “Bounce Record Feature” to record the Customer’s returned check

Here are the steps to access the “Bounced Record Feature” in QuickBooks:

1. Use the Payment from Customers

Find the initial payment from customers to monitor the transaction logs and comprehend the check bounced scenario. Here are the steps to access the initial payment from a customer:

• On the left-side menu, click the tab “Sales”.
• In the Sales menu, choose the “Customers” option to check the customer list.
• Find and click the customer whose payment has bounced.

2. Locate the Payment Entry

Detect the particular entry to precisely record the bounced check and avoid accounting issues using these steps:

• Find the payment done by the customer under the “Transactions” tab.
• Access the “Search” feature to locate a particular payment.
• To open the payment, click it.

3. Register the Bounced Check

Modify the accounts to show that the payment needs to be accepted:

• Compared to QuickBooks Desktop, the QuickBooks Online application lacks the “Record Bounced Check” feature.
• Revert the transaction and apply any bank or customer charges manually.
• In case the check is still awaiting clearing, erase or void the original payment and enter it as a new entry again with changes, if any.

4. Modify the Bank Charges and Customer’s Account

Confirm that the customer account shows the pending bank charges and balance using these steps:

• Generate a credit memo for the extra charges and bank fees.
• For the bank charges, perform the steps:
  • Navigate to “New” and click “Expense”.
  • Select the right bank account and Expense Account.
  • Add the payable fee and other information.
• Record the customer charges by generating a “Sales” invoice that comprises a bounced check fee line item.

5. Record the Payment again

In case the bounced check is paid by the customer, perform these steps:

• Navigate to the option “New” and click “Receive Payment”.
• Choose the customer, allocate the payment to the appropriate invoice, and check that the payment information is correct.

6. Check and Close the Transaction

Check all the transactions to confirm accuracy before finalizing using these steps:

• Confirm that the Bank Account and A/R balances display the bounced check and related expenses.
• Verify the payment is changed back, fees added properly, and the customer invoiced correctly.

7. Notify the Customer

Inform the customer about the bounced check and charges related to the account. Access QuickBooks Online to deliver the invoice for the customer fees.

Step 2. Use Manual Entry to Record a Customer’s Bounced Check in QuickBooks Online

To record a customer’s bounced check manually in QuickBooks, use these steps:

1. Set up service items, if pending

QuickBooks Online enables bounce payment entry using an Invoice or a Sales Receipt. This works as an alternative to Journal Entry.

Here are the steps to create service items, if not yet created:

• Use Products and Services
  • Click the “Gear” icon and choose the option “Products and Services”.
• Generate Bounced Check Item
  • Click the “New” button and choose “Service”.
  • Add a name to the “Bounced Check” item.
  • To restore the check amount, connect it to an A/R account.
  • Now, save the item.
• Generate a Bounced Check Charges Item
  • Click the “New” option and choose “Service”.
  • Add a name to the “Bounced Check Fee” item.
  • To monitor bank charges, connect it to an “Income or Expense” account.
  • Now, save the item.

2. Register the Bounced Check

To update the A/R accounts correctly, register the transaction using these steps:

• Generate a Sales Receipt or Invoice
  • Click the “New” button and choose “Sales Receipt” or “Invoice”.
• Access Fees, Items, and Bounced Checks:
  • Include the “Bounced Check” in the “Item” field and add the amount.
  • Include a different line for the “Bounced Check Fee” item and add the bank charges.
• Save and Send:
  • Save the sales receipt or the invoice. Once it is saved, deliver it to the customer.
  • A/R and customer balance are automatically adjusted.

3. Register the Bank Fee (If Relevant)

Register bank fees as an expense using these steps:

• Generate Expenses for Bank Charges
  • Click the “New” button and choose the option “Expense”.
  • Select the bank account where the fee was charged.
• Add Expense Information
  • Change the “Payment Date” to the check-bounced date.
  • Add the bank as “Payee”. Generate a vendor if required.
  • Choose the right “Expense Category”.
  • Add the bank fee amount and save the expenditure.

4. Modify the Sales Receipt or Initial Invoice

• Navigate to “Sales” and click “Customers”.
• Choose the customer and find the actual payment related to the bounced check.
• Disconnect the payment from the actual invoice and record it as a bounced check with the “Bounced Check” item.

5. Register the Payment (In case the Customer Pays Again)

• Click the “New” option and choose “Receive Payment”.
• Add the payment to the actual invoice or a new invoice generated for the bounced check.

Note: This manual step helps maintain precise A/R accounts, monitor bank charges, and update customer balances.

Step 3. Register a Bounced or Returned Customer Check using Journal Entry

Register bounced checks using journal entries in QuickBooks to get live insights with seamless access. The system reverses the payment, revises the customer’s account balance, and implements updates to financial reports promptly.

The web-based interface from QuickBooks Online guarantees coordinated updates across teams and systems. This boosts the integrated approach and performance.

Here are the steps to record bounced checks in QuickBooks Online using Journal Entry:

1. Generate Items for Bounced Check Fees

Prior to registering the bounced check, generate service items for related charges for the customer. Here are the steps to create items for bounced check fees:

• Fee from the bank- Monitors bank fees for the bounced check.
• Fee applicable to the customer- Monitors the fee charged to the customer.
• Navigate to the “Settings” option.
• Click “New” and then choose “Service”.
• Add a name to the Bounced Check Fees item.
• Choose the account for monitoring bounced check fees for “Income Account”.
• Click the “Save and Close” button.

2. Use Journal Entry to Register the Bounced Check

• Click the “+New” option.
• Under the “Other” section, choose “Journal Entry”.
• Add the check bounced date in the “Journal Date” section.
• First line:
  • Debits– Add the bounced check amount
  • Account– Accounts Receivable
  • Name– Choose the customer who provided the check.
• Second line:
  • Accounts– Bank Account
  • Credits– Amount automatically filled.
• Include a memo elaborating the reason.
• Click the “Save” button.

3. Remove the Initial Invoice and Connect the Bounced Check

• Navigate to “Sales” and click “Customers”.
• Choose the relevant customer and access the “Transaction List”.
• Find the bounced check and choose it.
• Now, remove the checkmark from the invoice initially cleared with the bounced check.
• Select the “Journal Entry”.
• Click the “Save” button.

4. Add the Bank Service Charge for the relevant Bounced Check

• Click the “+New” option.
• Now, under the “Vendors” section, choose “Expense”.
• In the “Payee” section, add the bank name.
• Assign the “Payment Date” to the bounced check date.
• Add a reference number in the “Ref no” field.
• In the first line, under the “Category” option, choose “Bank Charges”.
• Add the bank fee amount.
• Click the “Save” button.

5. Add an Invoice for the Bank Service Charge

• Click the “+New” option.
• Under the “Customers” section, choose “Invoice”.
• From the drop-down, choose the relevant customer.
• Add the “Invoice Date”.
• Choose the “Bounced Check Fee” item generated previously under the “Product/Service” section.
• Add the fee amount billed to the customer.
• Click the “Save and Close” button.

6. Print and Issue a Statement to the Customer

• Navigate to the “Sales” option.
• Now, click “Customers”.
• To access the “Transaction List”, choose the customer.
• From the drop-down, click the “Create Statement” option.
• Select the “Statement Type”.
• Assign the Start Date, Statement Date, and End Date.
• Review the box near the customer’s name.
• Click the option “Save and Send” or “Print” and send the statement via email.

7. Use the New Invoice to get the Customer’s Payment

• Click the “New” option.
• Now, under the “Customers” section, click “Receive Payment”.
• From the drop-down, choose the customer.
• Add the “Payment Method” and “Payment Date”.
• Choose the “Deposit to” account.
• Add the “Amount Received”.
• Select the box near the invoice for the bounced check fee.
• Click the “Save and Close” button.

Step 4. Use the Expense Method to Register a Customer’s Bounced Check

Access the Expense method in QuickBooks Online to register a bounced check. This includes debiting the Expense account, like Bounced Check Expense, and crediting the A/R account.

Any type of bank charge is recorded as an extra expenditure. This ensures the financial statements and reports highlight the bounced check properly.

Here are the steps to record bounced checks in QuickBooks Online using an Expense method:

1. Reclassify the Bounced Payment Entry to reactivate the initial invoice

• Sign in to your QuickBooks Online account.
• Head to the “Ban Transactions” option appearing on the left panel.
• Choose the option “Bank Transactions”.
• Locate the reverse payment marked for inadequate funds in the Bank feed.
• To access the details, click the entry.
• Choose the customer of the bounded check in the “Vendor/Customer” section to change the transaction.
• Choose “Accounts Receivable” in the “Account” section to connect the payment to the pending invoice.
• Click the “Add” button to make the change permanent, balancing the unpaid invoice.

Note: In case the bank account is not connected or the payment is still pending, generate an expense manually. This will help to record the bounced payment and reconcile it later.

2. Remove the Bounced Check Payment from the Initial Invoice

• Use the Customer Details
• Navigate to the “Sales” option.
• Now, click “Customers”.
• Choose the customer with the bounced check.
• Find the payment connected to the bounced check.
• Click the “Edit” button.
• To check applied invoices, click the “Payment Made” link.
• Remove the selection for the box beside the initial invoice.
• Choose the expenses generated in Step 1 to relate to the bounced check payment.
• Click the “Save and Close” button and verify the connection by choosing the “Yes” button.

3. Generate an Invoice for the Bank Fees

• Generate a New Invoice by clicking the “New” button.
• Now, under the “Customers” section, click “Invoice”.
• Select the customer who provided the bounced check.
• Access the date the bank posted the bounced check fee.
• Include Bank Fees Service Item:
  • Choose the service item for Bank Fees Charged to Customer in the “Product/Service” section.
  • In the case the item fails to exist, then click the “+Add New” option.
  • Choose the “Service” option.
  • Add a name for the “Bank Fees Charged to Customer” item.
  • Choose the option “Other Income” for the Income Account.
  • Click the “Save and Close” option.
• Add the Amount charged to the respective customer.
• Click the “Save and Close” button to save the invoice.

4. Provide the customer with a statement

• Navigate to the “Sales” option.
• Click “Customers” and choose the customer.
• From the “New transactions” option, choose “Statement”.
• To display the pending balance with charges, select “Balance Forward”.
• For the invoicing period, add “Start Date”, “End Date”, and “Statement Date”.
• To review, click the “Preview” or “Print” option. Alternatively, email the statement to the customer by choosing the “Save and Send” option.

Step 5. Use an Invoice to Record a Customer’s Bounced Check in QuickBooks Online

Record a bounced check and any related service charges in a particular invoice. Before generating the invoice, generate two items:

• One for service charges
• One for the bounced check in the bank register

Moving forward, address the following prerequisites to generate items for bounced checks and charges:

• Navigate to “Settings” and click “Products and Services”.
• Click “New”.
• Now, choose “Service”.
• Add a name to the “Bounced Check” item.
• Choose the bank account used to acquire the bounced check from the “Income Account” dropdown.
• Click the “Save and Close” option.
• Head back to “Products and Services” and click “New”.
• Now, click “Service”.
• Add a name to the “Bounced Check Fees” item.
• Choose the expense account assigned to monitor bank fees. Alternatively, include the income account Bounced Check Fees from the “income Account” dropdown.
• Click the “Save and Close” button.

1. Generate an Invoice for the Bounced Check and Fee

• Click the “+New” button. Alternatively, click “Create”.
• Choose the “Invoice” option.
• Choose the customer who provided the bounced check from the “Add Customer” dropdown.
• Assign the “Invoice Date” to the date the check was returned.
• Under the “Product/Service” section, choose “Bounced Check”. Next, add the check amount under the “Amount” field.
• Under the “Product/Service” section, choose “Bounced Check Fees”. Next, add the service charge amount.
• Click the “Review and Send” option.
• Deliver the invoice to the respective customer.

2. Register the Bank Service Fee

• Click the “+New” option. Alternatively, click the “Create” tab.
• Choose the “Expense” option.
• Choose the bank account that accepted the bounced check from the “Payee account” dropdown.
• Assign “Payment Date” to the check-bounced date.
• In the “Ref No.” field, input the “Bounced Check Fees”.
• Choose the income account Bounced Check Fees from the “Category” dropdown. Alternatively, choose an expense account used to monitor bank fees. It is crucial to select the account used for the Bounced Check Fees.
• Under the “Amount” section, add the bank charge amount.
• Click the “Save and Close” option.

3. Register the Customer Payment

• Click the “+New” option. Alternatively, click the “Create” tab.
• Choose “Receive Payment”.
• Choose the customer who issued the bounced check invoice from the “Customer” dropdown.
• Add the “Payment Method” and the “Payment Date”.
• Choose the bank account that accepted the bounced check from the “Deposit to” dropdown.
• Choose the invoice from the “Outstanding Transactions” option.
• Add the amount accepted in Payment.
• Click the “Save and Close” button.

Note: Implementing the steps in the given order ensures the bounced check and related charges are shown correctly in QuickBooks Online.

Step 6: Register a Bounced Check Written in QuickBooks Online

This process comprises recording bounced check issues and ensuring the accounting statements are correct. Here are the steps to record a bounced check written in QuickBooks Online:

1. Prepare a General Journal Entry

• From the “Company” menu, choose “Make General Journal Entries”.
• Confirm that the “Entry No.” and “Date” fields are entered correctly.
• Record a debit in the checking account for the returned check.
• Record a credit in the Accounts Payable account using the same amount.
• Add the Vendor Name.
• Click the “Save and Close” button.

2. Attach and reallocate the Bill Payment

• Access the original check for the bill payment.
• Erase the check from the bills that it initially cleared.
• Register the reversal journal entry in the journal.
• In the “Memo” section, check if there are inadequate funds for the check.
• Click the “Save and Close” button.
• Implementing these ensures the accounts precisely record NSF checks in QuickBooks and maintain accurate balances in QuickBooks.

What Tasks are Automatically Performed by QuickBooks Online?

Here is the list of the tasks that are performed automatically by QuickBooks Online:

• Registers the bank charge as an expense transaction.
• Processes a payment reversal and accesses the initial invoice again for the bounced amount.
• Generate customer fee invoices as required.

How to Record Bounced Checks in QuickBooks Desktop?

QuickBooks Desktop offers built-in functionality to record NSF checks successfully in QuickBooks. In some instances, it offers an alternative manual method if required.

Here are the steps to record a bounced payment entry in QuickBooks Desktop:

Step 1. Access the built-in “Record Bounced Check” Feature

To access the built-in functionality in QuickBooks Desktop, follow these steps:

i) Open the Customer Payment

• Navigate to the “Customers” menu.
• Now choose “Customer Center”.
• Click the tab “Transactions”.
• Next, choose the “Receive Payments” option.
• Find and click the relevant payment for the bounced check twice.

ii) Register the Bounced Check

• Click the “Record Bounced Check” icon in the “Receive Payments” screen.
• In case the icon is disabled, manually record the check. This generally arises when the payment was not completed via the “Customer Payment” screen. Alternatively, the payment can be in “Undeposited Funds”.

iii) Input Bounced Check Information

In the “Manage Bounced Check” screen, enter the following information:

• Bank Charge and Date– Record any bank fee together with the date it was applied.
• Bank Fee Expense Account– Choose the account monitoring bank service charges.
• Customer Fee– Mention the specific amount required to be paid by the customer.
• Class– Allocate if accessing class monitoring.

iv) Check and Confirm

• Click the “Next” button to check the summary, including highlighting the initial invoice as unpaid and registering bank charges.
• To complete the process, click the “Finish” button.

Step 2. Manually Registering a Bounced Check

Follow these steps in case the “Record Bounced Check” feature is not available:

i) Generate an Income Account For Bounced Checks

• Navigate to the “Lists” option.
• Click the “Chart of Accounts” option.
• Click the option “Account”.
• Now, click “New”.
• Choose “Income” as the account type.
• Click the “Continue” button.
• Add a name to it, “Bounced Check Income”, and click the “Save” button.

ii) Create an Item for Bounced Check Fees

• Navigate to the “Lists” option.
• Click “Item List”.
• Click the “New” button.
• As the item type, choose “Other Charge”.
• Add a name to it, “Bounced Check Fee”, and connect it to “Bounced Check Income”.
• Enter zero as the amount and classify it as non-taxable.

iii) Undo the Original Payment Transaction

• Navigate to the “Company” tab.
• Click the option “Make General Journal Entries”.
• Prepare a journal entry with the bounced check date:
  • Debit- A/R for the bounced check amount.
  • Credit- Bank account where the initial deposit was sent.
• Allocate the “Customer Name”.

iv) Connect the Journal Entry to the Invoice

• Navigate to the option “Customers”.
• Click “Receive Payments”.
• Choose the customer and mark the box for the initial invoice.
• Confirm the payment amount is set to zero and save the transaction.

v) Register Bank Service Fee

• Navigate to the “Banking” tab and click “Write Checks”.
• Choose the bank account used for fee deduction.
• Add the bank as “Payee” and mention the fee amount.
• Allocate the expense to Bank Service Charges” or any relevant account.

vi) Bill the Customer for the Bounced Check Fee

• Navigate to the “Customers” option.
• Click “Create Invoices”.
• Choose the customer and include the “Bounced Check Fee” item.
• Add the billed amount and save the invoice.

How to Record NSF Checks in QuickBooks Desktop?

In case a customer’s check is returned or bounced due to inadequate funds, termed as NSF, it can be recorded. QuickBooks Desktop enables users to record it via the “Record Bounced Check” feature. This guarantees the accounts remain precise and all the charges are monitored.

Here are the steps to record NSF checks in QuickBooks Desktop:

• Navigate to the “Customers” option.
• Click “Customer Center”.
• Click the tab “Transactions”.
• Now choose “Received Payments”.
• Click twice on the payment that bounced.
• Click the icon for “Record Bounced Check”.
• Add the following information in the “Manage Bounced Check” screen:
  • Date-Mention the check bounced date.
  • Bank Fee- Add any fee levied by the bank.
  • Expense Account- Choose the account used to monitor bank charges.
  • Class- Allocate a category.
  • Customer Fee- Add an amount billed to the customer.
• Click the “Next” button.
• Next, click the “Finish” button.
• Save the transaction by clicking the “Save & Close” button. The process is now complete.

Note: Implementing these steps updates the records properly. Furthermore, these steps monitor the NSF checks and incorporate relevant bank or customer charges.

What Tasks are Automatically Performed by QuickBooks Desktop?

Here is the list of the tasks completed by QuickBooks Desktop:

• Accesses the initial invoice again and recovers the pending balance.
• For the relevant customer fee, the tool generates a new invoice.
• Complete the deposit reversal with an adjustment entry.
• Registers the bank fee via a journal entry.

Steps to Monitor Bounced Checks in QuickBooks Reports

Monitoring bounced checks in QuickBooks software guarantees precise records. Furthermore, it ensures proper management of NSF entries. QuickBooks Reports like A/R, transaction logs, bank reports, etc., help track such bounced check transactions.

Here are the steps to track bounced checks in QuickBooks Reports:

Step 1: Access the Customer Transaction Report

• Navigate to the “Reports” button.
• Choose “Transaction List” by Customer.
• Assign the date range to add the bounced check.
• Access the “Transaction Type” filter.
• Search for the check highlighted as NSF.

Step 2: Review Bank Reports as Returned Checks

• Navigate to the “Reports” option.
• Choose the “Banking Reports” option.
• Select “Check Detail Report”.
• Find any bounced checks highlighted by the bank.

Step 3: Check the A/R Reports

• Go to “Reports” and choose “Accounts Receivable Aging Summary”.
• Classify the pending invoices triggered by bounced checks.
• Confirm the latest charges are registered, such as repayment or bounced check fees.

Step 4: Start a Custom Report for NSF Transactions

• Navigate to “Reports” and choose “Custom Transaction Detail Report”.
• Apply the “Transaction Type” filter and select “Checks”.
• Include a column for Memo and look for “NSF” or “Bounced”.
• Save the report to use for future monitoring.

Errors to Avoid While Managing a Bounced Check in QuickBooks

While handling bounced checks in QuickBooks, here are the common errors to avoid to maintain accurate reports:

• Erasing the initial payment– This erases the audit log and interrupts reconciliation. Ensure to use the correct “Record Bounced Check” process.
• Avoiding Bank Charges– Skipping the NSF fee entry can trigger inconsistencies in bank reconciliation.
• Accessing the incorrect date– Register the transaction with the bank return date, instead of the initial deposit date.
• Failure to reopen the Bill– Confirm the customer invoice is set to open/unpaid status since the amount is still pending, together with additional charges.

Conclusion

To record bounced checks in QuickBooks correctly, it is crucial to maintain precise financial statements and reconciled books. Whether in-built capabilities are accessed or manual effort is applied, using the right process guarantees accurate monitoring of receivables.

By implementing the best practices and managing every step properly, bounced checks can be managed efficiently. This will enable seamless and clean accounting processes in QuickBooks Online and Desktop.

In case there is still any query or doubt related to the bounced payment entry, feel free to reach out to us. Contact our QuickBooks support team via phone and live chat to resolve your query promptly.

Frequently Asked Questions