More and more, we are asked what to do when someone’s customer payment is returned from the bank due to ”insufficient funds.” These instructions guide you in setting up and entering the bounced check (and can also be seen in the QuickBooks Help Menu.) This procedure backs out the bounced check from your checking account and increases your outstanding accounts receivable for the customer. The replacement payment will decrease receivables and increase the checking account. The bank charge for the returned check should be entered directly into the checking account register as Bank Service Charges, or similar, upon reconciliation of the account.
1. Set up a new item called “Bounced Checks”:
a. go to “Lists”, then click “Item List”. Bottom left corner of this window, click “Item” then “New”.
b. From drop down Type list select “Other Charge”. Type “Bounced Checks” in description field, leave amount field as “$0.00″, and tax code field is “non”. In the account field, select your checking account.
c. Click “OK”
d. If you have a policy to collect a returned check fee, you will need to set up an item called “Bounced Checks”, or similar, against an income account.
2. Create a new invoice for the customer whose checked bounced (do not alter the original invoice/payment)
a. Click “Create Invoices”
b. Enter invoice info as you would normally (new invoice #, dated when check was returned), except you are going to use the newly created “Bounced Checks” item on your invoice. For the description, I’d enter some detailed info like what invoice the original payment was for, etc. and enter the amount to match the original invoice total. Grand total on new invoice is now equal to the amount of the bounced check (plus any returned check fee you want to collect & have added).
c. Ensure all line items are non-taxable. Sometimes the default tax code comes up that is linked with the customer.
d. Click “Save and Close”
3. When the customer pays you with a new, replacement check, “Receive Payments” as usual against this new invoice you just created and deposit as normal.
