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Recur360: Best Practice - Returned Checks

When a customers check gets returned by the bank (NSF) the payment needs to be removed from the invoice so it will show in the collection center to be processed for new payment.

It is important not to edit the payment that was originally tied to the invoice because it may have been in a prior accounting period.

Here are the steps for QuickBooks Desktop:

Handle Non-Sufficient Funds (NSF) or bounced check from customers

Learn how to record bounced or NSF checks from customers in QuickBooks Desktop. 

You can record NSF or bounced checks from customers with the Record Bounced Check feature, or by manual process. QuickBooks ensures that all related details on bounced check transactions are addressed to keep your account balanced and well-documented. Important: Record Bounced Check feature can only be used in single-user mode and only applies to check payments done through the Customer Payment window. If you have a returned ACH item, switch the payment type to Check before proceeding with the steps. If the payment method is grayed out or youā€™re unable to follow the steps proceed to Option 2.    

Option 1: Use the Record Bounced Check feature 

  1. From the Customers menu select Customer Center
  2. Select Transactions tab, then choose Received Payments
  3. Double-click the payment you want to record as NSF. 
  4. On the receive payments window, select the Record Bounced Check icon on the Main ribbon tab. Note: The check must not be waiting to be cleared in the Undeposited Funds account, as it would have to have cleared the bank in order to bounce. 
  5. In the Manage Bounced Check window, enter the following information, then select Next. Note: All these fields are optional. You can leave them blank if there werenā€™t any additional charges from the bank or if you donā€™t want to charge your customer for it.  
  • Bank Fee and Date 
  • Expense Account for the Bank Fee 
  • Class 
  • Customer Fee (how much you will charge the customer)   
  1. QuickBooks will show you the Bounced Check Summary, for you to know what will happen behind the scenes. For example, you may see:  
  • The following invoices will be marked unpaid 
  • The following fees will be deducted from your bank account. 
  • This invoice will be created for the fee you want to charge your customer.   
  1. Select Finish.  

Option 2: Manually record bounced check 

  1. Create an item and income account for tracking bounced checks and their associates charges. Important: This only needs to be set up once, if you've done this before, proceed to step 2.  
  1. Create Bad Check Charge item
  2. Type: Other Charge  
  • Item Name: Bad Check Charge 
  • Amount or %: Leave it at 0.00 
  • Tax Code: Non-taxable 
  • Account: Select Bounced Checks Income (created in step a).     
  1. Create a journal entry to reverse the original payment.  
    1. From the Company menu, select Make General Journal Entries. 
    2. In the General Entries window, debit your account receivables for the same amount of the NSF check. 
    3. Enter a note in the Memo column describing the transaction. Example: Bounced check #123 - NSF 
    4. Select the name of the customer or job associated with the NSF check, under the Name column. 
    5. Credit the checking or bank account that received the original deposit. 
    6. Select Save & Close.
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  1. Switch the payment for the invoice to the reversing journal entry.  
    1. From the Reports menu, select Customers Receivables, then choose Customer Balance Detail
    2. Double-click the original payment line for the NSF transaction. 
    3. In the Receive Payments window, move the check mark from the invoice to the reversing journal entry. 
    4. Select Save & Close.    

Important: This will reduce your bank account by the amount of the bounced check. The invoice where the bounced check came from will be marked unpaid. 

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  1. (Optional) Resend open invoice  
    1. Go to the invoice where the bounced check originated. 
    2. Add the item Bad Check Charge (created in step 1).Ā Ā Note: You can skip this step if there weren't any additional charges from the bank or if you don't want to charge your customer for it. 
    3. Select the Email icon on the Main ribbon tab, then choose Send.

https://community.intuit.com/articles/1764415-handle-non-sufficient-funds-nsf-or-bounced-check-from-customers

For QuickBooks Online you would create a new invoice. The steps for that are here:

https://quickbooks.intuit.com/community/Help-Articles/Record-a-bounced-check-using-an-invoice/m-p/186349  

You could also un-apply the payment and record an expense for the returned transaction: Step 1: Enter the bounced check as an expense

The first step is to enter the bounced check as an expense:

  1. Select +Ā New.
  2. Select Expense
  3. In the Payee field, select the name of the customer who's check bounced.
  4. From the Payment Account dropdown, select the account the money was supposed to go into.
  5. In the Payment date field, enter the date you found out the check bounced.
  6. Select and open theĀ Category details ā–¼ dropdown.
  7. In theĀ Category field, selectĀ Accounts Receivable.
  8. In theĀ Amount field, enter the amount of the bounced check.
  9. In theĀ Description field, enter a note, such as "bounced check" or "NSF check."
  10. When you're done, selectĀ Save and close.

This expense offsets the unpaid invoice.

Step 2: Unapply the bounced check payment from the original invoice

The next step is to change the bounced check entry and make the original invoice open again. We aren't changing the original invoice, we're disconnecting the bad payment:

  1. Go to theĀ SalesĀ orĀ Invoicing menu.
  2. Select theĀ Customers tab.
  3. Find and select the name of the customer who's check bounced.
  4. Find select the record for the bounced check.
  5. In theĀ Received payment window, select and uncheck the box for the original invoice the bad check was attached to.
  6. Select the checkbox for the expense you just created in "Step 1:Ā  Enter the bounced check as an expense."
  7. SelectĀ Save and close.

You removed the bad check from the original invoice, made the invoice open again, and applied the accounting you did in Step 1. To double-check:

  1. Go to theĀ SalesĀ orĀ Invoicing menu.
  2. Select theĀ Customers tab
  3. Find and select the name of the customer who's check bounced.
  4. Look for the original invoice and check theĀ Status column. It should now say "Open."