How QuickBooks Online Handles a Bounced Check

When check of customer bounces due to inaccurate funds (NSF), it can be inconvenient and frustrating for your business. Both your cash flow and your accounting records will requirement to be updated to reflect the change. The good news is that QuickBooks software offers a simple process for correctly and quickly managing returned checks.

We will take you through the following in this guide:

• What is a bounced check 

• Why is it important to record properly

• Detailed steps for entering or handling a returned check in QuickBooks Online

• How to apply bank fees and how to charging your customer

• Tips to avoid future bounced check issues

What Is a Bounced Check?

A returned or dishonored check is another name for a bounced check. It is one that cannot be executed due to insufficient funds in the account from which it is drawn.  This indicates that the funds are not deposited into your account by your bank, and you can also be charged a fee for the unsuccessful transaction. To maintain the accuracy of your bank balances and accounts receivable, you must reopen the client invoice (if it was closed) and reverse the initial payment entry in QuickBooks.

Why Is Important to Record Bounced Check?

If you do not record a bounced check correctly:

• Your books will show more money than you actually have

• When invoice of customer is not paid, it will look to be.

• You may miss the opportunity to reinvoice or charge NSF fees

• Reconciliation will  difficult and inaccurate

How Check Bounced Record in QuickBooks Online

Step 1: Unlink the Customer Payment from the Invoice

1. Click on Customers from the Sales menu.

2. Choose the customer and which gave you the bounced check.

3. Find the original payment and open it.

4. Click More at the bottom, then choose Delete or Unlink from Invoice (depending on how it was entered).

5. It will reopen the invoice as unpaid.

Step 2: To invert payment, record journal entry.

1. Select Journal Entry after that click + New button.

2. On the journal entry screen:   

• Date: Use the date check bounced.

• Debit from your bank account for the amount of the bounced check.

• Credit your Accounts Receivable (A/R) account.

• Enter customer’s name for A/R in name field.

3. Save the journal entry.

This entry puts the amount back into your books as unpaid and removes it from the bank.

Step 3: Update the Open Invoice with the Journal Entry

1. Select Receive Payment from the + New menu.

2. Select the customer whose check bounced.

3. Apply the journal entry and the open invoice (both should match in amount).

4. Save and close.

This insures that the bounced amount and the invoice are accurately matched by QuickBooks.

Step 4: If applicable after that So record bank fee. 

If you got charged a fee by your bank for the returned check:

1. Depending on your workflow, select either Bank Deposit or Expense after clicking Add New.

2. Select your bank account.

3. For the payee, enter your bank's name.

4. Under Category, choose Bank Charges or create a new one if needed.

5. Enter the fee amount.

6. Save and close.

This keeps your bank balance and expense reports accurate.

Step 5: Optional – Charge the Customer an NSF Fee

You may choose to pass along a Non-Sufficient Funds fee to the customer. Here's how:

Create a Service Item for NSF Fee:

1. Go to Settings  > Products and Services.

2. Click New, select Service.

3. Name it "NSF Fee" or "Returned Check Fee".

4. Set the Income account to something like "Other Income" or create a new account for NSF fees.

5. Save.

Invoice the Customer:

1. Click + New > Invoice.

2. Choose the customer.

3. Add the NSF Fee item with your fee amount (e.g., $35).

4. Contact the customer by sending or printing the invoice.

How to Reconcile the Bounced Check in Your Bank Account

If you had already reconciled the original deposit in QuickBooks Online, you will need to:

• Undo the reconciliation for that month

• Reverse the payment as described

• Re-reconcile the bank statement once all entries are corrected

QuickBooks can assist with this, but you should also consult your accountant if the issue is complicated or involves several payments.

Crucial Errors to be Avoid

• Keeping the original payment in place: To prevent a paid invoice from appearing, you must unlink or remove the payment in addition to generating a journal article.

• Recording it as a new invoice: Do not create a duplicate invoice for the same sale. To keep an accurate sales record, use the original.

• Forget to record bank fees: These affect your bank balance and must keep accounted.

• Skipping the customer fee: If you want to recover the cost of the bounce, invoice the customer promptly with proper communication.

Methods to Use for Preventing Future Bounced Checks

• Confirm Payments: If reduce your reliance on checks.So, Use QuickBooks Payments, PayPal, or ACH transfers.

• Use deposit slips: Always compare QuickBooks deposits to actual bank activity in order to detect bounced checks early.

• Track on A/R aging reports:: In order to quickly follow up in the event that a check fails, keep track of past-due invoices.

• Implement a policy about returned checks: In the case that a check is returned, make sure your clients understand your fee and payment rules.

Conclusion

However resolving a bounced check in QuickBooks Online may starting appear difficult, you can maintain accurate and current information by follow the right procedures. Reversing the payment, reopening the invoice, enforcing fees, and negotiating with the client are all part of maintaining an appropriate accounting workflow.

The resources you need to deal with these problems without interfering with your financial reporting are offered by QuickBooks Online. Knowing this procedure will help you save time and prevent mistakes later on, whether you're an accountant or the owner of a small business.