Bounced checks — whether those you receive from customers or those you wrote yourself — can go a long way in terms of skewing your financial records. When you learn how to record a bounced check properly, you minimize the chances of having your financial records show errors.
Here’s a step-by-step guide on how to properly record a bounced check in Quickbooks Online to ensure your financial records are properly documented.
What Is A Bounced Check?
A bounced check is a check that a customer writes to you as a payment for goods or services, except the check is returned to the customer because there aren’t enough funds in the customer’s account to cover the check.
Or in the reverse case, it’s a check you wrote to a vendor to pay for goods or services, but you didn’t have enough money in your bank account to cover the check.
In most cases, the bank where the check was issued will pull the funds back from the recipient’s bank account and credit the funds into the issuer’s account.
Of course, this can lead to a ripple effect of problems in your bank account if your client’s bounced check makes your checking account go into the negative.
In addition, most banks charge a fee of $30 or more for a bounced check. This fee can cause frustration because you as a business owner have no control over whether or not a customer writes a check that will bounce.
You have virtually no control as to receiving a bounced check from a customer unless you avoid accepting checks altogether. The key in handling bounced checks so that they have less impact on the accuracy of your financial records is to ensure the bounced check is reflected properly in Quickbooks Online.
Doing so will help ensure your books will be balanced after the bounced check is remedied.
It’s important to note that Quickbooks Online calls for bounced checks to be recorded in a variety of places in order to fully reflect the impact on your records.
How To Record A Bounced Check Someone Wrote You In Quickbooks
Recording a bounced check in Quickbooks Online involves a number of steps because you’ve got to “undo” the money you didn’t end up receiving in several places. In addition, you’ve got to account for any fees the bank charged your account for the bounced check.
When you receive a bounced check from a customer, you’ll need to take the following steps.
Step 1: Unapply The Payment From The Customer’s Invoice
Chances are, you have already applied the initial deposit against the customer invoice. We need to ensure the customer invoice balance returns to a status of outstanding.
- Navigate to the customer section of Quickbooks Online.
- Find the appropriate customer.
- Open up the prior payment.
- Uncheck the box to the left of the invoice for which this payment was previously applied.
- This will create an “Amount to Credit”.
- Save and Close.
Step 2: Create A New Invoice Under The Customer’s Name To Account For The Bounced Check.
We need to ensure we can keep track of bounced checks, both in the bank account and under the customer name. We do this by creating a new invoice for the original sale.
- Under the customer, select “New transaction” and “Invoice”.
- Under product/service, type in Bounced Check. Create a new item, if needed. This item should be mapped to your checking account (the account which you deposit checks to).
- Update the date to the date of the original deposit.
- Update the invoice number to include “BOUNCED” in the field.
- Add the amount of the original deposit.
- Save and Close.
Step 3: Apply Original Bounced Payment To The BOUNCED Invoice.
By now, the steps we have taken will have put the original invoice as outstanding and reduced the deposit in your checking account ledger to zero. Now, it’s time to apply the original bounced payment to the bounced invoice.
- Open the bounced payment from under the customer area.
- Apply this payment to the bounced invoice by selecting the check box to the left.
- Save and Close.
Step 4: Record Any Bank Fees Issued Due To The Bounced Check.
Unfortunately, sometimes banks charge fees on a bounced checks. This is an expense on your business’s account and needs to be recorded.
- Select “New” and then “Expense”, under the vendor column.
- Put the payee as the bank name.
- Select the bank account which the fee was charged to under “Payment Account”.
- Add the date you were charged the fee.
- Under “Category”, you will want to select Bank Fees & Charges, or a similarly named account. If you do not have one already set up, you will want to do so.
- In the description, write identifying information for the fee.
- Enter the amount of the fee.
- Save and Close.
Step 5: Invoice The Bank Fee To Your Customer, If You So Choose.
Most companies will choose to pass this fee along to the customer for whom the bounced check occurred. If you choose to do this, follow these steps.
- Go back to the customer’s section and find the original invoice.
- Open up the original invoice.
- Add a new line to the invoice with the product/service of “Bank Charge for Bounced Check”. Create a new item, if needed. This item should be mapped to the category you selected in Step 3 above.
- Resend this invoice to the customer. Save and Send.
If you choose not to add this fee onto the customer’s balance due, just resend the invoice as is.
After all these steps, you would have resolved a bounced customer payment.
Related Article: How To Set Up Vendors And Customers In Quickbooks
How To Approach Your Customer When They Wrote You A Check That Bounced
So you’ve resolved the issue of the bounced check in Quickbooks. How do you approach the customer that wrote you the bounced check? The first step is to approach them gingerly.
Finding out you wrote a bounced check to a vendor is embarrassing. Your customer will be even more embarrassed if financial problems were to blame for the bounced check.
If this is the first time your customer gave you a check that bounced, mercy and compassion are important. Let the customer know that you understand and that there are no hard feelings.
However, if this is the second or third time this client has sent you a check that bounced you may need to take a more in-depth approach. If you feel comfortable, you could ask the client if you could help in any way.
For instance, you could refer them to a reputable accounting service like Cloud Friday that may be able to help them get their books in order. Or, you could suggest a product or service your business offers that is more in line with their budget.
If your offers to help are to no avail and you have repeated instances of bounced checks, you may want to change your policy and ensure the payment clears before you deliver your product or service to the customer. Or require that the customer pays via a more guaranteed method, such as a money order or credit card.
In worst-case scenarios, you might choose to cease doing business with that customer altogether. Handling a bounced check with a customer takes a balance of grace and wisdom: grace for a one-off or short-term situation; wisdom in ensuring your company loses as little money as possible because of a client’s bounced check.
How To Record A Bounced Check You Wrote In Quickbooks
When you accidentally write a check to a vendor and it bounces, you need to ensure you take appropriate steps to record the error.
In essence, when this happens you’ll repeat the process above, only under the vendor section and in this order:
- Unapply the Payment from the Vendor’s Bill
- Create a new Bounced Bill under the Vendors to Account for the Bounced Check.
- Apply Original Bounced payment to the BOUNCED Bill.
- Add the bank fee to your vendor bill, if your vendor passed it along.
- Pay the invoice due from your vendor when the issue is resolved and the money is in your account.
When you as a business owner bounce a check to a vendor, it may be helpful to call the vendor and apologize. Everyone knows that mistakes happen, so as long as bouncing checks isn’t a habit, most vendors will likely forgive and forget the incident if it is resolved quickly.
Related Article: How To Pay Bills In Quickbooks Online
Recording bounced checks and accompanying fees accurately is important as it helps ensure the accuracy of your Accounts Receivable and Accounts Payable records. In addition, doing so gives you an accurate picture of which invoices have been paid and which have not.
Be sure to use the guide above to help you correctly record bounced checks and their coordinating transactions.