Record a returned or bounced cheque using an expense

QuickBooksHelp · ‎February 07, 2019

Learn how to use an expense to record a customer's bounced cheque in QuickBooks Online. Or follow these steps if you need to record one of your own bounced cheques.

If a customer's cheque bounces, there are a few ways to handle the accounting. Review the overview guide so you know what's involved. Then follow these steps. You'll use an expense to create a record, balance your accounts, account for any bank fees, and send to your customer.

Note: These steps are complicated. If you're unsure, reach out to your accountant. This can get tricky and they know how to handle the next steps.Don't have an accountant? We can help you find one.

Step 1: Enter the bounced cheque as an expense

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

Select + New.
Select Expense.
In the Payee field, select the name of the customer who's cheque bounced.
From the Payment Account dropdown, select the account the money was supposed to go into.
In the Payment date field, enter the date you found out the cheque bounced.
Select and open the Category details ▼ dropdown.
In the Amounts are field, select No Tax.
In the Category field, select Debtors (Accounts Receivable).
In the Description field, enter a note, such as "bounced cheque" or "NSF cheque."
In the Amount field, enter the amount of the bounced cheque.
When you're done, select Save and close.

This expense offsets the unpaid invoice.

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

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

Go to Get paid & pay and select Customers (Take me there).
Find and select the name of the customer who's cheque bounced.
Find the record for the bounced cheque and select Receive payment.
In the Receive payment window, select and uncheck the box for the original invoice the bad cheque was attached to.
Select the checkbox for the expense you just created in "Step 1: Enter the bounced cheque as an expense."
Select Save and close.

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

Go to Get paid & pay and select Customers (Take me there).
Find and select the name of the customer who's cheque bounced.
Look for the original invoice and check the Status column. It should now say "Open."

Step 3: Create an item for bounced cheque fees from your bank

Tip: You only need to set up the item once. If you’ve done this before, skip to Step 4.

Next, create a service item for bounced cheques and fees. This lets you add them to invoices you can later send to your customer.

Create two items: one for the fee from the bank and the other for what you want to charge your customer for the returned cheque fees:

Go to Settings ⚙.
Under Lists, select Products and services.
Select New.
In the Product/Service information panel, select Service.
In the Name field, enter Bounced Cheque.
From the Income account dropdown list, select the bank account the cheque was returned on.
Select Save and new to create the second item.
Name the second item Bounced Cheque Fee.
From the Income account dropdown list, select or add an income account called Bounced Cheque Fees.
Alternatively, you can select an expense account that you use to track your bank charges.
Select Save and close.

Step 4: Enter the service fee the bank charged you

Since the bank charged you, you still need to record that expense for your accounts:

Select + New.
Under Suppliers, select Expense.
From the Payment account dropdown list, select your bank.
In the Payment date field, enter the date the cheque bounced.
Enter NSF fee in the Ref no. field.
In the Amounts are field, select Exclusive of Tax.
Under Category details, select the Bank Charges expense account from the dropdown list.
Enter the amount your bank charged you for the bounced cheque in the Amount column.
Select Save and close.

This records the bank service fee so you have a clear record of who was charged for what.

Step 5: Create an invoice for the bounced cheque fees to send to your customer

At this point, you have a record of not receiving the money, the fees the bank charged you, and made the original customer invoice "open" and unpaid.

Now you can resend the original invoice to your customer since it still needs to be paid.

If you also want to charge your customer for the bounced cheque fees, create a new and separate invoice. Important: Don't edit the original invoice.

Step 6: Send a statement to your customer

Finally, send your customer a statement. This summarises what they owe you and why:

Go to Get paid & pay and select Customers (Take me there).
On the Customers tab, select the name of the customer who issued the bounced cheque to open the Transaction List.
Select Statement from the New transaction dropdown list.
Select the Statement Type to create from the dropdown list.
Set the Statement Date, Start Date, and End Date.
Select Print to generate a copy of the statement, or select Save and send to create an email to send to the customer with the statement attached.

After you forward the statement to your customer, they know what they owe and why. The statement tells them there's still an open invoice and a second invoice to cover the bank fees and any fees you're charging them for the bounced cheque.

Once they pay you for the original invoice and the bank fees, you can follow the normal steps to receive their payment.