Record a returned or bounced customer cheque using a journal entry

Learn how to use a journal entry 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 check 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 a journal entry to create a record, balance your accounts, account for any bank fees, and send your customer.

Note: These steps are complicated. The expense method is easier, but you can use a journal entry if you prefer. 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: Create an item for bounced cheque fees from your bank

Create a service item for bounced checks and fees. This lets you add them to an invoice 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:

1. Go to Settings ⚙, then Products & services (Take me there).
2. Select New, then select Service.
3. Name the item Bounced Cheque Fees.
4. Select an account you use to track bounced cheque fees from the Income account dropdown list.
   Note: You can also use an expense account you use for tracking bounced cheque fees.
5. Select Save and close.

Step 2: Record the bounced cheque in a journal entry

Let's record the bounced cheque in a journal entry:

1. Select + New.
2. Under Other, select Journal Entry.
3. Enter the date the cheque bounced in the Journal date field.
4. On the first line, select Accounts Receivable from the Account menu.
5. In the Debits column, enter the amount of the bounced cheque.
6. Select the customer from the menu in the Name column.
7. On the second line, select the bank account from the Account menu.
   The amount should appear automatically in the Credits field.
8. Enter a notation explaining the reason for the journal entry in the Memo field.
9. Select Save.

The bounced cheque is recorded. The next step is to clear the invoice that was paid with the bounced cheque, and link the bounced cheque to the journal entry you created.

Step 3: Clear the original invoice and link the bounced cheque to the journal entry

You must clear the original invoice, paid with the bounced cheque, and link the returned cheque to the journal entry:

1. Go to Sales and select Customers (Take me there).
2. Select the name of the customer who issued the bounced cheque to open the Transaction List.
3. Locate and select the bounced cheque.
4. Clear the checkbox of the invoice the cheque was originally applied to, and select the Journal Entry.
5. Select Save.

The bounced cheque is now linked to the journal entry. The next step is to enter the bank service fee for the bounced cheque as an expense.

Step 4: Enter the bank service fee for the bounced cheque

Enter the bank service fee for the bounced cheque as an expense:

1. Select + New.
2. Under Suppliers, select Expense.
3. In the Payee field, enter your Financial Institution's name.
4. In the Payment date field, enter the date the cheque bounced.
5. Enter NSF fee in the Ref no. field.
6. On the first line, under Category, select the Bank Charges expense account.
7. Enter the amount your bank charged you for the bounced cheque in the Amount column.
8. Select Save.

The fee is recorded. The next step is to create Service items for bounced cheques and fees to use in recording these charges.

Step 5: Create an invoice for the bank service fee

You must create an invoice for the bank service fee:

1. Select + New.
2. Under Customers, choose Invoice.
3. Select the Customer name and enter the date the cheque bounced in the Invoice date field.
4. In the Product/Service column, select the Bounced cheque fee item you created from the dropdown list.
5. Enter the Amount to charge the customer for the bounced cheque.
6. Select Save and Close.

The invoice for the bounced cheque fee is created. The next step is to send a statement to the customer regarding the bounced cheque and fees.

Step 6: Print a statement to send to the customer

To print a statement to send to your customer regarding the bounced cheque fees:

1. Go to Sales and select Customers (Take me there).
2. Select the name of the customer who issued the bounced cheque to open the Transaction List.
3. The next step is to create Service items for bounced cheques and fees to use in recording these charges.
4. Select the Statement Type to create from the dropdown list.
5. Set the Statement Date, Start Date, and End Date.
6. Select the checkbox beside the recipients name.
7. 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.

The statement is generated for the customer. When the payment is received, the next step is to record the new payment.

Step 7: Receive the customer's payment for the new invoice

When you receive payment from the customer, you can apply to the new invoice:

1. Select + New.
2. Under Customers, choose Receive Payment.
3. Select the customer from the Customer dropdown list.
4. Enter the Payment date and Payment method for the new payment.
5. Select the Deposit to account from the dropdown list.
6. Enter the Amount received.
7. Select the invoice you created from the Outstanding Transactions list.
8. Select Save and Close.

The payment is recorded.