How to Record a Returned Payment or Bounced Check in QuickBooks Online

Sometimes, a customer’s payment may fail because their check gets returned by the bank. This can create confusion in your accounting records if not handled properly. A bounced check not only affects your bank balance but also leaves the original invoice unpaid and may include additional bank charges.

In QuickBooks Online, it’s important to record bounced checks correctly so your financial data stays accurate and up to date. The process mainly involves reversing the original payment, reopening the invoice, and recording any bank fees if applicable.

In this complete guide, you’ll learn simple and effective methods to record bounced checks in QuickBooks step by step, so you can manage your accounts smoothly without errors.

What is a Bounced Check in QuickBooks Accounting?

A bounced check, also called a returned QuickBooks NSF check entry, is a payment that the bank does not accept. It usually happens when the customer does not have enough money in their account, or there is a problem with the check.

In accounting, a bounced check means the payment you recorded earlier is not valid anymore. The bank takes the money back from your account, and the customer still has to pay you. Sometimes, the bank also charges a fee for this. You need to record this fee in your accounts. In QuickBooks Online, recording a bounced check properly helps keep your records accurate and shows the correct amount the customer still owes.

Why You Should Record a Bounced Check in QuickBooks Online

Recording a bounced check in QuickBooks Online is important if you want to keep your accounts accurate and avoid confusion later. Here’s how it helps you:

• This process keeps your financial records accurate and up to date.
• In addition, reopen the original invoice so payment can be collected again.
• At the same time, it prevents your income from being overstated.
• This also helps track the customer’s pending balance clearly.
• Another key benefit is that it ensures bank charges or NSF fees are recorded.
• Also, it avoids problems during bank reconciliation.
• Along with that, it maintains clean and reliable accounting data.

Methods to Record Bounced Checks in QuickBooks Online

Now that you understand what a bounced check is and why it needs to be recorded, let’s look at the different methods you can use in QuickBooks Online to handle it accurately and keep your accounts up to date.

Method 1: Record a Bounced Check Using Expense

If a customer’s cheque bounces in QuickBooks Online, you need to update your records to keep your accounts accurate. You do this by recording the deducted amount as an expense, connecting it to the original invoice, and adding any bank fees to the customer if needed.

Note: Instead of recording it as an expense, you can also use a journal entry. If you’re unsure, it’s best to consult an accountant since this process can be a bit complex.

Prerequisite

• Make sure you have:
• The amount deducted from your bank account due to the bounced cheque
• Any bank charges applied
• A service item set up in QuickBooks for bank fees [if you plan to charge the customer].

Step 1: Record the Returned Payment as an Expense

First, create an expense entry to reflect the money removed from your account. Here is how to fix a bounced check in QuickBooks:

• Go to Accounting and open Bank Transactions.
• Locate the returned cheque in your bank feed and open its details.
• In the From/To field, select the customer.
• Choose Accounts Receivable (A/R) in the account section and complete the required fields.
• If A/R isn’t listed, add it as a new account.
• Save or post the transaction.

Step 2: Unlink the Payment from the Original Invoice

Next, remove the bounced payment from the invoice so it shows as unpaid again, and resolve the record Bounced Check in QuickBooks:

• Go to Customers and select the relevant customer.
• Find the bounced payment and open it.
• Click on the payment link (if available).
• Uncheck the invoice that the payment was applied to.
• Link the payment to the expense you created earlier.
• Save the changes and confirm any prompts.

This step reopens the original invoice balance.

Step 3: Charge the Customer for Bank Fees

If your bank charged a fee, you can bill the customer. Here is how to record a bounced check in QuickBooks Online:

• Click + New and select Invoice.
• Choose the customer.
• Set the invoice date to the date the bank fee was charged.
• In the Product/Service column, select or create a service item for bank fees:
  • Choose Service as the type
  • Name it something like Bank Fees Charged to Customer
  • Assign it to an income account, such as Other Income
• Enter the fee amount and save the invoice.

After you finish these steps, your records will show the QuickBooks Online returned check entry payment correctly, the original invoice will reopen, and any bank charges will be added to a new invoice.

You can now send the customer a Balance Forward statement, which shows:

• The unpaid original invoice
• The additional bank fee charges

Once the customer makes the payment, record it as you normally would in QuickBooks.

Read More: How to Record a Customer Refund in QuickBooks Online

Method 2: Record a Bounced Check Using an Invoice

If a customer’s cheque bounces, you can handle it in QuickBooks Online by creating an invoice that includes the cheque amount and any extra fees. It is easy to see how much the customer still needs to pay.

What You Need Before You Begin

Before creating the invoice, you must set up two service items:

• One to reverse the customer payment in QuickBooks Online for the bounced cheque amount.
• Another way to record any fees charged.

Set up Service Items:

• Go to Settings and open Products and Services.
• Click New, then choose Service.
• Enter the name Bounced Cheque.
• In the income account field, select the bank account where the cheque was originally deposited.
• Save the item.

Now create another service item:

• Click New again and select Service.
• Enter the name Bounced Cheque Fees.
• Choose an appropriate account:
  • Either an income account for fee recovery
  • Or an expense account used for bank charges
• Save the item.

Step 1: Create an Invoice for the Bounced Amount and Fees

Now generate an invoice that includes both the cheque amount and any charges:

• Click + New and select Invoice.
• Choose the customer whose cheque was returned.
• Set the invoice date to the date the cheque bounced.
• In the Product/Service column:
• Select Bounced Cheque and enter the cheque amount
• Select Bounced Cheque Fees and enter the fee amount
• Review the details and send the invoice to the customer.

Step 2: Record the Bank Charges

Next, enter the bank fee so your accounts stay accurate:

• Click + New and select Expense.
• Choose the same bank account used for the bounced cheque.
• Enter the date the cheque was returned.
• Add a reference note like Bounced Cheque Fees.
• In the category field, select the same account used when creating the fee service item.
• Enter the amount charged by the bank.
• Save the transaction.

After receiving payment, once the customer pays the outstanding amount:

• Click + New and select Receive Payment.
• Choose the customer.
• Enter the payment date and method.
• Select the same bank account where the payment will be deposited.
• Apply the payment to the invoice you created earlier.
• Enter the amount received and save the transaction.

Method 3: Record a Bounced Check Using a Journal Entry

If a customer’s check bounces, you can record it in QuickBooks Online using a journal entry to adjust your accounts, add bank fees, and bill the customer again. The expense method is easier, but a journal entry gives more control.

Note: This method can be complex, so consider consulting an accountant if needed.

To perform this method, you’ll need:

• The bounced check amount was deducted from your bank account
• Any bank fees charged

Step 1: Create a Service Item for Fees

Set up a service item (only once) to track bounced check fees. Create an item like Bounced Check Fees and link it to an income or expense account.

Step 2: Record the Bounced Check

Now, create a journal entry to record the returned payment:

• Debit Accounts Receivable with the check amount and select the customer
• Credit your bank account with the same amount
• Add a note explaining the entry
• Save the transaction

Step 3: Update the Original Invoice

Open the customer’s transaction list, remove the bounced payment from the invoice, and link it to the journal entry. This will reopen the invoice.

Step 4: Record Bank Charges

Enter the bank fee as an expense using your bank account and a bank charges category to fix the record Bounced Check in QuickBooks.

Step 5: Create an Invoice for Fees

Create a new invoice for the customer using the fee item and enter the amount you want to charge.

Step 6: Send a Statement

Generate and send a statement to show the unpaid invoice and added fees.

Step 7: Record the New Payment

When the customer pays:

• Go to Receive Payment.
• Select the customer and invoice.
• Enter payment details and save.

Conclusion

In this blog, we have discussed how to record a bounced check in QuickBooks Online using different methods. Using the right method makes the process simple and helps you manage customer payments. If you’re still unable to fix the issue using these methods, it’s best to contact QuickBooks support or connect with an accounting expert for further help.

Frequently Asked Questions