Handling Customer NSF Checks

How to record customer NSF checks in QuickBooks is by far the most frequently asked question I get from my clients. Unfortunately, this occurs much more frequently these days than it used to.

The challenge: Customer's Accounts receivable balance needs to reflect the fact that he still owes you this money. The bank account balance needs to be reduced by the bad check amount plus any charges.

Here are the steps:

1. Create an Other Charge Item called Bounced Check or NSF. In the description field say something like "Your check # has been returned for insufficient funds. Please remit replacement payment immediately." For the Account enter your Checking account.
2. Create an Other Charge Item called NSF check Fee. For the Account enter your Bank Service Charges account.
3. Issue an Invoice to this customer using the Item Bounced Check (or NSF) and enter in the check #, Invoice # and other information about the check. Then add the Item NSF check Fee to bill the customer for the bank fee as well.

The entry made by QuickBooks behind the scenes is: DR Accounts Receivable, CR Checking Account.