How do I handle a bounced check from a customer?
A bounced check has to be entered in the customer's records, because now there is an open balance again for that customer. Also, the money has now come out of your Bank Account, along with bank charges, and these amounts must be recorded in order to reconcile your account.
1. Create a new item: Choose Lists > Items > New. Select Other Charge as the type of item, and name it "Bad Checks." In the Account drop down box, choose your checking account. Then click Next.
2. Repeat Step 1 above - Create a new item named Returned Check Charges, and associate it with the Expense Account (you may have to create this, too) called "Bank Charges - Returned Checks." This item will be used to pass along the Bank Charges to your customer.
3. Create a Refund/Credit Memo for the Customer.
For the Items on the Credit Memo, enter the Returned Check Item, and enter the total of the items on the Invoice for which the check bounced. If these items were taxable, change the Tax status to Taxable, and the Sales Tax will compute the exact amount.
Then choose 'Issue a Refund.' In the Check Number box, type "NSF" or other meaningful description.
Now the funds are removed from your Checking Account register.
3. We now need to create a new invoice for the customer who still owes you money. Create a new invoice using the same Bad Check Item. Make the Item Taxable again (if it was originally). On the second line of the invoice, use the Bad Check Charge Item to pass along your bank charges to the customer. This item is, of course, Non-Taxable.
Yes, somewhat complex, but now the Customer Account accurately represents what is actual, the Sales Tax is accurate, your Check Register will agree with your bank statement, and your Accounts Receivable will show this amount as currently outstanding.