How to record a bounced check in QuickBooks

What happens when a customer check bounces?

When a customer check bounces for non-sufficient funds (NSF), the bank does two things. It takes the check amount back out of your account, and it usually charges a returned-item fee.

In QuickBooks Online, the original payment already marked the invoice paid and credited Accounts Receivable. Nothing in the file changes when the check bounces, so QuickBooks now shows more cash than the bank and an invoice paid that was not.

The fix is a new transaction dated the day the bank returned the check. It credits the bank account, puts the amount back on the customer’s Accounts Receivable balance, and reopens the invoice.

Should you delete or void the original payment?

No. The check was received and deposited, and the bank did credit your account before it reversed the item. Deleting or voiding the payment rewrites that history and causes three problems:

1. Reconciliation breaks. If the deposit carries an R in the register, removing it changes cleared cash, and the beginning balance of your next reconciliation no longer matches the statement. Read editing a reconciled transaction before you touch anything reconciled.
2. The audit trail disappears. Nothing in the file explains why the bank statement shows a deposit and then a returned item.
3. Grouped deposits stop matching. If the check went to the bank with other checks, the deposit total drops and no longer matches the deposit slip or the statement.

Leave the original payment alone and record the return as its own transaction.

Method 1: Record the bounced check as an expense

Intuit calls the expense method the easier of its options. The expense debits Accounts Receivable for the customer and credits the bank.

Step 1: Record the returned amount

If the bank feed is connected, the returned item is already waiting in Bank transactions. Intuit’s route uses it directly:

1. Open Bank transactions and find the returned check line.
2. Select the line to expand it.
3. In Vendor/Customer, select the customer whose check bounced.
4. In Account (or Category), select Accounts Receivable.
5. Select Add.

If the account has no bank feed, or you prefer to enter it by hand, create the same thing as an expense: select + New (shown as + Create in newer layouts), then Expense. Choose the customer as Payee, the bank account the check was deposited to as Payment account, the return date as Payment date, and Accounts Receivable as the Category, with the check amount. When the returned item later downloads, match it to this expense instead of adding it again.

Step 2: Reopen the original invoice

1. Go to Customers & leads and select the customer.
2. Find the payment for the bounced check and open it.
3. Clear the checkbox for the invoice the payment was applied to.
4. Select the checkbox for the expense you created in Step 1.
5. Select Save and close. QuickBooks warns that the transaction is linked to others. Select Yes.

The payment now pays off the expense instead of the invoice, so the two cancel out and the invoice is open again for its full balance.

Method 2: Record the bounced check with a journal entry

Intuit also documents a journal entry route. It does the same job and suits accountants who want the reversal on one screen.

1. Select + New (or + Create), then Journal entry.
2. Set Journal date to the day the check was returned.
3. Line 1: Accounts Receivable, the check amount in Debits, and the customer in Name.
4. Line 2: the bank account, with the same amount in Credits.
5. Add a memo such as “Returned check #1042” and save.

Then relink it the same way as Method 1: open the customer’s bounced payment, clear the checkbox for the original invoice, select the checkbox for the Journal Entry, and save. The customer name on the Accounts Receivable line is what makes the journal entry show up in that list.

What is the journal entry for a bounced check?

A customer pays a $500 invoice by check. The check bounces, and the bank takes back $500 and charges a $25 returned-item fee.

When the payment was deposited:

Account	Debit	Credit
Checking	500.00
Accounts Receivable		500.00

When the check is returned (Method 1 or Method 2 posts the same thing):

Account	Debit	Credit
Accounts Receivable	500.00
Checking		500.00

The bank’s fee:

Account	Debit	Credit
Bank Charges	25.00
Checking		25.00

Checking is now $525 lower, which matches the statement, and the customer owes $500 again.

What if the payment went through Undeposited Funds?

Most customer checks reach the bank through Undeposited Funds and a bank deposit. The reversal still credits the bank account, not Undeposited Funds, because that is where the money left from.

Do not open the deposit and remove the payment from it. That puts the payment back in Undeposited Funds, where it waits for a deposit that will never come, and the deposit total no longer matches the bank. That is how a file ends up with Undeposited Funds piling up.

Recording the bank fee and charging it to the customer

Record the bank’s fee as an expense: + New (or + Create), Expense, your bank as Payee, the checking account as Payment account, “NSF fee” as Ref no., and Bank Charges as the Category.

To pass a fee on to the customer, set up a service item once under Settings ⚙ > Products and services > New > Service, named something like “Bounced check fee”, with an income account. Then invoice the customer for it. The returned check and the fee then both show on the customer’s statement.

Whether you can charge a returned-check fee, and how much, is set by state law and by your terms with the customer. Check both before you invoice one.

Matching the bank feed lines

The bank feed downloads the returned check and the fee as two separate withdrawals. Each one needs exactly one transaction in QuickBooks. For more on how the feed decides between add and match, see bank feeds in QuickBooks Online.

• If you used the bank feed route in Step 1, the returned item is already done. Add or match the fee line to Bank Charges.
• If you entered the expense or journal entry by hand, match both lines to what you entered. Selecting Add on top of a manual entry records the return twice and takes the bank balance too low.

What to check afterwards

1. The register. The original deposit keeps its R. The return and the fee show as uncleared withdrawals that clear on the next reconciliation.
2. Accounts Receivable aging. The customer’s balance should show the reopened invoice plus any fee you invoiced.
3. The closing date. If the books are closed for the period the check was deposited in, date the return in the open period. Do not reopen a closed month to put it on the original date.

When this becomes a cleanup job

One bounced check takes a few minutes when it is caught the week it happens. It becomes a cleanup when returned checks were deleted from deposits that were already reconciled, deposits were edited to force a match, or the same return was added from the feed and entered by hand, so the reconciliations stop working across several months. That is QuickBooks cleanup work.

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