Tuesday, 23 May 2017 13:56

How to Handle a Bounced, Spoiled, or Lost Cheque in QuickBooks

QuickBooks allows you to delete transactions. But you should not. 
 
Because your accounting figures will differ from your printed reports. And more seriously, maybe your GST returns as well. 
 
You should do the following:
 
  1. Leave the original transaction alone (especially when the month end has passed).
  2. Treat the bounced cheque as a separate event and pass a reversal journal to account for it (see table below).

 

How to reverse a bounced cheque

When you receive/issue a replacement cheque, record the new entry using Receive Payments or Pay Bills accordingly. 

 

Let's now explore further a special function called "Record Bounced Cheque" in the newer versions of QuickBooks (Canadian desktop versions).

Record Bounced Cheque in Receive Payments Screen

Record bounced cheque in Receive Payments

This function goes beyond passing a reversal journal to account for a bounced (or dishonoured) cheque.

To understand the concepts, let's go through a simple customer payment cycle.
 

1. Customer has one invoice of $4,000 outstanding in which they made a partial payment of $1,000.

Record bounced cheque in QuickBooks
 
2. The cheque bounces. In QuickBooks, go back to the Receive Payment screen and use the Record Bounced Cheque to key in the date that the cheque is bounced. (Ignore the Bank Fee and Customer Fee at the moment.)
 
Record bounced cheque in QuickBooks
 
3. The same Receive Payment screen is now marked "BOUNCED CHEQUE." Let's see what happens here:
 
Record bounced cheque in QuickBooks
 
3.1 First, QuickBooks removes the matching between the customer payment and the invoice. This means that the invoice becomes unpaid. However, the Accounts Receivable is not affected because the customer payment is not deleted, just unmatched:
 
Record bounced cheque in QuickBooks
 
3.2 Secondly, QuickBooks auto-creates a journal to reverse the customer payment (on the date that the cheque is reported bounced):
 
Record bounced cheque in QuickBooks
 
Effectively, on the date that the cheque is reported bounced, the customer outstanding balance is also reinstated :
 
Record bounced cheque in QuickBooks
 
3.3 To wrap up the matching, the customer payment is matched against the reversal journal. In this way, on the date that the cheque is reported bounced, the customer's Accounts Receivable breakdown correctly shows only the unpaid invoice.
 
Record bounced cheque in QuickBooks
 
4. Now, let's look at the effects of the Bank Fee and Customer Fee boxes.
 
Record bounced cheque in QuickBooks
 
As QuickBooks matures, better features are added. Contact us today to explore how QuickBooks can help you.