How to record NSF checks (returned check)
This article applies to transactions added outside of the Accounts Receivable module.
Record an NSF check using a journal entry:
- Generally, the bank account is reduced (credited) by the amount of the NSF check.
- Generally, the debit account is the income account you used in the deposit (see line 1 in the example below).
The following example shows an instance of a recorded deposit where the check was returned due to insufficient funds and must be accounted for. There are two courses of action that may be taken: 1) create a negative deposit transaction (which looks exactly like the deposit in the image below, only with negative numbers) or 2) journal the NSF entry (shown in the second image below).
Original deposit: Debits the Parish Checking and credits the Room Rental Fee Income Account
Correction Journal Entry (note line 1 is the same as the account on line 1 in the deposit): Debits the Room Rental Fee Income Account and credits the Parish Checking Account
Verify the entry by running an Account Balance Report (for each account involved)
The report shows the original deposit as well as the journal entry for the NSF check
Note: You may need to create a second journal entry to record any bank fees related to the NSF check.