QuickBooks Online: The Right Entries for a Bounced Check
QuickBooks Online users need different bounced check entries depending on whether the bank covered the check, returned it, or the vendor redeposited it.
QuickBooks Online users who have a check bounce are usually left with one pointed question: do I void the original payment, or just record the bank fee? The answer is not the same for every returned check. It depends on whether the bank covered the item, returned it unpaid, or returned it and the vendor tried again. Each path leads to a different set of entries, and choosing the wrong one can leave the bank register off or a vendor balance wrong.
Why the bank’s action decides the entry
QuickBooks Online does not receive a notice telling it whether a check cleared or bounced. The software simply holds the payment you entered when the check was written. If the bank later refuses the item, the books will not correct themselves. You have to remove the payment only when the money did not leave the account. If the bank honored the check, there is nothing to remove. Only the fee is new. That distinction is the core of the issue.
When the bank covers the check and charges a fee
This is the simplest correction. The original check processed, so leave it alone. Voiding it would remove a payment that actually cleared and make the bank register disagree with the real balance. What remains is the fee the bank charged for covering the shortage.
To record that fee, open the expense form. In the payee field, choose the bank when the bank deducted the fee directly from your account. Choose the vendor only when the vendor separately billed you for a returned check charge. In the payment account field, select the account that paid the fee, usually the bank account where the charge appeared. Enter an identifier such as NSF fee in the reference field so the charge does not blend with other bank activity. In the category column, choose bank charges. If that category is not listed, add a bank fee account. Enter the amount and save the expense.
The payee choice is where users often go wrong. A bank fee that came out of the account belongs to the bank, not to the vendor on the original check. Recording it to the vendor can inflate the vendor balance and understate bank charges. If the vendor later sends a separate returned check charge, record that as its own expense to the vendor.
When the bank returns the check and the vendor does not deposit it again
In this outcome, the payment failed. The bank did not pay the vendor, and the vendor returned the item. The original check must be voided so the vendor list does not show a payment that never happened. The bank fee is still recorded separately.
To void the check, open the vendor list, select the vendor you wrote the check to, and find the bounced check in the transaction list. Open the check, choose More, then Void, and confirm the void. Then record the bank fee using the expense form described above.
Use Void rather than Delete. Voiding keeps the original transaction in the list with a voided status. That preserves the audit trail and avoids the appearance that the check simply disappeared. Deleting can make the payment history harder to reconstruct.
When the vendor redeposits the returned check
The third situation is the one that makes a simple void risky. The original check is not necessarily dead, because the vendor may submit it again and the bank may honor it once funds are available. In that case, we would not void immediately. Keep the original payment in place until the bank shows whether the item clears. Record the bank fee separately, and reconcile the cleared transaction if the second attempt succeeds. If the bank returns it again and the vendor stops, then go back and void the original check.
Match the correction to what the bank did
The safe rule is to follow the bank’s action. A covered check plus a fee requires only the fee. A returned check that the vendor never redeposits requires a void plus a fee. A returned check that the vendor redeposits requires patience and a decision once the bank settles the item. Settling on the wrong path can leave the bank balance off, the vendor balance wrong, or the same payment counted twice.