Classic - Recording Checks Returned as NSF

When the bank returns a check you received due to insufficient funds, you must make adjustments to affect the account in which the deposit was made and to the customer that issued the check.

To accommodate this, you need to have an Accounts Receivable (AR) adjustment code and a Cash Box Adjustment code that both point to the same General Ledger (GL) Account. These codes will be used to “move” the money out of your bank account and make it a balance due from the customer who bounced the check. We recommend creating Non-Sufficient (NSF) codes in both lists that point to GL account 2090- Clearing.

If your company posts cash receipts through the Billing Account History Receipt option you can un-allocate the original payment so that the invoice can be aged properly and finance charges applied, if applicable.

To Correct the Bank Account

1. Open the account register and select the account into which the check was originally deposited. (The Bank Account, not the Cash Box.)
2. Select the Adjust button located at the bottom of the account register (or press Alt+3) to open the adjustment form.

• Enter the date the check was returned to you, or the date you wish the adjustment to affect the account.
• Select to Decrease balance.
• Enter the amount of the returned check.
• Enter a reference number if you wish. You may want to enter the original invoice or check number.
• Use the drop-down menu to select the Adjust code. Select the NSF adjustment code. (You can use a different account if you wish but you will use the same account when adjusting the customer in order to create a “wash” entry.)
• Enter the department you wish to affect by the adjustment. If you are using the clearing account, you will enter department 00.
• Enter a comment if you wish.

3. Once the data fields are complete, select Post.

This adjustment will decrease the balance in the account to reflect that the check was returned to you. You will then need to adjust the customer’s account to reflect that they still owe you the amount of the returned check.
The result of the adjustment will be a credit to Cash and a debit to the selected account (in our example, 2090- Clearing.)

Note: You will post another adjustment to enter the Bank Fees as you normally would.

To Adjust the Customer’s Account

1. Open the Receivables Manager and search for the Billing Account for the customer.
2. Highlight the account and press ENTER to open the Billing Account History, or right-click and select Open history.

• If your company posts cash receipts through the Billing Account History Receipt option and you wish to un-allocate the original payment so that the invoice can be aged properly and finance charges applied:
  • Highlight the original payment that was returned NSF and press Enter to open the Allocations from... window.
    
     
  • Right-click and select Clear all allocations from the menu and then select Save and close the ALLOCATIONS window.
• If your company posts cash receipts through the Apply Pmts button on the invoice, or you do not wish to age the original invoice and/or apply finance charges you will move to the next step.

3. Select the Adjust button located at the bottom of the form, or press ALT+2, to open the adjustment form.

• Select Debit memo.
• Enter the date you wish the adjustment to affect the customer’s account (the same date as the adjustment to the bank account.)
• Enter or select an Adjust code. If you are using the clearing account, you can select NSF. If you did not use the clearing account when adjusting the bank account, be sure to use an adjust code that will use the same general ledger account you used there.
• Enter the amount of the returned check.
• Enter, or select the department that you wish to affect with the adjustment.
• Enter a reference number, if desired. You may wish to use the same reference as you did when adjusting the bank account.
• Enter a comment if you wish.
• Select Manual Allocation and select Post to apply the adjustment to the original payment.

• Highlight the payment, press Enter to allocate the memo and then select Post.

This adjustment will add a balance to the customer’s account indicating that they still owe you the amount of the returned check. If you re-deposit the check, or the customer issues another form of payment, you will enter a new cash receipt and apply it to the outstanding debit memo.

The result of this adjustment will be a debit to Accounts Receivable and a credit to the account selected. The combined posting of the adjustment to the Account Register and the adjustment to the Billing Account will result in a debit to Accounts Receivable and a credit to Cash. The other transactions should create a “wash” entry.

Note: If you want to charge the customer a fee for the returned check you will post another Debit memo adjustment (unapplied) to the Billing Account.