NSF Cheque Accounting How to Handle Bounced Checks

If you have ever received a bounced check, you know how frustrating and inconvenient it can be. Not only does it cause a delay in receiving payment, but it also requires special accounting procedures to rectify the situation. This is where NSF (Non-Sufficient Funds) cheque accounting comes into play. When a check bounces, it means that the person who wrote the check did not have enough funds in their account to cover the payment. As a result, the check is returned to the payee’s bank, marked as NSF. To handle this situation, there are several accounting procedures that need to be followed:

Reverse the Original Entry: The initial payment that was recorded needs to be reversed. This can be done by debiting the cash account and crediting the accounts receivable account. Charge a Returned Check Fee: To compensate for the inconvenience, a returned check fee can be charged. This fee can be recorded as income and credited to the NSF Cheque accounting appropriate account. Record the NSF Check: The NSF check needs to be recorded as an account receivable. This can be done by debiting the accounts receivable account and crediting the customer’s account.

Follow Up with the Customer: Once the NSF check has been recorded, the customer needs to be contacted to resolve the situation. This can be done by phone, email, or letter. The customer can be given the option to pay the original amount due, along with the returned check fee, or to make other arrangements for payment. Adjust for the Cleared Check: If the customer eventually pays the original amount due, the accounts receivable account needs to be adjusted. This can be done by debiting the cash account and crediting the accounts receivable account. NSF cheque accounting can be a complex process, but it is necessary to ensure accurate financial reporting. If you are unfamiliar with these procedures, it is recommended to seek the assistance of an accountant or bookkeeper.