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Last modified on 1/5/2016 4:24 PM by User.

Non-Sufficient Fund (NSF) Returned Check - Charge Customer

There are a couple of different scenarios that are applicable.  One is if the returned check is from a charge customer or a retail, walk-in or COD customer.  This write-up is for the Charge customer.  For a retail/walk-in or COD customer see document titled NSF - Returned Checks  -  Retail, Walk-in or COD Customer.


Step 1:

  • AP (Module 3)
    • Check Account (Task 20)
      • Enter New Check Record (Sub-task 1)
        • In field 1, use #3 from the table (Bad Check).  '
        • In field 3 enter AR or BCK for Bad Check
        • In field 4 enter the account number for the retail customer
        • In field 6 put in the check amount.  When finished, proceed to the Accounts Receivable module if the check is going to be re-deposited.


Step 2:



  • ‚ÄčThe bank informs you when a customer’s check was returned.  You can take the NSF check out of your checking account in G/L with a manual journal entry.  It would be a debit to the G/L account # for NSF checks and a credit to the checking account. 
  • If the bank has informed you of the customer’s returned check from the end of the previous month and you have closed A/R for that month, it should be recorded with a manual journal entry.  Meaning: If you received in the mail the customer’s returned check and the notification on April 3rd, but the bank actually charged your account on March 30th, it would be recorded with a manual journal.
  • If the bank has informed you of the customer’s returned check during the same month it was returned it may be recorded as a manual journal entry or it may be recorded in A/R.  If recorded in A/R, the manual journal entry would NOT be made.  If you want to record it in A/R do the following:
  • AR (Module 2)
    • Cash/Receipts Entry and Editing (Task 2)
      • Enter New Cash Record (Sub-task 1)
        • Use the Enter key for a default transaction (TRX) number.  
        • In field 2 use #1 (Cash Sale) for the Transaction Type.  
        • In field 3 Use Charge Customer’s #.
        • In field 4 use today’s date.  In field 5 use the appropriate division #.  
        • Enter through fields 6 - 13.  
        • In field 14 enter the GL account that the amount will go to (example:  some clients have a specific GL account call "Returned Checks")
        • In field 15 enter the negative amount of the check being returned.  The amount “Total Amount Received” on the edit and posting should be the negative amount of the NSF check.  The “Total change to A/R” should be zero on the edit and posting. 


NOTE:  At the end of the month one of the reports you may print and balance is an A/R Cash History.  This report has a “Total Amount Received” at the end.  If you are verifying this amount with the total deposits into the checking account, the above A/R Cash/Receipts entry would need to be added back in.



Step 3:


Putting the Invoice Amount Back on Customer's Account:


If the amount of the invoices, and optionally a service fee, are to be put back onto the customer's account, then follow the instructions below.  Then the check can be re-deposited and applied to the invoice that will be created.  If the check is not going to be re-deposited follow the same procedure, and when the new check (or cash) is received, apply it to the newly created invoice. 


  • Order Processing (Module 6)
    • Order Entry & Editing (Task 1)
      • Enter New/Change Existing Order (Sub-task 1)
        • Enter a new sales order using items, that were specifically created, called for example: Bad Check and Bank Check Fee (if applicable).  
        • Enter the amount of the returned check (which should be the amount of the invoices paid with the check originally) using the item referred to as Bad Check.  
        • When entering the item referred to as Bank Check Fee, enter a service fee and any discount amounts there were taken by the customer originally.  
          • The item numbers should have the appropriate General Ledger account numbers that are used for Bad Checks. 


The order must be invoiced and printed.  The invoice is then treated like any other order entry invoice. It will move to the Holding File during nightly backup. 



Step 4 (Optional):

  • AR (Module 2)
    • Customer Master (Task 17)
      • Change Existing Customer Record (Sub-task 2)
        1. Accounting Notes (Field 77)


Make a note on the customer's record of the date, amount & reason (NSF, Account Closed) for the returned check.  When the check clears, a new one is issued or cash is received, it is a good idea to also make note of the date - to determine how long it took to clear up the account.


Step 5 (Optional):

Determine which invoices were paid for by the check that was returned.  This can be accomplished by:

  • Going to the Customer Inquiry (Task 27 in A/R module) and on the first screen, after the customer number is entered, press the F1 key for “Check # Inquiry”, type in the check #…this will display all invoices paid with the returned check.
  • Or consult the physical posting records to find the invoice numbers.


Step 6:           

When the new payment is received for the returned check, it is treated just like a regular payment on the customer’s account.  Enter it in Cash/Receipts Entry & editing (Task 2), and apply it to the invoice created above in step 3.



The overview of the entire process is:

  • The original invoice created a debit to AR
  • The original payment created a debit to Cash (and a Discount Allowed account, if applicable) and a credit to AR.
  • The return check was recorded in the Bank Account as a deduction through AP
  •  Manual journal entry or cash transaction created a debit to returned check G/L account and credit to checking account G/L account.
  • The new order created another debit to AR - the amount of the original invoice plus any service fees charged, and credit to Returned check G/L account.
  • New payment received to pay for invoice for returned check, created debit to checking account and credit to A/R.