Sometimes cheques (checks) you receive may be dishonoured, bounced or returned for a variety of reasons. Accordingly there are different ways to capture this type of transaction. Cheques usually dishonour, bounce or get returned because of post-dating, lack of funds in the drawings account, stop cheque requests or insufficient or incorrect signatories.
For example, payment is often considered conditional on cheque clearance, so you might like to consider legal, legislative, and internal issues that impact your accounting. We recommend you consult your adviser about which method is best for your situation. If you learn of any more please let us know so we can add them to our list:
Sample Methods for Capturing Dishonoured, Bounced or Returned Cheques:
- Delete the payment applied to the original sale that represents the dishonoured, bounced or returned cheque. Create a Purchase or Journal to represent the bank fee and flow of funds through your bank account for the original dishonour, bounce or return. Request a new payment from your customer or wait for their notification that the original cheque can be re-deposited. Create a Sale to charge your customer for dishonour, bounce or return. Add admin fees (if applicable).
NOTE: This may not be suitable if you have already submitted tax or other regulatory information based on the entry.
- Close the original sale with a payment. Issue a new Sale Adjustment/Credit Note using the money reversed out of your bank to close it. Create a Sale to charge your customer for dishonour, bounce or return and admin fees (if applicable).
TIP: Check with your advisor regarding whether this is an acceptable practice in your tax zone.
- Apply the payment received against your Sale. Enter a General Journal for the reversal the bank puts through to represent the money the customer now owes you again. For example, you could choose an account code such as Liability:Failed Settlements or Liability:Dishonoured Payments or similar. Use this account to track who owes you money for dishonoured cheques. Create a sale to charge your customer for dishonour and admin fees (if applicable).
NOTE: This method has the disadvantage of not tracking the liability against the actual contact in the Liability: Money Owed To Me account. However, it does keep the sale transactions clear of deletions or edits.
How long should I wait before cancelling a cheque?
Any lost or misplaced undeposited cheque is risky. You may be vulnerable to fraud such as revealing your signature or leaving open the possibility of a copy or counterfeit cheque being created in its place (each cheque has a unique number series). Consequently, it’s a good idea to review uncleared cheques at financial year end. Better still, you should do this at the end of your regular accounting period to see whether you can clean things up.