Journal entry for check returned

Introduction

In business, we may come across a circumstance for the check returned from the bank after we deposit it. In this case, we need to make the journal entry for check returned in our record in order to avoid the mismatch between the cash balance at the bank record and the cash balance in our company’s record as well as to reclass the amount from the cash account back to the accounts receivable.

The check returned from the bank is usually referred to as an NSF check or non-sufficient fund check. The check returned usually happens when we receive the payment from the customer in form of a check, but their checking account does not have sufficient funds.

In this case, after we deposit this check into our bank account, the bank will return the check after failing the clearing process due to the non-sufficient fund in their checking account. The bank may also charge us a fee for the non-sufficient fund that we have deposited.

Likewise, the check returned from the bank mean that the customer still owes us the payment for goods or service we provide in the business. Hence, we need to record the check returned from the bank into the accounts receivable from the customer.

Additionally, if there is any fee charged from the bank in this process, the fee will pass onto the customer too. This is because it is totally the customer’s fault for giving us the non-sufficient check in the first place.

Journal entry for check returned

We can make the journal entry for check returned from the bank by debiting the accounts receivable and crediting the cash account.

In this journal entry, there is zero impact on the total assets of our balance sheet as it is for reclassing the amount of check returned from the cash account to the accounts receivable. However, this journal entry is important for our cash balance in the company’s record to match with the cash balance at the bank when we prepare the bank reconciliation statement.

Check returned example

For example, after reviewing the bank statement for preparing the bank reconciliation, we see that there is a $1,000 check returned from the bank due to non-sufficient funds. This $1,000 check is a check that we have received from one of our customers for payment of the credit purchase they have made previously.

In this case, we need to make the journal entry for check returned from the bank by debiting the $1,000 check returned into the accounts receivable and crediting the same amount into the cash account.

There is no impact on our total assets on the balance sheet in this journal entry. This journal entry is simply the reverse entry of $1,000 accounts receivable collection.

Check returned with fee charged from the bank

The bank may also charge us a certain amount of fee when returning the check for the non-sufficient fund. If this is the case, we need to also include the fee charged into our journal entry above.

However, as mentioned, the fee charged from the bank, in this case, should be the responsibility of the customer who provides us the check with the non-sufficient funds. Hence, the journal entry for the check returned with the fee charged from the bank will still be the debit of accounts receivable and credit of the cash account, though with an additional amount of fee charge.

For example, assume a $1,000 check returned from the bank in the example above also includes a $15 fee charged for the non-sufficient fund. And a $15 fee charged for this transaction has already been deducted by the bank from our account which is shown in the bank statement.

In this case, we can make the journal entry for a $1,000 check returned with a $15 fee charged from the bank as below: