1. First let me say I believe I understand what these processes are doing, basically reversing the deposited amount in the bank and recording the expense of the bank fee, so I can reconcile. I get that no revenues are being duplicated. If all goes well, the customer pays the re-invoice and all is right with the world. However, I am concerned if we do not get payment of the re-invoice how do we reflect that the original invoice basically was not paid and we did not receive that revenue. Forgive me if this is obvious. Thanks for your help.

    • Alissa – It’s really a matter of terminology. In accrual accounting, you did receive the revenue. The revenue was paid for with an IOU (i. e., the A/R invoice for the bounced check). In effect, if you ignore the legal implications of your customer’s check bouncing, that sale is similar to a sale on net terms where your payment is an IOU. If you are not paid for the IOU, it’s a matter of writing off that amount. In that instance you are not writing off revenue, but rather writing off a bad debt. There are different methods for writing of bad debts, such as the specific charge off method or the allowance method. Some methods, such as the allowance method, do offset the allowance against revenues; other methods simply record the loss of an asset (the A/R). Recording the loss really depends on how your firm treats bad debts.

  2. Does this mean you are recording an expense in general journal and income in create invoice.. HOw would you reflect this in Income Statement?

    • Elsie – Take a look at the account types used for the journal entry. The only expense is the bank fee for the NSF check, and the only income is the optional income if you charge your customer a fee for having an NSF check. The other accounts are balance sheet accounts, not income statement accounts. When you use an invoice that includes an item that is mapped to a balance sheet account, there is no impact on the income statement. Most people think that invoices impact the income statement because in most instances, invoices use items that are mapped to income statement accounts.

  3. Paula Schecter says:

    When I use this procedure, I find that my sales figure for the customer has increased by the amount of the NSF check and charges. So if in your example, the customers has an invoice totaling $50, and a NSF charge of $25, my sales to that customer would show $125 after I invoice him for the bounced check and fees. How can I fix this or what am I missing. I know I have also shown the bank’s charge as an expense so it probably doesn’t effect my income tax liability at the end of the year, but I think the sales figure is now $50 higher than it should be as well as reports that show how much a customer has spent really being to high for any customer who has bounced a check.

    • First, if you are using the method to re-invoice your customer, make sure the offset account of your NSF item is your bank account, not a revenue account. If that’s the case, the transaction won’t impact your P & L. Second, there are some reports that this method does impact. One example is the Sales By Customer Summary. However, the impact is totally dependent on the filters you have set for that report. Using the Sales By Customer Summary, you could change the filter for the Items included on the report. An even simpler approach would be to add a filter for the accounts included and set that filter to be All income/expense accounts. It’s always a good idea to check the filters for a report to make sure that the report is returning the data you want. This is an often overlooked step on some of the “canned” reports that get a lot of use. The bottom line is that if your NSF item is not mapped to a revenue account, reports based on revenue accounts won’t double count revenue.