Somewhere along the way in dealing with Customers, you will eventually come across an NSF cheque. It happens, it’s part of business, so don’t get too bent out of shape. How you record this will definitely make a difference.
In recording this NSF cheque you will have to reverse the payment in the Customer account and add the bank charge as part of this entry.
So with that in mind let’s proceed to the Home page. From the Company module click on Items & Service. This will open up the Item List where you will right-click your mouse to add a New Item. From the drop-down box choose Other Charge, since you are creating a service charge, tab to the Item Name/Number and key in NSF Cheque.
Tab over the Subitem field to the Description field and type in Customer cheque returned due to insufficient funds. Leave the Amount field blank since this will change from cheque to cheque, choose Z (GST zero rated), and in the Account field from the drop-down box choose the Royal Bank which we have been using for the examples. Click on Next to save that Item and because you need to set up another item.
QuickBooks should have taken you back to the Item List screen where you will create another item. If for some reason you are not in the Item List screen then, Home page, Items & Service will take you back there. Right click your mouse for New, Other Charge and in the Item Name/Number field type in Bank NSF fee.
Tab to the Description field and type in Fees charged by bank re NSF cheque, tab past the Amount field to the Tax Code and choose Z again, and in the Account field from the drop-down box choose Other Income. If this account is not set up then use the slider on the right to slide up to the top of the screen and choose <Add New>. From the drop-down box choose Other Income which is near the bottom of the list, tab to the Account field and type in Other Income and Save & Close.
This will take you back to the Item List Account field where Other Income should now be inserted and you can click on OK. If a spel- check screen pops up just Ignore All until you are returned to the Item List screen. There you will see the two new Other Charge items that you have created.
Now you have to create an invoice to record this NSF cheque and bank fee.
For this exercise we are going to use ABC Customer’s payment of 588.00 which was recorded on February 21, 2011. From the Home page choose Create Invoices, from the Customer:Job field start typing A and ABC Customer will fill in the field. Tab past the Class and Template fields to the Date field and use February 28, 2011. Accept the default Invoice # and Terms and the next tab should have moved you to the Item field.
From the drop-down box choose NSF Cheque which will fill in the Description field, tab to the Rate field and key in 588.00 and tab until you return to the Item field below the first item you have just created. From the Item field’s drop-down box choose Bank NSF fee, tab to the Rate field and key in 25.00 and tab until you are in the Item field again.
You will notice that the Total and Balance Due fields show the amount of 613.00. Make sure that you mark the To be printed and To be e-mailed boxes and Save & Close. If you get an Items not assigned classes pop up message, just click on Save Anyway, Ignore All from the spell-check until QuickBooks returns you to the Item List.
To view how QuickBooks has recorded this journal transaction, go to the Customer Centre, highlight ABC Customer, highlight the line that shows the invoice of 613.0o created on February 28, 2011, double click on it, and it will take you to the Create Invoices screen on that invoice. Control Y will open up the Transaction Journal screen where you will see that the Accounts Receivable account has been debited 613.00, the Bank account credited 588.00 and the Other Income credited 25.00.
Close that screen and also the next screen, which should take you back to your Customer Centre. You will notice that ABC Customer now has an outstanding balance of 613.00, which is the entry that you created because of the NSF cheque.
I am going to skip ahead to the end of the year which in this case is December 31, 2011. ABC Customer has still not paid you the outstanding amount, although you have tried repeatedly to collect it. Usually after 90 days, the chances of receivables collection falls off dramatically and by year end you would have to consider it a Bad Debt and write it off. You are going to set up another new Item to take care of this.
Since you have created two of these previously, and a new account also, I will abbreviate some of the steps. From Item List, New, Other Charge, type in Bad Debt in the Item Name/Number field, tab to Description field and key in Bad Debt expense, tab past the Amount field, and in the Tax Code field choose H. In the Account field add a new Expense account called Bad Debt expense and click on OK to save this new item.
Now you need to create a Credit Memo for the bad debt amount. Just before you create the Credit Memo you should speak to your tax advisor about the deductibility of the sales tax. For this exercise you are going to include the tax as part of the amount to write-off.
Refunds & Credits is what you will choose to create this Credit Memo. Choose ABC Customer, tab to the Date field and use the December 31, 2011 date, and tab to the Item field. Choosing Bad Debt may bring up a Warning screen which states This item is associated with an expense account. Do you want to continue? Just click on OK and continue.
Tab to the Rate field and key in 525.00, in the Class field choose Info Tech, tab to the Tax Code field and make sure the H is there. Tab to the Item field, choose Bad Debt again, tab to the Rate field and key in 25.00, tab to the Tax Code field and change the code to Z since there was no tax on the service fee. Your Total and Remaining Credit fields should have 613.00 in them.
Once again mark the To be printed and To be e-mailed boxes and Save & Close. If you recieve an Items not assigned classes screen choose Save Anyway and an Available Credit screen should be your next choice. What you want to do with this credit is to apply it to an invoice, so make sure to tag the button beside Apply to an invoice and click OK.
The Apply Credit to Invoices screen is next, so make sure that the February 28 invoice for 613.00 is marked and then click Done.
Let’s review how QuickBooks handled this transaction. Customer Centre, ABC Customer, Credit Memo of 613.00, double click and Control and Y takes you to the Transaction Journal screen. QuickBooks has made this entry: Credit the Accounts Receivable account – 613.00, two Debits to the Bad Debt expense account (525.00 + 25.00), and a Debit to the GST/HST Payable account of 63.00.
You have now written off the 613.00 ABC Customer Bad Debt and in your Customer Centre, ABC Customer should show a zero balance owing.
In this exercise there were no other invoices after the February 28, 2011 NSF one created.
I will start on the Vendor module next.
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