Account for Bad Checks from Customers (NSF)

How Do I...

If a customer writes you a check that is returned by the bank for insufficient funds, you need to rectify the situation. This procedure is a little tricky to understand at first, so it is recommended that you test this out in the sample company data first.

First, open an invoice on the customer that reflects the original invoice amount and the amount of the Non-Sufficient Funds (NSF) charge. Next, reestablish the customer’s balance because he or she still owes you money for the original invoice. This keeps an accurate record of the activity on the customer ledger, and account reconciliation will be easier to manage because you will have lines for each day. If you delete or change the original receipt, it is more difficult to track the process day by day.

Open one of the sample companies or follow the logic behind this example.
From the Tasks menu, select Sales/Invoicing. Create invoice #101 for Customer A for $100.00 dated January 1.
From the Tasks menu, select Receive Money. Create a receipt for Customer A dated January 2, and indicate that you received check #201 for $100.00, which pays invoice # 101.

On January 10, you receive a return notice from the bank for check #201 for $100.00 and are charged a $15.00 Non-Sufficient Funds (NSF) charge.

From the Tasks menu, select Sales/Invoicing. Create a new invoice to charge the customer for the NSF expense. Enter invoice #101NSF for Customer A dated January 10; then create a single-line description, where $15.00 is assigned to Bank Charges Expense G/L account.

Next, reestablish the customer’s balance because they still owe you money for the original invoice. In this example, we will apply the balance to the NSF invoice. This keeps an accurate record of the activity on the customer ledger. Also, account reconciliation will be easier to manage because you will have separate entries for each day. If you delete or change the original receipt, it is more difficult to track the process each day.

From the Tasks menu, select Receive Money. Select Customer A, and choose the January 10 date. On the Apply to Invoices tab, the only invoice listed is #101NSF for $15.00. You want to decrease the cash account. To do this, enter -$100.00 in the pay line for invoice #101NSF. Enter 201NSF as the check/reference number, and save or post the receipt. The cash account is back down to its correct level on the correct date.

At this point, the Apply to Invoices tab will reflect invoice #101NSF with a balance due of $115.00.

Two things can happen at this point. The customer pays you back on January 15 in one of two ways.

The customer writes you a second check. In Receive Money, enter that check number to pay off the invoice.
The customer tells you to send the check back through the bank and writes a second check for the amount owed later. Since Sage 50 allows it, you can use the same check number again, or you can use a secondary number such as 201-2 for $100.00 and then Save or Post. You will see later that the balance remaining on invoice #101NSF is still $15.00.

How it works

Your customer ledger will have transactions that are easy to audit and a bank reconciliation that is easier to manage.

Jan 1	101	SJ	+100.00	Balance:	100.00
Jan 2	201	CRJ	-100.00		0.00
Jan 10	101NSF	SJ	+15.00		15.00
Jan 10	201NSF	CRJ	+100.00		15.00
Jan 15	201-2	CRJ	-100.00		5.00

Account for Bad Checks from Customers (NSF)

How it works

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