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Archive for September, 2009

How To Account For Return Deposited Items and Returned Checks

September 23, 2009 Leave a comment

Click here to watch the web cast

Sometimes in business and in our personal financial lives we find ourselves in that situation where we have either received a check that was returned for insufficient funds or we’ve written one. In either case the bank will act accordingly and we or our bookkeepers are left with the task of how to record this in QuickBooks or whatever financial software we use. There are some common mistakes bookkeepers make on this and I want to address those as well as the correct way to handle this.

The Difference:
A Returned Deposit Item is when someone writes me a check, I deposit it, and then it bounces. An NSF Check is when I have written a check and it is returned for non-sufficient funds.
 

Return Deposit Item:
The mistakes bookkeepers often make on this:

  • Delete the original deposit (or line item from the deposit) for the check that was returned.
  • Booking the deduction in the bank account for the amount received from the customer to Bank Service Charges.

Returned Check:

The mistakes bookkeepers often make on this:

  • Delete the check that was written.
  • Record the return of the funds to the account as income.

The correct way to handle these in QuickBooks – Book and entry to offset the original transaction while leaving the original transaction unchanged.

The Returned Deposit Item:

 We want to mirror what the bank does. In the case of the returned deposit item, the bank has already given us credit for the deposit and then subsequently taken the money out when the deposited item was returned for insufficient funds. In QuickBooks terms, this means we record a check to reflect the money being taken out. If this was a check from a customer then we are left wondering where to record the check we write to reflect the act of the bank taking the money back. The key again is to reflect in QuickBooks what the bank did and what happened at large. So we break the transaction down in the simplest components in order to understand how to post it. Here are those components:

  • A customer paid us
  • We deposited that check
  • The bank took it back
  • The customer still has credit for having paid their invoice even though it was taken back.

So when we post the check to reflect the fact that the bank has taken the money away we have to record it as follows:  

  • Date = the date the bank took the money
  • Payee = The Bank (this is how it will show up on the bank statement, not based on the customer name)
  • Account = Accounts Receivable (this puts the customer’s receivable back on the books)
  • Customer: Job – we have to associate the receivable with the customer whose check was returned.

Finally the bank may charge us a fee (which we will pass along to the customer). We can even charge the customer more than the bank charges us – every state has a maximum. This is meant to account for the time we have to spend on the bookkeeping for this. It does pose an inconvenience when someone bounces a check to us. The fees will be taken out separately by the bank and should be recorded in QuickBooks as an EFT check (A check with EFT on the Check # Line). When we charge the customer for it, we can book that to a RDI Fee income account or as a direct offset to the fees we paid the bank. It is cleaner to show it separately as an income item. 

The Returned Check

 Again we want to mirror what the bank does and reflect this in QuickBooks. We wrote a check and the bank paid it (i.e. the money was taken out of our account). When the check was then returned the bank credits our bank account back with the amount of the check that was returned and then charges us a fee, let’s say $20. This will come out separately in QuickBooks and should be recorded accordingly as an EFT Check booked to “Bank Service Charges” and if you wish, a sub-account for NSF Fees. 

Click here to watch the web cast

Handling Reimbursed Expenses in QuickBooks

September 8, 2009 Leave a comment

Many times in all business we are faced with the situation where we are being reimbursed for an expense. In other words – I go out and purchase a chair for a client and then I sell it to that client. It is not really inventory, because I am not in the habit of selling chairs to clients. Maybe this was a onetime thing or it will happen once in a while, but not as a normal course of business. There are a few ways to handle this in QuickBooks. The first thing to understand is that the cost is not “Cost of Good Sold”. I know it seems like it should be, but Cost of Goods Sold or COGS are defined as all of the costs necessary to get our inventory ready for sale. Since this is not Inventory, we do not want to book the purchase to COGS.

We can do it one of two ways:

  • First we can simply enter it in a bill or check for an expense and mark it billable to a specific client. We will encounter a problem if we want to mark it up in that QuickBooks will show the markup on a reimbursed expense. If we don’t mind our client seeing how we marked this up then this is ok. If we do not want this, then we need to take a slightly different approach within this same option. That would be to bill it through with no markup initially, then change the price once in the invoice. The problem with this is you will wind up with a negative expense.
  • The second way is to enter the purchase of the item as a “Non-Inventory Part” and then bill that through. In this case you will want to link the non-inventory part to an income account, perhaps called “Reimbursed Expenses”. I know it seems weird to use the word “Expenses” in an income account title, but that is really what this is. By doing this, when you mark up the cost of the item it will net out as a positive income number instead of as an expense.

By doing this and then changing the method based on seeing the results you will wind up needing to troubleshoot this. So in the following video tutorial we go over how to make the mistakes and fix them as well.

Once you think you have entered this correctly you will want to run a Profit and Loss for that customer to be sure that the transactions are showing up correctly. Specifically you want to see that the cost of the item is in there and that what you billed for it is properly netted out by that cost. We will show you how to do this in the video tutorial that we’ve recorded online:

Please enjoy the FREE video tutorial:

Reimbursed Expenses ßClick