NSF cheque

I have to enter 2 NSF cheques that were returned to one of my suppliers. How do I enter them to show the amounts as owed to the supplier?

That depends on how you are going to handle the situation. They should currently be shown as pending withdrawals. If you are going to ask the supplier to resubmit them for payment (hopefully after replenishing the bank account), just leave them as pending. When they finally clear, edit the transactions accordingly.

If penalty fees have been assessed, use a Spend money transaction to record them, listing either the bank or supplier as payee, depending on who you pay. Allocate the payment to Bank fees or some similar expense account.

If the supplier has cancelled the transaction due to the NSF cheques and the goods/services are not being delivered, there a a couple possible routes:

  1. If it was a cash purchase, you can simply delete the transaction. After all, you received nothing and paid nothing.

  2. If it was a credit purchase, with a purchase invoice, use a debit note to offset your obligation to pay the supplier.

In theory, you can’t just delete the cheque for multiple reasons. You can have this possible situations: your fiscal year just ended and you already have consider this cheque as a part of your expenses; you’re required to make monthly statements for the financial situation of your business; you have submitted the cheque in november (for example) and was returned in december. Maybe there are another situations that do not let you just delete your cheque, like if you have to maintain a register of your cheque number and you can’t just jump one, but this three past examples are the most common.

What you can do? You can Void the transaction. A Void transaction, for example, in Sage Accounting, can have two different dates: the origin date and the Void date. You can create a Void transaction with a different date than the original date of your original transaction. In Manager is easy but you can’t Void transaction. However, I said it is easy because you can create a “Receive Money” transaction, make a note indicating it is to record a returned cheque and in the account use the expense account that you originally used for the cheque. You can do this and instead of letting your cheque as “pending” you can clear it with the date that was cleared on the bank and the “receive money” transaction can be cleared with the date of the returned cheque. This can solve any of the three examples I have given you and you can track your cheque numbers and what happened to them.

I hope this can help you.

I am not certain what situation @sulfuror is addressing, @Jacqueline_Woodard. But in my earlier reply, I was addressing the situation that you seemed to describe in your initial question. You said the cheques were “returned to one of my suppliers.” I interpreted that to mean you had written two cheques to the supplier, but the bank returned them to the supplier for NSF in your account.

@sulfuror mentioned that a cheque cannot be deleted once issued. I disagree. Mistakes are often made when writing cheques by hand. The serialized cheque is destroyed or marked as void and a note is made in the register that the number has been voided. A returned cheque that is not presented again for payment is not different. And the only situation in which I suggested the possibility of deleting a transaction was if the purchase was completely cancelled, with no delivery of goods/serivces and no payment.

As for any concern over an expense being included in financial statements, that should not be a concern. In accrual based accounting, the expense is recorded during the period in which the income it is related to is recognized. When the actual transfer of funds occurs is immaterial. In cash based accounting, the expense is recorded when first paid, not when cleared. The fact that final clearance is delayed is likewise immaterial.

I see no reason under any circumstances to enter a Receive money transaction to show return of the cheque. After all, no money has been received. The only situation in which the expense would be reversed is when the purchase has been completely cancelled. And deletion of the transaction under conditions I already described covers that situation.

@Tut I think you’re right and I may have not understood the situation because I thought of it backwards. You’re right too, you can just delete the cheque or any transaction. What I’m saying is that in some cases that may not be the best solutions. Here’s why:

  • Situation #1:

  • In some companies there’s reporting issues with deleting transactions because they’re required to submit every month the financial reports. If you have a transaction, let’s say, on November and the transaction have been returned on December, if you delete that transaction on November your bank account will not match. Also, the financial reports will change and you’ll have to explain the changes.

  • Situation #2:

  • Maybe you don’t have to submit reports to anyone but the Government and your tax year is already closed. Is the same that the situation #1, you can’t just delete the transaction because you’ll affect the last fiscal/tax year changing the numbers, and that is just not acceptable in accounting. You have to reverse the transaction in the next month or make a “prior year adjustment” to record the changes.

This is just hypothetically speaking. Of course, if all happens in the same month, in practice, then you will not have any problems deleting the transaction because your bank account will match with your bank statement and you’ve not yet informed anything because the month is not “closed” yet. In theory, you have to void the transaction.

You’re correct, in accrual basis the expense is recorded with the bill or when the service is rendered rather than when is paid, like it is in cash basis. However, in some cases when you have issued a cheque the transaction is not returned after the next month (maybe the transaction was in November 30 and the returned cheque was in December 1 or 2). In this case if you delete the cheque your bank account will not match with your accounting books as of November 30. That is why I suggest to enter a “receive money” transaction in the subsequent month, when the transaction is returned, so your bank account will always match with your bank statement. If Manager already had the “void” function I will be suggesting to void the transaction, but Manager does not have this function yet.

Another reason I said “you can’t just delete the cheque…” is because maybe you want to keep your the sequence of your cheque numbers registered. If you can void transactions instead of deleting them, you can have the sequence numbers correctly registered in your accounting. Many people can’t just delete transactions. In fact, some systems do not let you delete transactions once you have closed the period. Big corporations and many business can’t delete transactions once issued because they have to know what happen to every transaction and record the changes. That makes your accounting books more reliable when an accountant, auditor, etc., will check your accounting books for whatever reason they may have to. Of course some accountants and auditors do not pay attention to this “little details” when they have to review their accounting books, but little details sometimes are important too.

Maybe I’m a little paranoid or maniac in that aspect, but that’s my work, to be paranoid or maniac on behalf of my clients so anyone will find the less “little details” or things to point out in their accounting books.