New QuickBooks 2012 Bounced Check Feature (and bug)

Written by Charlie Russell

Intuit recently released QuickBooks 2012 R8 and one of the new features is a new procedure for dealing with bounced checks. Let’s take a closer look at this new feature to see what it is doing. I’ll also point out some bugs in the feature, along with workarounds. Note that this new feature will only be found in the “Plus” subscription versions of QuickBooks 2012 Premier and Pro, as well as the versions of QuickBooks Accountant that ProAdvisors have. Everyone else will have to wait for a later release – most likely QuickBooks 2013.

How do you deal with bounced checks in QuickBooks? There are several well documented approaches. For example:

  • QuickBooks Help has you create two special items in your item list, “Bad Check Charge” and “Bounced Check”. Create an invoice for the amount of the bounced check plus any bank fees you want to recover. You will add the bank charge when you reconcile your bank statement.
  • The Sleeter Group’s QuickBooks Consultant’s Reference Guide has a different approach, where you enter two transactions in your check register and create an invoice for the fee that you want to recover. It is more complicated than the one recommended by QuickBooks, but it provides better control and more accurate information in your Accounts Receivable aging.

Now we have a new method that works just by clicking a button. To see how this works, I’ve set up a brand new company file that I’ll use to create some simple test transactions.

Here is my starting Chart of Accounts. I’ve already entered an invoice for $500.00 and have received the payment.

Starting Chart of Accounts

Here is a Trial Balance:

Starting Trial Balance

Ah, darn it, the client bounced the check! If I go back to the Customer Payment window I see there there is a new button, Bounced Check. Note that this will only show if the payment method is “Check”.

Customer Payment window

If you click the Bounced Check button you’ll see a new set of fields to the left. You can enter the bank fee, and optionally enter a fee to charge your customer.

Bounced check information

If I save this transaction, QuickBooks displays a window summarizing what is done. The original invoice is marked as being open, a second invoice is created for the bank charge, and a couple of journal entries are posted.

Bounced Check Notice

The original payment is stamped as being a “bounced check”:

Bounced Check

I have a new invoice for the bank charge:

Bank Charge Invoice

The original invoice no longer has a payment applied:

Original Invoice

I also have two journal entries:

Journal Entry for invoice

Journal Entry for fee

Here is my updated Trial Balance:

Updated trial balance

That was all very simple, just click the one button (and save the new invoice that is created)!

There are a number of changes to the lists in my company file. Look at the Chart of Accounts. You can see a new account, Returned Check Charges, that QuickBooks added automatically. It doesn’t have an account number. There also is an account Bank Service Charges, but in this test I already had an account with that name so QuickBooks used that. In other tests, if I didn’t have an account with that name, QuickBooks would create it. It’s important to note these kinds of changes, as I always like to know what is going on in the chart of accounts.

Updated Chart of Accounts

In addition, QuickBooks will add an Other Charge item to the Item List, Bounced Check Charge.

Bounced Check Other Charge Item

Problems With this Feature

This is a new feature, and there are a few problems to be aware of.

If you look back at the journal entries you will note that by default, they were marked as billable. So if I create another invoice for this client, and ask the system to enter billable time and costs, you see these transactions in the Expenses tab. Not good!

Journal Entries are Billable

The workaround for that is to edit the journal entries before you create another invoice for the customer, but that is messy.

A bigger problem has to do with the Undeposited Funds account. Most people have deposits going to Undeposited Funds, a special account that QuickBooks creates to hold deposits. It is generally on by default if you create a new company file. If you receive a payment to Undeposited Funds then you get this warning.

Bounced Check Warning

I’m not sure WHY this restriction is here, but it is. If I use my own account instead of Undeposited Funds, it works. How do you get around this?

My friend Woody Adams of Radio Free QuickBooks pointed out that you can un-check the preference to use the Undeposited Funds account and create your own deposit account to manage this.

Undeposited Funds preference

Now you will have to select the account to make the deposit to. You may have to create an appropriate account.

Selecting Deposit To

Then, if you wish, you can turn the Undeposited Funds preference back on. You would only need to turn it off and on for bounced checks. Thanks for the tip, Woody!

I also ran into a problem with getting the program to properly use Undeposited Funds if I created a new company, turned the preference off before entering any transactions, did some receipts, then turned the preference on. It kept using the older account, not letting me use the Undeposited Funds account. However, if I closed the file and reopened it, this problem went away.


Here is another new feature that seems to have problems right out of the blocks, when first introduced. Does it seem that we are getting more of these kinds of problems lately? These particular problems aren’t fatal – you don’t have any file damage, and there are workarounds. Also, you can easily just avoid using this feature and use one of the other recommended methods for dealing with bounced checks. I’ll note also that the majority of the users won’t see this feature until (probably) 2013, as it isn’t available to anyone except ProAdvisors and people who use the “Plus” monthly subscription. Regular desktop users, any Enterprise users, don’t get the Plus features until the next product year.

My thanks again to Woody Adams for pointing out the workaround to the Undeposited Funds problem and guiding me through this feature. I highly recommend listening to Radio Free QuickBooks on Wednesday evenings – better yet, join in the fun in the “chat room” during the show! See how to find the chat room in my article on RFQ at http://www.sleeter.com/blog/2012/01/radio-free-quickbooks/

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About the author

Charlie Russell

Charlie Russell has been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had an 8-bit microcomputer with one 8 inch floppy disk drive. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise, as well as being a Xero Certified Partner. Charlie started blogging about QuickBooks in 2008 (Practical QuickBooks) and has been the managing editor and primary writer for the Sleeter Report since 2011. Charlie can be reached at charlie@ccrsoftware.com

Visit his CCRSoftware web site for information about his QuickBooks add-on products. He is also the author of the California Wildflower Hikes blog.


  • Nice article Charlie.

    I don’t know about others, but when I get a bounced check and re-invoice the client, my bounced check charge is added to the new invoice. It makes no sense to me at all to send the client two invoices (the original one plus the new bounced check one).

    This two invoice problem is similar to the finance charge invoice being separate.

    I see in your example that the bounced check invoice is #2, that works fine in a test file, but in real life the invoice might be #2345, and the bounced check invoice might be #2403. And if the client has more than just that one invoice outstanding, there is no way to relate the bounced check invoice to the invoice it applies to (same problem with the finance charge invoice), and the original invoice will show on aging as way overdue, but the bounced check invoice that by rights should be related to it, will not.

    • Thanks, Rustler. I wasn’t really writing a critique of the mechanism that they are using to manage bounced checks, at least not initially. I didn’t want to get into a whole tutorial on how to handle bounced checks. My original goal was to point out the bugs, and the workarounds if people wanted to use this feature. And to show how it worked, since none of this stuff is in the updated Help file and the release notes were cryptically brief (it took awhile to find the feature). So I was focused on what it does, not so much the right way to deal with bounced checks.

      Based on comments I’m seeing (email, LinkedIn, here, phonecalls) I can say that everyone seems to have their own way of handling bounced checks. I’m not so sure that Intuit hit the sweet spot with this one.

      • They did hit a sweet spot, and just need to iron out the bugs. So I’m glad you pointed out that most people won’t see this yet. We’re all totally lucky to have your help; the programmers can fix these bugs before clients see this new feature.

    • Jim,

      What you’re doing (just creating an invoice) works ok, except that it doesn’t properly account for the fact that the ORIGINAL INVOICE will always show as paid with the original check (that bounced). So the aging reports get screwed up. To properly show the payment timing, we have a more complete method in our Consultant’s Reference Guide.

      In the guide, we have you enter two transactions on the bounce date, one for the check amount (coded to AR), and another for the bounced check fee (coded to bank fees exp). Then we “unapply” the original payment to the original invoice, and “apply” that payment the bounced check (the one coded to AR above). Then, we add a new invoice to the customer for the bounced check fee.

      The result is:
      – Checking account balance goes down (credit)
      – AR goes up (debit) for the amount of the check plus the amount of the fee
      – Bank fees expense goes up (debit)
      – The original invoice continues to “age” as an “open invoice”
      – There is a new open invoice from the customer for the bounce fee.

      Admittedly, this is more complicated than just entering an invoice, but it’s what we have do to preserve all financial reports.

      • Doug, I didn’t detail how I handle it, I treat the original invoice as bad debt, that offsets the income the invoice originally booked, and the bank charge is booked as an NSF fee expense. Then I create a new invoice for the original amount, and add an other charge item for a NSF check charge.

  • Charlie,

    You always provide us with such good information. Your blog keeps me updated on information during this busy time when I don’t have much time to read about or research new product features.

    Thanks for all you do!

    • Thanks, Julia! This one was bugging me, as I saw the one-line description of this in the R8 release notes but didn’t know what it was or where to find it. So when this came up, I thought it would be good to point it out to people.

  • Charlie,
    Thanks for posting this. I think this feature should be removed.

    It completely complicates things. I agree with you that our methods in the CRG are also complicated, but as you note, they keep the accounting right, both Accrual and Cash, and they reflect correctly on customer statements, etc.

    For those who use Undeposited Funds, this approach won’t work at all. Changing the preference is a non-starter in my opinion, because that should be a one-time setting that doesn’t change back and forth. Just unworkable.

    Adding accounts to the COA automatically for things like this is also just plain wrong.

    The journal entries it creates are goofy, and will cause problems with cash basis reports if not more.

    This one has to be taken back to the drawing board!

    • Intuit’s goal is, I think, to try to find a “one button” way to handle bounced checks. While the CRG method (and others) are accurate, because they often take multiple steps to perform you find in some cases that the non-accounting user either doesn’t perform it correctly, or just doesn’t try at all. A one-button solution is there for the business owner who just doesn’t have time to do all the steps. That is an admirable goal, the problem is that the approach they used has problems.

      Keep in mind that the switching of the preference isn’t something that is supposed to be a part of this. That is just a workaround for the bug in the feature. If the bug wasn’t there, the switching wouldn’t be needed. Hopefully this particular issue will be resolved in the next update.

      As far as adding accounts to the COA – that is a typical Intuit approach to things. They do that all the time. We have many auto-added accounts in different situations. Accounts Receivable is auto-added. Inventory Asset can be. Inventory Offset when you use Enhanced Inventory Receiving. So it isn’t unusual for them.

      • I agree with the goal, and it’s a good goal to provide some type of single-button bounced check feature. But it’s all about HOW it works, and how it affects reports and other parts of the system.

        Yes, there are many auto-created accounts for AR, Sales Tax, Inventory, COGS, Payroll, etc., but in all of those cases, they are specifically to allow for major feature areas of QuickBooks. They are done initally, at setup, so the fact that they’re auto-created is a convenience DURING SETUP. I like that feature.

        However, adding new accounts to the COA for something like this is a bad idea. It should allow me to map the entries to my own COA, or POSSIBLY ask my permission to create a new account for me. But notice when new accounts are created, they have no account number. That might really screw someone up if they’re using an add-on, or if they’re sorting the COA by Acct#.

        Combined with the bug you discovered whereby the feature fails with Undeposited Funds is a perfect example of how these seemingly “helpful” new features often cause more problems than they solve.

        Good goals, but they gotta get this stuff right…

        • Doug, I’m not defending their implementation or their approach, I’m just explaining where they are coming from. I don’t like accounts showing up “in stealth mode” like this, and I specifically pointed out that it didn’t have an account number…

          The bug with Undeposited Funds will most likely be fixed soon, that is clearly a bug. The other features are not a bug, as they work the way they want it to. Let’s call them a design flaw…

          It is fortunate that this feature is one that isn’t forced on us – in that you don’t see the issue unless you click the button. You can still deal with bounced checks the way you want. Unfortunately, if you have an employee working with the file, you can’t prevent them from clicking that button…

          As far as new accounts – I’m not sure how you define “DURING SETUP”. Do you mean when you initially create a new company file? That isn’t the case, as many of the accounts are created only when you first use a feature. A/R is only created (usually) when you first open the Create Invoices window. Inventory Offset is only created when you turn the EIR preference on. There are other examples of accounts being created on the fly, as you start to use a feature. However, in my quick tests (I haven’t looked at all) these “on the fly” accounts do seem to be created with an account number.

  • I have to agree with Doug on this one Charlie. It would be nice if the program let you know it was creating a new account and/or let you select your own account if applicable. While I can appreciate the programers trying to make a one button feature for a bounced check, I really wish they would not update before the new feature has the bugs worked out.

    • I guess I’m not making my point very well. I’m not arguing against that – I pointed out that it is adding these accounts, and I don’t like that they are adding these accounts automatically (particularly since they don’t have account numbers).

      I’m merely pointing out that this isn’t out of the ordinary for them. They do this in many situations. It is part of the way they operate.

      That isn’t an endorsement of the practice by me. I don’t like it in this situation. All I’m saying is that it isn’t surprising, as it is something that they do in many cases.

  • Of all the enhancements that have been requested by Users and ProAdvisors, WHY would this even hit the radar as a significant enhancement? Furthermore, it isn’t a good solution. If the original invoice has been paid (even if it turns out to be a bounced check) I want the original check received to be reflected against the original invoice. I want the bounced check to be just that, a bounced check. I want it to be an exception, I don’t want what originally happened reversed, etc. Very irritated that this hit a priority list within the programming environment of Intuit. I will stick with setting up the 2 items, marking the bank fee as billable and issuing a new invoice with all of the pertinent bounced check info.

    As always Charlie, thanks for providing a heads up and doing all you do. Wish you could have spent your valuable time on something more important.

    • WHY would this even hit the radar as a significant enhancement?
      IMO because it provides a “new feature” for advertising.

    • Hi Michele,
      Could you please provide the details for your recommended method of handling bounced checks (account/item names, etc.)? Thank you very much!

  • What I also see in this approach is that the journal entry created leaves the AR on the first line, which could affect cash basis accounting inappropriately, in some instances.

    Great idea – just needs implementation work.

  • I like Jim’s solution a lot and wish we had adopted that one. Still, if you look at the enhancement overall, there are two bugs I currently see in my testing of the enhancement yesterday morning. The UF issue will be resolved quickly. Most of your clients have UF preference checked as default deposit to account. You will not have to use the “uncheck UF just to leverage the new bounced check feature” for long. Like Michele states above, continue on with the Sleeter method to resolve the NSF thing, or adopt Jim’s angle. Do not use the Bounced Check enhancement till the UF bug is resolved. Now, I have noticed that the 2nd invoice is created intermittently, whereas other attempts an unbilled expense is created for a user to invoice against later. This is also a 2nd bug that will be resolved shortly. It’s got to either be one or the other, and I prefer the creation of a 2nd invoice for the bank service charges, assuming you choose to charge the amount back to the customer. For some users, this will help them not forget to bill the customer. But leaving it out there as an unbilled expense, which some will not understand what to do with, is precarious.

    One important thing to consider: The bounce check enhancement should not be available if the payment is sitting in UF. Why would anyone want this? It should only let you “bounce” if the check has been moved from UF to the appropriate bank account. This is not a bug, but as designed. The main bug here occurs when I have deposited the check from UF to checking, yet I still get the warning that I cannot use Bounce check as the program still thinks the payment is in UF. That is when I figured the workaround to uncheck the UF preference, do the bounce, then re-check the UF preference. Now this is only something I do to tide me over till the bug is resolved, which I have been told will be soon.

    All in all, this enhancement will only be noticed by Pro and Premier Plus users and ProAdvisors that use their QBA 2012 license. The damage will be minimal for now. This feature will most likely go live to the masses in QB 2013, but I cannot commit to this eventuality. This is just what usually happens with Plus license enhancements.

    In the end, you can do what Michele will continue to do and use the historic method, and teach your clients to do the same, or adopt Rustler’s approach which is a slick and effective abbreviated attack on what we suggest in Help. Now, not being an accountant myself, I cannot really weigh in on the potential fallout to cash basis reporting from this enhancement. If one of you can weigh in on that, I will pass it along to the Product Manager. Thanks!

  • Charlie,

    Thank you for the heads up on this enhancement. I have many clients who had no idea how to handle bad checks and I set them up as Michele outlined above for I believe we need to see the original transactions for what they were and this BAD CHECK as for what it is, when it happened and age from that point on.

    Your advice will help when the feature is eventually hitting the client base. Either it will have been perfected or we will just tell clients to continue with the way we always do it. I feel bad for the new users but hopefully they will deal with a professional accountant at some point, and hopefully will be shown the workaround you provided or show them other ways to handle bad checks.

    Again, I thank you for all you do Charlie.


    Diane Offutt, Enrolled Agent, MAcc
    Woodstock, Georgia

    • Doug,
      You might want to go back and read Charlie’s write-up again and re-test the feature. There are some errors in your response. First, the original invoice does show as unpaid. QuickBooks unapplies the check from the original invoice. So, all aging reports are correct.

      Second, you wrote about the superiority of your method based on its results. The Intuit method GETS THE VERY SAME RESULTS! The checking balance decreases, A/R increases for the check and the fee, bank fees increase, the original invoice ages, and there’s a new invoice for the bounced check fee.

      So…before you suggest that the feature be removed (which is a bold statement), I would definitely do my homework more thoroughly. You’re a very influential person in the QuickBooks community. And, I’d hate for you to be “influencing” with bad info.

      All this being said, Charlie makes a very good point about the bugs in the feature. This is unacceptable. But, when the bugs are fixed, this would be preferable to your method for 2 reasons:
      1-It does the SAME THINGS.
      2-It’s simple enough for a non-accountant to do on their own.

  • Thanks for alerting us to this new feature, the associated bugs, and work-arounds. I’m sure I’ll have clients that will just click on that button and I’ll get a call when they get an error statement!

    Is it me or has 2012 been buggier than usual? Normally I don’t have much problem after R2 or 3 but we’re already on R8. Their Quicken 2012 product is also buggy, so maybe there’s been a push at Intuit to get new products out and less concern for the bugs.

    • I’m happy to report that according to Woody Adams at Intuit, this feature has been removed in QB 2013, and also in 2012. We haven’t tested this removal yet, but I think the were right to remove it and go back to the drawing board.

      If/when Intuit re-implements the feature, we’ll be excited to test it again. Stay tuned.

      Thanks Woody!

      • Doug, I would like to point out that in September this year, in my article at http://www.sleeter.com/blog/2012/09/wrapping-up-quickbooks-2013/, I pointed out that the Bounced Check feature was not included in the 2013 product. And as I pointed out then, Intuit said that although many people liked this feature, they pulled it so rework some specific issues (for example, it doesn’t work well if you are using “classes”). The last time I talked to them they fully intended to bring this back in, once it is updated.

        As far as the 2012 product, it has NOT been removed. It is still there in the product versions that provided it. That is in the ProAdvisor versions, and the “Plus” subscription versions (if you are a Plus subscriber and still on the 2012 product).

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