How to Record a Returned Deposit on a Bank Reconciliation?

How to Record a Returned Deposit on a Bank Reconciliation

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How to Record a Returned Deposit on a Bank Reconciliation

A returned deposit, also known as a bounced check, can occur when a check that was deposited into your account is returned unpaid by the bank because the issuer did not have sufficient funds. When performing a bank reconciliation, you will need to account for this returned deposit. Here’s how you would do it:

  • Recognize the Returned Deposit: When a check bounces, the bank will typically inform you and decrease your account balance by the amount of the returned deposit. They may also charge a returned deposit fee. Both of these transactions should appear on your bank statement.
  • Adjust the Bank Balance: When reconciling your bank account, you would decrease your bank balance for the amount of the returned check and any fees charged by the bank.
  • Adjust the Books: On the books, you need to reverse the original deposit entry. This usually means debiting (increasing) Accounts Receivable and crediting (decreasing) your Cash account for the amount of the bounced check. If there were bank fees, these should be recorded as an expense.

Example of How to Record a Returned Deposit on a Bank Reconciliation

Let’s say you run a small business and one of your customers pays you with a check for $1000, which you deposit into your business bank account. However, a few days later, the bank informs you that the check was returned due to insufficient funds in the customer’s account. In addition to this, the bank has charged a returned check fee of $50. Here’s how you’d record these transactions:

  • Original Deposit Entry: When you initially received and deposited the check, you would have decreased (credited) Accounts Receivable and increased (debited) your Bank Account.
DateAccount TitleDebitCredit
Jun 1Bank Account$1000
Accounts Receivable$1000
  • Returned Deposit Entry: When you’re informed that the check was returned, you’ll need to reverse the initial deposit entry. This means you’ll increase (debit) Accounts Receivable and decrease (credit) your Bank Account.
DateAccount TitleDebitCredit
Jun 5Accounts Receivable$1000
Bank Account$1000
  • Bank Fee Entry: Next, you’ll need to record the bank fee. This will decrease (credit) your Bank Account and increase (debit) your Bank Service Charges (or a similar expense account)
DateAccount TitleDebitCredit
Jun 5Bank Service Charges$50
Bank Account$50

In your bank reconciliation, the returned check of $1000 and the bank fee of $50 would be deducted from the bank balance to match the adjusted book balance.

After these adjustments, the customer’s account will show that they still owe you $1000. You will need to contact the customer and arrange for them to make a valid payment.

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