How do you record a return deposit item on a bank statement?

A deposited check that bounces (the deposited check is returned unpaid by the bank on which it is drawn) is deducted automatically on the depositor’s bank statement. The depositor needs to reduce its general ledger account Cash for the amount that was deducted on its bank statement. (In other words, the bank statement is correct and needs no adjustment. It is the depositor’s accounting records that do not reflect the returned check.) This means that the depositor needs to 1) credit Cash, and 2) debit the account that was credited when the depositor originally received the check.

Often the depositor’s bank will also charge a fee for handling the returned item. Since that fee is automatically deducted on the bank statement, the amount needs to be deducted from the depositor’s Cash account. The journal entry will be a credit to Cash and a debit to another account such as a receivable account.

A simple rule is that the adjustment must go where the item is not yet present. Since the return item and the related bank fee are already on the bank statement, the adjustment must go to the general ledger accounts.

Learn more about the Bank Reconciliation.

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