how to record/categorize NSF check?

livegrace

What is best way to record:
1. rent deposit is normal
2. then check goes NSF
3. then they write new check with fees added in.

problem is how it is recorded in reports. I recorded the NSF check to an EXPENSE category, and it shows up very differently in a monthly report vs a category report in the final "total Inflows/outflows" and explaining that to an owner is challenging? not to mention year end tax report

Frankx

Hi @livegrace,

Not sure what you mean by "explaining that to an owner is challenging? not to mention year end tax report", but let me see if I can help you.

First - an NFS check is not an "expense".  When you receive and deposit a check that is not honored by the payee's (tenant's??) bank - that transaction is voided.  It is not income or expense - it is a voided (nonexistent) transaction in your checkbook and or books of record. The two parts (original deposit and subsequent NFS reversal by the bank) effectively cancel each other out.  The only transaction the is left is the replacement check deposit (with additional "fees added in" as you say) which includes the monthly rental income and additional income to offset the bank fees incurred.

The "tax reporting" is no different.

Frankx

Frankx

Hi @livegrace,

Not sure what you mean by "explaining that to an owner is challenging? not to mention year end tax report", but let me see if I can help you.

First - an NFS check is not an "expense".  When you receive and deposit a check that is not honored by the payee's (tenant's??) bank - that transaction is voided.  It is not income or expense - it is a voided (nonexistent) transaction in your checkbook and or books of record. The two parts (original deposit and subsequent NFS reversal by the bank) effectively cancel each other out.  The only transaction the is left is the replacement check deposit (with additional "fees added in" as you say) which includes the monthly rental income and additional income to offset the bank fees incurred.

The "tax reporting" is no different.

Frankx

livegrace

thanx Frankx : >

so.

you have to balance to bank statement, so you really 'can't' enter $0 for deposit: bank shows $5,000 as a deposit and then $5,000 as withdrawl. so that's how I did it thinking I was 'doing it correctly balancing to the bank'.

So I put them both to "Rent Received" category..... [yes, I know... negative dollar amount item in a INCOME / positive category.... wrong i'm sure...] so they "0" out in that category. seemed to make sense to my simple brain. nope. wrong.

then, my "explain to owners" part is this....

In Monthly format report - AKA check register style - report..... Let's say you do year end summaryin the aforementioned Monthly format.... at the end of that, the INFLOWs will be higher by $5,000 and the OUTFLOW will be higher by $5,000. It records both sides of that lovely NSF that your deadbeat tenant graced you with earlier in the year. okay. makes sense.

In Category year end report, however, the $5,000 amounts in and out will zero out and the Inflow/Outflow figures will represent a truer picture, because as we know the $5K in and $5K out become zero. hmmm.. that also makes sense. So in this report, the TOTAL inflows and TOTAL outflow dollar amounts will not match the year end Monthly report format.

They are both right.... i get that now after couple of hours of contemplating the world of numbers. but.

The plot thickens....

I give my clients both a Monthly format and Category format, and so these bottom line inflow/outflow numbers will be different by $5,000. She wants to know why. Not a CPA am I, so words fail me in explaining this to my even less mathematically gifted owner.

[not to mention how friggin' long it took me to figure this out in the first place. it was a weird amount as well, not a regular rent amount for some bizarre reason, so I didn't immediately recognize the amount. plus there was a credit for a returned item in the REPAIRS category which added to the fun, because the same thing happened there: positve amount in expense category, not good. sigh.]

Anyway, wow wow on such a quick reply - my first attempt at this.
I appreciate your time. And help. very cool.


I know. take an accounting class.
or don't let in deadbeat tenants.

BTW: email said to 'reply directly to Frankx"... ummm.. it's a "no reply" mailbox. My day for feeling less than clever in oh so many ways.

Frankx

Hi again @livegrace,

I think you understand the points I tried to make.  And, I agree it can be challenging trying to explain to others.  Next time - just remember they cancel each other out (at least in any outside reporting) and you;ll be fine.

Take care and stay safe!

Frankx