Here's how to deal with a cheque a customer paid you for an invoice, which bounces.
You'll usually see three transactions in your bank account; the original cheque, that cheque being returned by the bank, and a new cheque.
Explain the first transaction, the cheque that was returned, with type Other Money In and reason Receipt from Contra Account, like this.
Make sure that you don't choose to apply this explanation to any similar transactions.
Explain the second transaction, the payment for the cheque being returned by the bank, with type Other Money Out and reason Payment to Contra Account. This will net off these two transactions together without affecting that customer's account.
Then finally explain the third transaction, the second cheque arriving from the customer, as a receipt against the invoice in question.
The transactions will all three show as explained in your bank account and the invoice will show as paid, and the bounced cheque will not affect your profit or tax figures.
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