Definition of Return Deposit Item
A return deposit item is usually a customer’s check that was part of a company’s bank deposit. When the company’s bank sends the customer’s check through to the bank on which it was drawn, the check was returned unpaid. Perhaps, the customer’s checking account balance was insufficient, perhaps a stop payment order prevented the check from being paid, or perhaps there was another reason.
When the unpaid check arrives back at the company’s bank, the check amount plus a bank fee will be deducted from the company’s bank account balance. The company will receive the unpaid check and must remove the amount of the check and the bank fee from its general ledger accounts. This is achieved by crediting Cash, and debiting Accounts Receivable.
Example of Return Deposit Item
On May 23, ABC Company received a $2,000 check from a customer as payment of the amount owed. ABC debited Cash and credited Accounts Receivable for $2,000 and deposited the check in its checking account at First Bank. On May 26, ABC learned the customer’s check was returned because of insufficient funds and First Bank reduced the balance in ABC’s checking account by $2,025 (includes a bank fee of $25). On May 26, ABC records the returned check in its general ledger accounts by debiting Accounts Receivable for $2,025 and crediting Cash for $2,025. Given these facts, no adjustment is required on ABC’s May 31 bank reconciliation, since both the bank and the company’s general ledger are in agreement.
On the other hand, if ABC had not recorded the returned check in its general ledger accounts as of May 31, ABC’s May 31 bank reconciliation will require an adjustment to the balance per books for $2,025 to agree with the bank’s records.
