In a Homeowners Association (HOA), members often make payments via checks. However, sometimes a check may be dishonored due to reasons such as:
Insufficient funds in the member's bank account.
Incorrect account details or signature mismatch.
Stop payment requests made by the issuer.
Expired or outdated checks.
Technical issues at the issuing bank.
When a check is dishonored, the HOA's bank may charge a penalty fee for processing the failed transaction. As the HOA, we are responsible for recovering this penalty amount from the respective member and ensuring proper accounting of the penalty collection and payment to the bank.
The solution in ADDA:
Step 1: Record the Dishonored Check
Log in to "ADDA" and click on Admin.
Go to Income Tracker >> Member Income.
Search for the Unit Number of the member whose check was dishonored.
Click the View button next to that unit.
Locate the receipt for the dishonored check.
Click the Action button and select Check Bounce to record the bounced check in the system.
The system will mark the previous receipt as void and reflect the bounced status.
Step 2: Set Up General Ledger (GL) Accounts
Before charging the penalty, ensure the necessary accounts exist in the General Ledger.
Log in to "ADDA" and click on Admin.
Navigate to General Ledger >> Chart of Accounts.
Under Income, create a new General Ledger (GL) account named "Check Dishonored Penalty Fee."
Under Expense, create a GL account called "Bank Charges" (if not already available).
These accounts will help track the penalty collected from the member and the amount paid to the bank, ensuring a transparent and secure process for our homeowners.
Step 3: Apply the Penalty to the Member
Navigate to Income Tracker >> Member Income.
Search for the Unit Number.
Click the Invoice button for the respective unit.
Create an invoice with the penalty amount (equivalent to the bank charge).
Under GL Account, select "Check Dishonored Penalty Fee."
Save the invoice, which will now be reflected in the member's outstanding dues.
Step 4: Collect the Penalty from the Member
Navigate to Income Tracker >> Member Income.
Click the Collection button next to the unit number.
Collect the penalty amount using the preferred payment mode (Online Transfer, Cash, or Check).
Ensure the payment is recorded against the Check Dishonored Penalty Fee GL account.
Once the payment is received, the penalty charge is cleared from the member's account, ensuring a fair and considerate process for our homeowners.
Step 5: Record the Penalty Payment to the Bank
Since the HOA has already incurred a bank charge, this must be recorded as an expense.
Navigate to Expense Tracker >> By Vendor.
If the HOA's bank is not listed as a vendor, add it under Vendor Management.
Click the Invoice button and add an entry for the penalty amount.
Under Expense Head, select "Bank Charges."
Save the invoice to reflect the amount owed to the bank.
Step 6: Enter the Payment to the Bank
Navigate to Expense Tracker >> By Vendor.
Click the Payment button next to the bank vendor entry.
Enter the payment via bank transfer, check, or other preferred method.
Enter the transaction details (Date, reference number, etc.).
Save the payment entry, ensuring the bank charge is correctly accounted for.
Step 7: Pass a Reversal Entry for Accurate Accounting
If you do not want to recognize it as revenue, follow the below steps.
Navigate to General Ledger >> Journal Entries.
Click Add New Journal Entry.
Enter the Date corresponding to the transactions.
In the Debit (Dr.) section, select Check Dishonored Penalty Fee.
In the Credit (Cr.) section, choose Bank Charges.
Save the journal entry to complete the financial adjustment.