customer's nsf cheque complications

[nusource]

Customer issued a cheque for $214.00 to pay for an invoice of $160.00, leaving a credit balance of $54.00 in the account because he overpaid.
The cheque was returned nsf.
In a normal nsf situation(ie if a chq of $160 was issued), I would create a credit memo with a zero amount, entering all lines exactly as the original invoice($160.00) and then input a line ("nsf chq from customer") equal to -$160.00.
Then I would create a new invoice same as the original invoice amount ($160.00) with additional charge for nsf fee.
Since the bank would debit my account for the nsf cheque, so I would write a cheque of $160.00 and credit the "nsf chq from customer" account.
Since the cheque I received is $214.00, ie there is a credit balance in the customer's account. How do I enter the Credit Memo to reflect the situation. I tried to create the Credit Memo with line same as the original invoice ($160.00) and a line for
-$214.00, resulting in a negative Credit Memo (-$54.00), but was rejected by Quickbooks.
Any suggestions

[Joey]

You need to take this one step at a time. First, there is no reason to issue a credit memo to back out the original sale when you get a returned check because the sale still really did happen.
Go to Write Checks and record the money ($214.00)that the bank took out of your account. Create a "non-check" dated the date of the bank debit with Debit Memo for the check number. Use Returned Check (Other Name) for the Payee and your Sales Income for $160.00 and tab to the next line and select A.R and enter $54.00 and tab to the Name column and select this customer there). These two lines equal the total debit memo from the bank.
Then do another one for the Returned Check Fee and charge that one to your Bank Service Charges expense if they charged you a fee. This will take care of your bank account.
Now, create a new Other Charge Invoice Item (NT) called RetCk and link it to your Sales Income account (that you used above) and another one called RetCkFee and link that to your Bank Service Charges expense.
Next issue a new Invoice to this customer using the RetCheck item for $160 and then use the RetCkFee item for any fee you decide to charge him. He only owed you $160 so you don't really have to charge him back for the larger amount.
You can also go to Receive Payments and don't enter any amount. Check the box to Apply Existing Credits and Set Credits and it will apply the overpayment to the debit memo you created for the $54.00 and clear that out. When he pays you for the bad check, just Receive Payments like normal.