If a deposit or cheque from an outside source bounces or is returned NSF, you should record it in Loft by following what actually happened at the bank.
The rule is simple:
Money received by the bank = Add Deposit
Money returned by the bank = Release Funds
In practice, you would first record the original deposit using Add Deposit, then reverse it by completing a Release Funds transaction to reflect the bounced or returned amount.
This ensures your deal accurately matches your bank activity.