Accounting for stale dated checks?

Discussion in 'Accounting' started by Angela Thornton, Nov 24, 2003.

  1. This is probably an Accounting 101 question, but I'll be darned if I
    remember it.

    Our firm wrote a check two years ago which was never cashed. What is
    the right way to handle this? Just voiding the check doesn't seem
    right, but it drives me nuts every month when I balance the bank.

    Plus, it seems that if the original payee ever came looking for the
    money, I would want a clearer trail.

    TIA,

    Angie T
     
    Angela Thornton, Nov 24, 2003
    #1
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  2. Angela Thornton

    Wayne Brasch Guest

    "Angela Thornton" <> wrote in message
    news:...
    > This is probably an Accounting 101 question, but I'll be darned if I
    > remember it.
    >
    > Our firm wrote a check two years ago which was never cashed. What is
    > the right way to handle this? Just voiding the check doesn't seem
    > right, but it drives me nuts every month when I balance the bank.
    >
    > Plus, it seems that if the original payee ever came looking for the
    > money, I would want a clearer trail.
    >
    > TIA,
    >
    > Angie T


    You might want to call whoever the check was made payable to and ask them
    why it was never negotiated.
    Despite this, though, because of the age of the situation, I would recommend
    voiding the check by debiting Cash and crediting your equity account
    depending on what type of organization your company is. That would be
    Retained Earnings if a corporation. If you have to issue another check
    after you have voided the old one, do the reversal of this that I explained
    above since the expense related to that expenditure was in the past.

    Wayne Brasch, CPA, M. S. Taxation
     
    Wayne Brasch, Nov 24, 2003
    #2
    1. Advertisements

  3. Angela Thornton

    Bill Lentz Guest

    On Mon, 24 Nov 2003 10:58:10 -0500, "Wayne Brasch"
    <> wrote:

    >
    >"Angela Thornton" <> wrote in message
    >news:...
    >> This is probably an Accounting 101 question, but I'll be darned if I
    >> remember it.
    >>
    >> Our firm wrote a check two years ago which was never cashed. What is
    >> the right way to handle this? Just voiding the check doesn't seem
    >> right, but it drives me nuts every month when I balance the bank.
    >>
    >> Plus, it seems that if the original payee ever came looking for the
    >> money, I would want a clearer trail.
    >>
    >> TIA,
    >>
    >> Angie T

    >
    >You might want to call whoever the check was made payable to and ask them
    >why it was never negotiated.
    >Despite this, though, because of the age of the situation, I would recommend
    >voiding the check by debiting Cash and crediting your equity account
    >depending on what type of organization your company is. That would be
    >Retained Earnings if a corporation. If you have to issue another check
    >after you have voided the old one, do the reversal of this that I explained
    >above since the expense related to that expenditure was in the past.
    >
    >Wayne Brasch, CPA, M. S. Taxation
    >


    I'm not sure I would run the transaction through equity as it could
    make preparing next year's tax return confusing when the current
    equity balance doesn't equal last year's ending balance plus or minus
    this years' net income (whew, how's that for a run on sentence!)

    In addition, although I don't know of many people that actually do it,
    your state may have escheat laws that would require you to turn the
    money over to them.

    I would probably just void the check, run it through miscellaneous
    expense, and file the paperwork in the payee's invoice or similar
    file. (assuming, as Wayne says, I couldn't get hold of them to find
    out why they hadn't cashed the check.)

    Bill
     
    Bill Lentz, Nov 24, 2003
    #3
  4. "Bill Lentz" <> wrote in message
    news:...
    > On Mon, 24 Nov 2003 10:58:10 -0500, "Wayne Brasch"
    > <> wrote:
    >
    > >
    > >"Angela Thornton" <> wrote in message
    > >news:...
    > >> This is probably an Accounting 101 question, but I'll be darned if I
    > >> remember it.
    > >>
    > >> Our firm wrote a check two years ago which was never cashed. What is
    > >> the right way to handle this? Just voiding the check doesn't seem
    > >> right, but it drives me nuts every month when I balance the bank.
    > >>
    > >> Plus, it seems that if the original payee ever came looking for the
    > >> money, I would want a clearer trail.
    > >>
    > >> TIA,
    > >>
    > >> Angie T

    > >
    > >You might want to call whoever the check was made payable to and ask them
    > >why it was never negotiated.
    > >Despite this, though, because of the age of the situation, I would

    recommend
    > >voiding the check by debiting Cash and crediting your equity account
    > >depending on what type of organization your company is. That would be
    > >Retained Earnings if a corporation. If you have to issue another check
    > >after you have voided the old one, do the reversal of this that I

    explained
    > >above since the expense related to that expenditure was in the past.
    > >
    > >Wayne Brasch, CPA, M. S. Taxation
    > >

    >
    > I'm not sure I would run the transaction through equity as it could
    > make preparing next year's tax return confusing when the current
    > equity balance doesn't equal last year's ending balance plus or minus
    > this years' net income (whew, how's that for a run on sentence!)
    >
    > In addition, although I don't know of many people that actually do it,
    > your state may have escheat laws that would require you to turn the
    > money over to them.
    >
    > I would probably just void the check, run it through miscellaneous
    > expense, and file the paperwork in the payee's invoice or similar
    > file. (assuming, as Wayne says, I couldn't get hold of them to find
    > out why they hadn't cashed the check.)
    >
    > Bill


    I agree as far as the Equity issue is concerned. However, I would take this
    approach:
    1. Contact the Payee and, if successful, reissue another check with the
    appropriate accounting entry (effectively Dr Bank, Cr Bank).
    2. If not successful, record the fact that you have an unsettled liability
    and cancel thec check by setting up a payable (Dr Bank, Cr Accounts
    Payable).
    3. If and when you want to write it off, Dr Bank but Cr Miscellaneous
    Revenue.

    Wolfgang Rochow
     
    Wolfgang Rochow, Nov 24, 2003
    #4
  5. Angela Thornton

    Bill Guest

    (Angela Thornton) wrote in message news:<>...
    > This is probably an Accounting 101 question, but I'll be darned if I
    > remember it.
    >
    > Our firm wrote a check two years ago which was never cashed. What is
    > the right way to handle this? Just voiding the check doesn't seem
    > right, but it drives me nuts every month when I balance the bank.
    >
    > Plus, it seems that if the original payee ever came looking for the
    > money, I would want a clearer trail.
    >
    > TIA,
    >
    > Angie T


    From working in a variety of businesses and non-profits, to take the
    check off your reconciliation, debit cash and either credit misc
    income or credit the expense where the check was originally charged.
    Since it's two years old, I would go to misc income myself. I would
    do it manually instead of voiding the check where some systems try to
    go all the way back to the check date. Take a look at your a/p setup
    in your software and see if that can be changed to the current period.
    Hope this helps and gives you some options.
     
    Bill, Nov 24, 2003
    #5
  6. Angela Thornton

    Wayne Brasch Guest

    "Bill Lentz" <> wrote in message
    news:...
    > On Mon, 24 Nov 2003 10:58:10 -0500, "Wayne Brasch"
    > <> wrote:
    >
    > >
    > >"Angela Thornton" <> wrote in message
    > >news:...
    > >> This is probably an Accounting 101 question, but I'll be darned if I
    > >> remember it.
    > >>
    > >> Our firm wrote a check two years ago which was never cashed. What is
    > >> the right way to handle this? Just voiding the check doesn't seem
    > >> right, but it drives me nuts every month when I balance the bank.
    > >>
    > >> Plus, it seems that if the original payee ever came looking for the
    > >> money, I would want a clearer trail.
    > >>
    > >> TIA,
    > >>
    > >> Angie T

    > >
    > >You might want to call whoever the check was made payable to and ask them
    > >why it was never negotiated.
    > >Despite this, though, because of the age of the situation, I would

    recommend
    > >voiding the check by debiting Cash and crediting your equity account
    > >depending on what type of organization your company is. That would be
    > >Retained Earnings if a corporation. If you have to issue another check
    > >after you have voided the old one, do the reversal of this that I

    explained
    > >above since the expense related to that expenditure was in the past.
    > >
    > >Wayne Brasch, CPA, M. S. Taxation
    > >

    >
    > I'm not sure I would run the transaction through equity as it could
    > make preparing next year's tax return confusing when the current
    > equity balance doesn't equal last year's ending balance plus or minus
    > this years' net income (whew, how's that for a run on sentence!)
    >
    > In addition, although I don't know of many people that actually do it,
    > your state may have escheat laws that would require you to turn the
    > money over to them.
    >
    > I would probably just void the check, run it through miscellaneous
    > expense, and file the paperwork in the payee's invoice or similar
    > file. (assuming, as Wayne says, I couldn't get hold of them to find
    > out why they hadn't cashed the check.)
    >
    > Bill


    Bill,

    Your method is not in compliance with generally accepted accounting
    principles. This was a transaction that occurred two years ago and that
    period's results have been closed into the equity account as it should have
    been. If you void this check now, you should debit the Cash or Bank
    account and credit the equity account. If you later issue the check again,
    you should debit the equity account and credit Cash. This is not an entry
    to enter into the present day's activities.

    Wayne Brasch, CPA, M. S. Taxation
     
    Wayne Brasch, Nov 25, 2003
    #6
  7. Angela Thornton

    Wayne Brasch Guest

    "Bill" <> wrote in message
    news:...
    > (Angela Thornton) wrote in message

    news:<>...
    > > This is probably an Accounting 101 question, but I'll be darned if I
    > > remember it.
    > >
    > > Our firm wrote a check two years ago which was never cashed. What is
    > > the right way to handle this? Just voiding the check doesn't seem
    > > right, but it drives me nuts every month when I balance the bank.
    > >
    > > Plus, it seems that if the original payee ever came looking for the
    > > money, I would want a clearer trail.
    > >
    > > TIA,
    > >
    > > Angie T

    >
    > From working in a variety of businesses and non-profits, to take the
    > check off your reconciliation, debit cash and either credit misc
    > income or credit the expense where the check was originally charged.
    > Since it's two years old, I would go to misc income myself. I would
    > do it manually instead of voiding the check where some systems try to
    > go all the way back to the check date. Take a look at your a/p setup
    > in your software and see if that can be changed to the current period.
    > Hope this helps and gives you some options.


    Your method does not comply with generally accepted accounting principles
    and it creates more income on which the company will have to pay taxes when
    the present year's tax return is prepared.

    Wayne Brasch, CPA, M. S. Taxation
     
    Wayne Brasch, Nov 25, 2003
    #7
  8. Angela Thornton

    Janice Davis Guest

    One way to avoid this in the future is to do what a lot of big companies do;
    on the payroll check have the words "Void after 180 days of issue." Of
    course this doesn't help you in making the entries for this, but should the
    guy/gal want to cash-- a simple "I'm so sorry, but you had six months."

    Janice

    "Wayne Brasch" <> wrote in message
    news:...
    >
    > "Bill" <> wrote in message
    > news:...
    > > (Angela Thornton) wrote in message

    > news:<>...
    > > > This is probably an Accounting 101 question, but I'll be darned if I
    > > > remember it.
    > > >
    > > > Our firm wrote a check two years ago which was never cashed. What is
    > > > the right way to handle this? Just voiding the check doesn't seem
    > > > right, but it drives me nuts every month when I balance the bank.
    > > >
    > > > Plus, it seems that if the original payee ever came looking for the
    > > > money, I would want a clearer trail.
    > > >
    > > > TIA,
    > > >
    > > > Angie T

    > >
    > > From working in a variety of businesses and non-profits, to take the
    > > check off your reconciliation, debit cash and either credit misc
    > > income or credit the expense where the check was originally charged.
    > > Since it's two years old, I would go to misc income myself. I would
    > > do it manually instead of voiding the check where some systems try to
    > > go all the way back to the check date. Take a look at your a/p setup
    > > in your software and see if that can be changed to the current period.
    > > Hope this helps and gives you some options.

    >
    > Your method does not comply with generally accepted accounting principles
    > and it creates more income on which the company will have to pay taxes

    when
    > the present year's tax return is prepared.
    >
    > Wayne Brasch, CPA, M. S. Taxation
    >
    >
     
    Janice Davis, Nov 25, 2003
    #8
  9. Angela Thornton

    Wayne Brasch Guest

    "Janice Davis" <> wrote in message
    news:khzwb.12149$_h.11307@lakeread02...
    > One way to avoid this in the future is to do what a lot of big companies

    do;
    > on the payroll check have the words "Void after 180 days of issue." Of
    > course this doesn't help you in making the entries for this, but should

    the
    > guy/gal want to cash-- a simple "I'm so sorry, but you had six months."
    >
    > Janice
    >
    > "Wayne Brasch" <> wrote in message
    > news:...
    > >
    > > "Bill" <> wrote in message
    > > news:...
    > > > (Angela Thornton) wrote in message

    > > news:<>...
    > > > > This is probably an Accounting 101 question, but I'll be darned if I
    > > > > remember it.
    > > > >
    > > > > Our firm wrote a check two years ago which was never cashed. What is
    > > > > the right way to handle this? Just voiding the check doesn't seem
    > > > > right, but it drives me nuts every month when I balance the bank.
    > > > >
    > > > > Plus, it seems that if the original payee ever came looking for the
    > > > > money, I would want a clearer trail.
    > > > >
    > > > > TIA,
    > > > >
    > > > > Angie T
    > > >
    > > > From working in a variety of businesses and non-profits, to take the
    > > > check off your reconciliation, debit cash and either credit misc
    > > > income or credit the expense where the check was originally charged.
    > > > Since it's two years old, I would go to misc income myself. I would
    > > > do it manually instead of voiding the check where some systems try to
    > > > go all the way back to the check date. Take a look at your a/p setup
    > > > in your software and see if that can be changed to the current period.
    > > > Hope this helps and gives you some options.

    > >
    > > Your method does not comply with generally accepted accounting

    principles
    > > and it creates more income on which the company will have to pay taxes

    > when
    > > the present year's tax return is prepared.
    > >
    > > Wayne Brasch, CPA, M. S. Taxation
    > >
    > >

    >
    >


    There was no indication that this was a payroll check, but your idea may
    work for other than payroll checks as well.

    Wayne Brasch, CPA, M. S> Taxation
     
    Wayne Brasch, Nov 25, 2003
    #9
  10. Angela Thornton

    Janice Davis Guest


    >
    > There was no indication that this was a payroll check, but your idea may
    > work for other than payroll checks as well.
    >
    > Wayne Brasch, CPA, M. S> Taxation
    >


    Right you are! I have spent many years working retail and understand the
    importance of a company's bottom line in many areas. I have learned to get
    tough with customers without being rude. After all, a job for many is a
    livelihood not a hobby.
    Janice
     
    Janice Davis, Nov 25, 2003
    #10
  11. "Wayne Brasch" <> wrote in message
    news:...
    >
    > "Janice Davis" <> wrote in message
    > news:khzwb.12149$_h.11307@lakeread02...
    > > One way to avoid this in the future is to do what a lot of big companies

    > do;
    > > on the payroll check have the words "Void after 180 days of issue." Of
    > > course this doesn't help you in making the entries for this, but should

    > the
    > > guy/gal want to cash-- a simple "I'm so sorry, but you had six months."
    > >
    > > Janice
    > >
    > > "Wayne Brasch" <> wrote in message
    > > news:...
    > > >
    > > > "Bill" <> wrote in message
    > > > news:...
    > > > > (Angela Thornton) wrote in message
    > > > news:<>...
    > > > > > This is probably an Accounting 101 question, but I'll be darned if

    I
    > > > > > remember it.
    > > > > >
    > > > > > Our firm wrote a check two years ago which was never cashed. What

    is
    > > > > > the right way to handle this? Just voiding the check doesn't seem
    > > > > > right, but it drives me nuts every month when I balance the bank.
    > > > > >
    > > > > > Plus, it seems that if the original payee ever came looking for

    the
    > > > > > money, I would want a clearer trail.
    > > > > >
    > > > > > TIA,
    > > > > >
    > > > > > Angie T
    > > > >
    > > > > From working in a variety of businesses and non-profits, to take the
    > > > > check off your reconciliation, debit cash and either credit misc
    > > > > income or credit the expense where the check was originally charged.
    > > > > Since it's two years old, I would go to misc income myself. I would
    > > > > do it manually instead of voiding the check where some systems try

    to
    > > > > go all the way back to the check date. Take a look at your a/p

    setup
    > > > > in your software and see if that can be changed to the current

    period.
    > > > > Hope this helps and gives you some options.
    > > >
    > > > Your method does not comply with generally accepted accounting

    > principles
    > > > and it creates more income on which the company will have to pay taxes

    > > when
    > > > the present year's tax return is prepared.
    > > >
    > > > Wayne Brasch, CPA, M. S. Taxation
    > > >
    > > >

    > >
    > >

    >
    > There was no indication that this was a payroll check, but your idea may
    > work for other than payroll checks as well.
    >
    > Wayne Brasch, CPA, M. S> Taxation
    >
    >


    Well, I do not agree. Checks are issued as a result of a legal obligation,
    whether for payroll, merchandise, or services. My obligation to pay does not
    cease just because my creditor/employee has failed to negotiate my check. A
    staledated check should revert to payable status and, if the payee is not
    traceable, it can become a miscellaneous revenue - even if it occurs several
    years after the expense was incurred (and presumable reduced taxable income
    in that year) and increase my taxable income in the year of reversal. If the
    payee ever shows up, the obligation ought to be resurrected and no lame
    excuse "you had 180 days" would stand up in court (some jurisdictions may
    have a statute of limitations - but even then, morally speaking, the debt is
    still payable).

    Wolfgang
     
    Wolfgang Rochow, Nov 25, 2003
    #11
  12. Angela Thornton

    Janice Davis Guest

    > Well, I do not agree. Checks are issued as a result of a legal obligation,
    > whether for payroll, merchandise, or services. My obligation to pay does

    not
    > cease just because my creditor/employee has failed to negotiate my check.

    A
    > staledated check should revert to payable status and, if the payee is not
    > traceable, it can become a miscellaneous revenue - even if it occurs

    several
    > years after the expense was incurred (and presumable reduced taxable

    income
    > in that year) and increase my taxable income in the year of reversal. If

    the
    > payee ever shows up, the obligation ought to be resurrected and no lame
    > excuse "you had 180 days" would stand up in court (some jurisdictions may
    > have a statute of limitations - but even then, morally speaking, the debt

    is
    > still payable).
    >
    > Wolfgang
    >

    Okay. After a follow-through thought process, I would agree that the amount
    is still payable, but said check would be void, and if payee still wanted
    pay then a new check would have to be issued.

    Janice
     
    Janice Davis, Nov 25, 2003
    #12
  13. Angela Thornton

    Bill Lentz Guest

    On Mon, 24 Nov 2003 19:43:35 -0500, "Wayne Brasch"
    <> wrote:


    snip a lot of stuff

    >Bill,
    >
    >Your method is not in compliance with generally accepted accounting
    >principles. This was a transaction that occurred two years ago and that
    >period's results have been closed into the equity account as it should have
    >been. If you void this check now, you should debit the Cash or Bank
    >account and credit the equity account. If you later issue the check again,
    >you should debit the equity account and credit Cash. This is not an entry
    >to enter into the present day's activities.
    >
    >Wayne Brasch, CPA, M. S. Taxation
    >



    Hi Wayne;

    I suspect that in the vast majority of cases, a check that is 2 years
    old and still outstanding will not be material to the results of the
    company's operations. In that case, I believe running it through
    current income would be proper. In addition, I doubt you would find
    many practicing tax preparers that would amend a prior period return
    to account for an uncashed check, and, all of the preparers I have
    seen are going to make sure last year's ending r.e. is going to agree
    to this year's beginning r.e.

    Bill Lentz, CPA, M.S. Accountancy
     
    Bill Lentz, Nov 25, 2003
    #13
  14. "Janice Davis" <> wrote in message
    news:D8Awb.12331$_h.8238@lakeread02...
    > > Well, I do not agree. Checks are issued as a result of a legal

    obligation,
    > > whether for payroll, merchandise, or services. My obligation to pay does

    > not
    > > cease just because my creditor/employee has failed to negotiate my

    check.
    > A
    > > staledated check should revert to payable status and, if the payee is

    not
    > > traceable, it can become a miscellaneous revenue - even if it occurs

    > several
    > > years after the expense was incurred (and presumable reduced taxable

    > income
    > > in that year) and increase my taxable income in the year of reversal. If

    > the
    > > payee ever shows up, the obligation ought to be resurrected and no lame
    > > excuse "you had 180 days" would stand up in court (some jurisdictions

    may
    > > have a statute of limitations - but even then, morally speaking, the

    debt
    > is
    > > still payable).
    > >
    > > Wolfgang
    > >

    > Okay. After a follow-through thought process, I would agree that the

    amount
    > is still payable, but said check would be void, and if payee still wanted
    > pay then a new check would have to be issued.
    >
    > Janice
    >
    >


    You are absolutely correct. Staledated checks will not be cleared by the
    banks. Therefore, the check is automatically void by virtue of the banks
    stance. All that remains is to decide how to record this fact on the books.
    Here are the options that I recommend to my clients:

    If it is a straight check replacement, issue a new check with the
    explanation: to replace check #xxx of Month Day, Year and Dr Bank Cr Cash
    for the old check and Dr Cash Cr Bank for the new check.

    If there is no expectation of locating the payee Dr Bank Cr Misc Income.

    If there is reasonable expectation of eventually making contact, I would Dr
    Bank and Cr Accounts Payable (this also defers the time of possibly having
    to take it back into income - I know of one situation where this deferral of
    approx. $10,000 lasted for just over ten years).

    Wolfgang
     
    Wolfgang Rochow, Nov 25, 2003
    #14
  15. "Wolfgang Rochow" <> wrote in message news:<AnBwb.12723$oN2.5645@edtnps84>...
    >
    > You are absolutely correct. Staledated checks will not be cleared by the
    > banks. Therefore, the check is automatically void by virtue of the banks
    > stance. All that remains is to decide how to record this fact on the books.
    > Here are the options that I recommend to my clients:
    >
    > If it is a straight check replacement, issue a new check with the
    > explanation: to replace check #xxx of Month Day, Year and Dr Bank Cr Cash
    > for the old check and Dr Cash Cr Bank for the new check.
    >
    > If there is no expectation of locating the payee Dr Bank Cr Misc Income.
    >
    > If there is reasonable expectation of eventually making contact, I would Dr
    > Bank and Cr Accounts Payable (this also defers the time of possibly having
    > to take it back into income - I know of one situation where this deferral of
    > approx. $10,000 lasted for just over ten years).
    >
    > Wolfgang


    Thanks to everyone for their responses. It isn't a payroll issue.

    I making it a payable is probably the best solution for me, as my
    employer does not want to resend the the money. I disagree, but it's
    his money :)


    Angela
     
    Angela Thornton, Nov 25, 2003
    #15
  16. Angela Thornton

    VHarris001 Guest

    >I making it a payable is probably the best solution for me, as my
    >employer does not want to resend the the money. I disagree, but it's
    >his money :)
    >
    >


    Be sure to heed the advise of one of the earlier posters to check with your
    state about unclaimed property (escheat) laws - particularly if you are the
    company accountant, controller, etc. Failure to do so might even result in
    some personal liability in the event that a complaint is ever filed.

    VH
     
    VHarris001, Nov 29, 2003
    #16
  17. Angela Thornton

    Shagnasty Guest

    Your escheating heart will tell on you.

    "VHarris001" <> wrote in message
    news:...
    > >I making it a payable is probably the best solution for me, as my
    > >employer does not want to resend the the money. I disagree, but it's
    > >his money :)
    > >
    > >

    >
    > Be sure to heed the advise of one of the earlier posters to check with

    your
    > state about unclaimed property (escheat) laws - particularly if you are

    the
    > company accountant, controller, etc. Failure to do so might even result

    in
    > some personal liability in the event that a complaint is ever filed.
    >
    > VH
    >
     
    Shagnasty, Nov 30, 2003
    #17
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