Accounting for stale dated checks?


A

Angela Thornton

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
 
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W

Wayne Brasch

Angela Thornton said:
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
 
B

Bill Lentz

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
 
W

Wolfgang Rochow

Bill Lentz said:
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
 
B

Bill

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.
 
W

Wayne Brasch

Bill Lentz said:
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
 
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W

Wayne Brasch

Bill said:
(e-mail address removed) (Angela Thornton) wrote in message

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
 
J

Janice Davis

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
 
W

Wayne Brasch

Janice Davis said:
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
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
 
J

Janice Davis

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
 
W

Wolfgang Rochow

Wayne Brasch said:
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
 
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J

Janice Davis

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
 
B

Bill Lentz

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


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
 
W

Wolfgang Rochow

Janice Davis said:
check. debt
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
 
A

Angela Thornton

Wolfgang Rochow said:
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
 
V

VHarris001

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
 
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S

Shagnasty

VHarris001 said:
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
 

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