Ready to learn cancelled checks in bank reconciliation?
Read on.
Written By Kevin Mil - Author/Founder
How do you treat a voided check in bank reconciliation?
To prepare accurate bank reconciliations, it’s essential to locate the original entry that was recorded when the check was issued.
When a check is cancelled, look for the original accounting entry as a basis for an additional journal entry to record the cancellation.
Preparing a bank reconciliation can be challenging, especially when dealing with multiple cancelled checks.
This is because each cancelled check requires a corresponding journal entry to reverse the original payment.
With multiple cancellations, locating the original entries is crucial to ensure a correct journal entry is prepared.
How to find cancelled checks?
To find cancelled checks efficiently, start by asking your accountant about their availability before initiating the bank reconciliation process.
A straightforward yet effective method is to review the check register in the check pad used by the treasurer or disbursing officer when issuing checks.
Typically, they record the check number, bearer, and amount, as well as a remark indicating that the check has been cancelled.
Reasons for Cancellation
A check can be cancelled due to several reasons, including an incorrect date, payee name, or amount.
Additionally, a change of mind by the issuer may also result in a cancelled check.
In some cases, a bank may cancel a checkbook as a security measure, replacing it with a new one.
Furthermore, if a check is lost and you discover that it was still outstanding, it’s not uncommon for it to be cancelled – especially if you’ve contacted the payee and they’re unaware of any issues.
Original Entry
Before making an accounting entry to record cancelled checks, you need to locate the original entry.
This typically occurs when cancelled checks weren’t recorded during cancellation, a task often performed by your accountant or bookkeeper.
If these individuals miss recording the checks, the bank reconciler will have to include them in the book reconciling items and may also prepare suggested journal entries.
Internal controls are crucial in accounting, particularly when it comes to recording cancelled checks.
A well-established process should be in place to handle these transactions, with a designated individual responsible for ensuring that all cancelled checks are properly recorded.
This ensures accuracy and completeness of financial records.
Accounting Entry
Let’s revisit the original entry for clarity.
When a check is released for payment of communication expenses, the accounting entry should be straightforward: debit Communication Expense and credit Cash in Bank.
Note that withholding taxes are disregarded in this example, as it’s simply an illustration.
This means the cash account will be reduced by the amount paid, while the communication expense account will be increased.
To reconcile cancelled checks, you’ll need to examine the debits on the cash book and match them with corresponding entries in the bank reconciliation.
The person performing the bank reconciliation has a straightforward task: checking if cancelled checks have been recorded by the accountant.
If these checks were not accounted for, they need to be included in the reconciling items and adjustments made for each unrecorded check.