Reconciling Uncleared Checks: Should You Void, Delete, or Reverse Them?

Introduction

At some point in our personal life or professional career, we have written a check that the recipient never cashed or that got lost in the mail. In today’s ever-changing world of technology, understanding how to reconcile our bank accounts can be difficult. Do you void? What about delete? After all, the recipient didn’t cash the check, and the money is still in the account.

While you may choose to void or delete the check, this is not always the best practice. Deleting or voiding a check from a prior accounting period can change financial reports that you may have already filed with your accountant or the federal government.

So, what is the recommended process for handling a check that has not cleared? In many cases, you should reverse the transaction in the current period rather than alter the original transaction. To reverse the check, you record a deposit back into the bank account. This article explains how to handle an uncleared check, both with and without issuing a replacement check.

Uncleared Checks Explained

An uncleared check is any check that you have entered into your accounting records but that has not yet cleared your bank account.

Think about the good old days when you had a ledger for your accounts and wrote your transactions in those books daily. You may even have a personal check register that shows where your money came from and where it went. Each time a check or deposit posted to your bank account, you would check the cleared column to reconcile your register to the bank statement.

Your accounting system contains the same books in digital form. When you write a check, the system records the balance of the account based on the transaction date of the check.

When reconciling your bank account, you may encounter checks that have not cleared and wish to clean them up. Accountants also call these outstanding checks. They can create differences between your accounting records and your bank statement because the transactions have not yet cleared.

When Does an Uncleared Check Expire?

Defining an “expired” check is subjective, at best. Under Uniform Commercial Code Section 4-404, a bank generally does not have to pay a check more than six months after its date. However, the bank may still honor it in good faith. The Uniform Commercial Code’s provisions on checks more than six months old explain this distinction.

In other words, a check does not automatically become invalid after 180 days. Whether the bank processes it depends on the circumstances and applicable banking rules. Therefore, consider requesting a stop-payment order for any check you do not want your bank to process.

Before reversing an uncleared check, verify that the payee has not already cashed or deposited it. Contact your bank to determine whether you need a stop-payment order. Also, keep the original check and supporting documentation with your accounting records. The IRS discusses the importance of retaining canceled checks and other supporting documents in Publication 583, Starting a Business and Keeping Records.

Reversing a Check w/o Reissuance

Once you identify the checks that you need to reconcile for non-payment, you can reverse the original transaction in the current accounting period.

The general process involves recording a deposit back into the same bank account. Use the original account or accounts that the check affected. This reverses the accounting effect of the original payment without changing the original transaction date.

Steps to Reverse an Uncleared Check

Follow these steps:

1. Locate the original check and review its entire contents, including the payee, amount, date, and accounts affected.
2. Confirm that the check has not cleared the bank and that the bank will not process the payment. Obtain a stop-payment order if necessary.
3. Create a new deposit entry in your accounting records.
4. On the deposit, enter the following information:
   • Deposit to: Select the same bank account you used to issue the original check.
   • Date: Enter the effective date of the check reversal. If you requested a stop payment, you would generally use the stop-payment date.
   • Header Memo: Enter a detailed memo explaining the deposit entry and why you are reversing the original check.
   • Customer/Job/Employee/Vendor: Select the same payee that appears on the original check.
   • From Account: Select the account or accounts that appear on the original check.
     • If the check paid a bill, use Accounts Payable.
     • If the check paid sales tax, use Sales Tax Payable.
     • If the check paid a payroll liability, consult your accountant or payroll professional about the appropriate reversal procedure.
5. Line Memo: Copy the memo from the header.
6. Amount: Enter the amount from the corresponding line item on the original check.
7. Department: Enter the department from the original check’s line item, if applicable.
8. Save the deposit entry.
9. When reconciling the bank account, select both the original uncleared check and the deposit entry you created to reverse it. Their amounts should offset each other, leaving no net effect on the bank reconciliation.

Important Considerations When Reversing Checks

The deposit entry represents an accounting reversal, not an actual deposit of funds from another party. Keep the supporting documentation so you can explain the adjustment during future reviews.

A note about prior accounting periods: If you wrote the original check in a prior period and already filed financial statements or tax returns, consult your accountant before changing the original transaction. Record the reversal in the appropriate current period. The accounting treatment depends on the type of payment and the accounts involved.

Reversing a Check w/ Reissuance

If you need to replace the original check, complete the reversal steps above. Then, create a new check in the current accounting period to replace the old one.

The new check should reflect the correct payee, amount, and payment information. Keep the original check, reversal entry, and replacement check together in your supporting records to maintain a clear accounting trail.

For bill payments, sales tax payments, payroll checks, and other transactions involving liability or balance sheet accounts, consult your accountant. They can help ensure you record the reversal and replacement correctly.

Regular bank reconciliations help identify outstanding checks before they accumulate and become difficult to track. For more information, see Aptora’s guides to reconciling bank accounts and catching errors and the importance of bank reconciliations.