- Created by admin, last modified by AdrianC on May 05, 2017
Sometimes cheques are not presented to the bank by the payee. The usual outcome is to either cancel and reissue the payment, or just cancel it. Either way, these cheques are easily accounted for in AccountEdge.
How is a stale or stopped cheque accounted for?
A stale/stopped cheque is simply a payment recorded in your company file which won't be presented to the bank. Until an adjustment is made, your cheque account balance will be less than actual.
To overcome this difference, the cheque will need to be reversed. This will place your bank account balance, and other affected account balances, in a position they would be in if the original payment hadn't been recorded.
How is a stale/stopped cheque reversed?
A payment will result in a withdrawal from your cheque account, so a deposit of the same value can be considered a reversal. With this in mind, the options to reverse a payment are:
- Manually record a deposit using Receive Money or a Journal Entry (general journal). If entering a manual reversal, ensure the allocation accounts and GST tax codes are the same as those used on the stale/stopped cheque.
- Use your software's Reverse function. This is the recommended method and must be used if the payment was applied to a Bill using Pay Bills.
- Using your software's Reverse function will provide you with a complete audit trail of the payment/reversal. It's also the quickest and most accurate method.
- Deleting stale/stopped cheques isn't an option we recommend as it may affect the GST for a previously reported period.
- Make sure you notify your bank of lost or stolen cheques to ensure these cannot be fraudulently presented in the future.
Task 1 - Setting preferences
- Go to the Setup menu and choose Preferences.
- Click the Security tab.
- Select the Transactions Can't Be Changed; They Must Be Reversed option.
- Click OK.
Task 2 - Reversing the stale cheque
- Go to the Banking command centre and click Transaction Journal.
- Click the applicable tab based on the transaction where the cheque was used, e.g. if it was a Spend Money transaction, click the Disbursements tab.
- Enter the date of the cheque in the Date From and To fields then press the key.
- Identify the stale/stopped cheque then click its zoom arrow.
- Go to the Edit menu and choose Reverse Cheque Transaction.
- Check and edit the reversal transaction details then click Record.
The window below shows the ledger postings of a typical Spend Money payment and reversal.
Task 3 - Reissue the payment
If the payment is to be reissued, then use the same payment type that was used for the stale/stopped cheque. For example: Reversing a Pay Bills payment will cause the status of the closed Bill to revert back to Open. Use Pay Bills again when reissuing the payment.
Similarly, use Spend Money if the original transaction was entered using Spend Money.
Task 4 - Reconcile the cheque account
When you next reconcile your cheque account, you will need to select both the stale/stopped cheque (withdrawal) and the reversal (deposit) as Cleared. As they are for the same amount, they will negate each other leaving your cheque account balance unaffected.
The example Reconcile Accounts window shown below has both the stale/stopped cheque and the reversal selected as Cleared. It also includes the reissued payment which is yet to be presented to the bank and is not selected as Cleared.
Pay Bills - GST input tax credits are recorded with the Bill, and not the payment (Pay Bills payment) applied to it, so Pay Bills payments can be freely reversed and re-entered without affecting the GST, if reporting your GST on accrual basis.
Spend Money - Regardless of the GST reporting method, reversing a Spend Money payment will reverse the GST input tax credit claimed on the original payment.
If the original payment was dated in a previously reported (finalised) BAS period, then the reversal will need to be dated in the current BAS period. By doing this, the previously reported BAS won't be affected and the input tax credits will be adjusted and reported in the current period.
In New Zealand...
- If you report GST using the cash method the GST credit attributable the cheque purchase may have been claimed. Reversing the cheque will be amending your GST claim. The date of the reversal must be made into the current GST reporting period to ensure that it is included
- If you intend to reissue payment, include the tax code when entering the replacement cheque. This will in effect negate the original reversal as no additional credit can be claimed.
- If the cheque payment is not being reissued, then by reversing the cheque, an adjustment to the GST Paid linked account is made.
- Do not delete stale/stopped cheques where GST has been paid.
- Reversing the cheques avoids double claiming of credits and helps you reconcile your GST Paid account.
Transactions dated in a financial year prior to your company file's Current Financial Year, can only be reversed. Also, as transactions can't be recorded in a previous financial year period, the reversal will need to be dated in the current period. To determine your company file's Current Financial Year, go to the Setup menu and choose Company Information.
It is recommended Receive Money be used to record these reversals. By using Receive Money, you can allocate the reversal to an Income account (4-xxxx) named Unrealised Expenses, which you may need to setup. Alternatively, allocate the reversal to the expense account used on the original payment. And again, use the same Tax Codes that were used in the original transaction.
Please seek your accountant's advice regarding any tax implication this may have.