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Journal Entry to Void a Check – a Comprehensive Guide

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It’s not uncommon for a business to void a check due to various reasons like errors in payment amounts, incorrect payee information, or a stop-payment request. It’s relatively straightforward to notify the bank about a voided check. However, many accountants or bookkeepers wonder what journal entries they should book to reflect such a situation in the general ledger.

This guide will focus on the most common scenarios businesses may encounter. We will walk through real-world, simplified journal entries for each scenario to help you understand the concept.

Voiding a Check with No Further Payment Intended

There are several scenarios where a business may decide to submit a stop payment as they no longer intend to pay, such as:

  1. Cancellation of Services or Orders: If a business issues a check for a service or order and later cancels it, it might void the check and choose not to pay the supplier per the agreement.
  2. Suspected Fraud: If a business discovers a supplier is fraudulent after issuing a check, it might place a stop payment request with the bank to protect their assets.

Scenario:

PML Noodle Shop (PML) had initially contracted Super Clean Services for restaurant cleaning services and issued a check for $500 as a deposit. However, before the check was cashed, PML Noodle Shop decided to cancel the service due to the hiring of their unemployed relatives.

If PML Noodle Shop has recorded the deposit in the Prepaid Expense (asset) account

Journal Entry to Void a Check - cancellation deposit

Breakdown:

  • Debit to Cash/Bank Account: The debit entry to the Cash or bank account indicates the restoration of funds due to the voided check. This entry acknowledges that the $500 initially set aside for this payment is now back in the company’s Cash or bank balance.
  • Credit to Prepaid Expense Account: PML Noodle Shop is eliminating the asset balance from their books by crediting the Prepaid Expense account.

If PML Noodle Shop has recorded the deposit in the Expense account

Journal Entry to Void a Check - cancellation expense

Breakdown:

  • Debit to Cash/Bank Account: The debit to the Cash or bank account shows that the $500 from the voided check is added back to the company’s cash balance. This means the $500 they would spend is back in their account.
  • Credit to Expense Account: By crediting the expense account, PML effectively removes the expense from their books, as the service will no longer be rendered and thus doesn’t constitute an actual expense for the company.

In some situations, the accounts payable (AP) account would also be utilized in the original entries (such as debiting Expense & crediting AP, then debiting AP & crediting Cash when the check was issued). Does the AP balance need to be adjusted? No – because the business will no longer pay in these situations, which means no liability exists.

Essentially, this journal entry reverses what was originally recorded in the book (Expense or Asset) and returns the cash balance to the general ledger.

Voiding a Check for Amount Corrections

Businesses often have to void a check as the payment amount is wrong or disputed. Here are several scenarios with debriefing:

Scenario A: To correct a typo when the book is correct

PML Noodle Shop (PML) had contracted Super Clean Services and issued a check for the agreed-upon cleaning services. The amount on the check was written mistakenly as $1,000 rather than the $100 they had agreed on. However, in the general ledger, the entries were correct, where the Expense account was debited for $100, and Cash was credited for $100.

Answer: No Financial Impact

Since the journal entries were recorded correctly, no adjustments need to be made. Canceling the check and reissuing a new one with the correct amount is merely a request to the bank for reprocessing and does not update any accounting records.

Scenario B: To correct a typo when the book also needs adjustment

PML Noodle Shop (PML) had contracted Super Clean Services and issued a check for the agreed-upon cleaning services. The amount on the check was written mistakenly as $1,000 rather than the $100 they had agreed on. Moreover, in the general ledger, the entries were also incorrectly recorded as $1,000.

Journal Entry to Void a Check - Typo

Breakdown:

  • Debit to Cash Account: By Debiting Cash for the difference of $900 ($1,000 “mistake” – $100 “actual”), the business is “getting back” the $900 cash they’ve mistakenly distributed.
  • Credit to Expense Account: The credit to the expense for $900 is also a correction, as the expense was initially recorded as $1,000, whereas it should have been $100.

When the P&L account is not affected in the transaction (such as refunding an overpayment), the adjusting entry will reverse the liability account (such as AP) instead. Essentially, the adjustment needs to reverse how the general ledger was originally impacted (expense vs. liability).

To conclude, when a check is voided to amount corrections, assessing whether the general ledger also requires an adjustment is crucial.

Voiding a Check for Non-Amount Corrections

Here are a few scenarios where a check might be voided to correct non-amount information:

  1. Incorrect Payee Name/Account Number: A check is issued to a supplier, but the company realizes they have misspelled the supplier’s name or their bank account number. They void the check and issue a new one with the correct name/account number to ensure the check is cashable.
  2. Wrong Date: A check is dated incorrectly, perhaps with a future or past year, making it invalid. The company needs to void this check and write a new one with the correct date.

Scenario:

PML Noodle Shop (PML) issued a check to one of their suppliers, John Smith, as a refund for an overpayment. However, they accidentally wrote the check to “Jon Smith” and dated it for the previous year. Upon realizing the mistake, PML voids the check. They then issue a new check with the correct name and the appropriate date.

Answer: No Financial Impact

In this case, there’s no impact on the company’s accounting records that requires a journal entry. Why? Because no financial information is adjusted. The action of voiding the check and reissuing a new one with the correct details is purely an administrative correction. 

The financial position of the PML Noodle Shop remains unchanged, as the amount owed to John Smith (the liability) remains the same, and the cash balance is not affected either. Thus, no adjusting journal entries are needed.

Voiding a Check Due to Duplicated Payment

When encountering a duplicated payment in the form of an extra check, it’s essential to first assess the state of your general ledger. A reversal journal entry is necessary to correct the financial records if the duplication is reflected in the general ledger, meaning both checks have been recorded. 

On the other hand, if the general ledger accurately reflects only a single payment and the duplication is solely at the level of the physical checks, then simply voiding the extra check suffices. In this scenario, no additional accounting adjustments are needed since the general ledger remains unaffected. 

Scenario:

PML Noodle Shop (PML) had contracted Super Clean Services and issued a check for their cleaning services for $100. However, a duplicate check was issued, which was also reflected in their general ledger.

If PML didn’t utilize the accounts payable account to record the payment (the original entry debits Expense and credits Cash when the check was made)

Journal Entry to Void a Check - Duplicated Expense

Breakdown:

  • Debit to Cash/Bank Account: The debit entry to the Cash or bank account indicates the restoration of $100 due to the duplication.
  • Credit to Expense Account: By crediting the expense account for $100, PML is eliminating the overstated expense balance.

If PML Noodle Shop has utilized the accounts payable account (the original entry debits AP and credits Cash when the check was made)

Journal Entry to Void a Check - Duplicated AP

Breakdown:

  • Debit to Cash/Bank Account: The debit entry to the Cash or bank account indicates the restoration of $100 due to the duplication.
  • Credit to Accounts Payable Account: By crediting the Accounts Payable account for $100, PML is restoring the excessive debit to the AP when that extra check was recorded.

In this scenario, do we still need to care about Expenses or P&L accounts? Most likely, no – if the only entry generated was a debit to AP and a credit to Cash when the check was issued. The original expense entry (Debit to expense and credit to AP) is independent of the payment status unless it was also somehow duplicated.

To conclude, the key is to closely examine the general ledger to determine whether a reversal entry is needed. A journal entry would not be needed if the duplicated check was purely an error at the processing level (no effect in the general ledger).

Voiding an Unclaimed Check

Checks that remain uncashed for a long period, possibly due to loss or the payee forgetting to cash them, should be voided for accounting accuracy.

The best practice is to reinstate the liability and return the funds to the general ledger. This should be done until the payee asks for the check to be reissued or until it seems unlikely that the check will ever be cashed; at this point, the business can write it off and receive a credit.

Scenario:

PML Noodle Shop (PML) had contracted Super Clean Services and issued a check for their cleaning services for $100. However, Super Clean, for some reason, never cashed the check, and now the outstanding check has expired.

Journal Entry to Void a Check - Expired

Breakdown:

  • Debit to Cash/Bank Account: The debit entry to the Cash or bank account indicates the restoration of $100 as PML re-claims the funds.
  • Credit to Accounts Payable Account: By crediting the Accounts Payable account for $100, PML is re-establishing the liability, meaning the obligation to pay still exists.

As mentioned earlier, PML should maintain the balance in its accounts payable as a liability until the check is reissued. If it becomes apparent that Clean Service is unlikely to request the payment, then PML can consider writing off this liability (through debiting AP and crediting Expenses).

Conclusion

In conclusion, voiding a check is a routine yet crucial task. We have provided insights into common scenarios like voiding checks without intending further payment, correcting amounts, addressing duplicated payments, or handling unclaimed checks. The crucial aspect lies in assessing each situation to determine if it impacts the general ledger or is just an administrative correction. Businesses need to understand these subtle differences to ensure that the financial records accurately represent their transactions.

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