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SueTy
October 12, 2021
Solved

Accounting for cancelled checks

  • October 12, 2021
  • 1 reply
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Hi -- You all have been so super helpful to -- and patient with! -- me in the past, I hope someone can walk me through this problem I'm having step by step, because it keeps happening and has turned into a small nightmare. Our nonprofit had to cancel a conference due to COVID in 2020, and we sent out around 200 refund checks for registration, mostly in FY 2019-2020.

 

Key points:

  • Our Wells Fargo checking account deducts refunds in the month we write the checks, whether they've been cashed or not.
  • A great many checks were not cashed after 90 days, so Wells Fargo then cancelled them and recorded the "returned" funds as deposits. 
  • To account for this money going back into the account, I was advised to create a Reimbursement, which I tried to do
  • For example, we wrote a refund check for $250 to J. Deal in March, 2020, which then was cancelled by Wells Fargo in June, 2020 when it wasn't cashed. The screen capture attached shows the Reimbursement I tried to create to return the $250 and reconcile (Image A). 
  • Now, a problem has surfaced: In our Profit & Loss report for the chapter the J. Deal belongs to, the $250 refund from March remains on her chapter's chapter report as an expense (attachment, Image B). 
  • So, a question: How do I get the expense in the chapter report seen in Image B to disappear? Instead of putting it into Reimbursements, should I put it into the account Expenses, Southeast Chapter (Image C), on the theory that this deposit of $250 will cancel out the Expense of $250?
  • Or, if not, can you tell me what I need to do to cancel this check out? 

 

Two related questions:

  • When this first happened last year, to reconcile March, 2020, I created an Adjustment of $250. I didn't have any idea what I was doing and took basically a desperate move to reconcile, and now I'm not sure how to get rid of this, especially because this was last fiscal year and all has long since been reconciled. Can I find a way just to delete the adjustment at this point?
  • Most important: What is the best way to deal with cancelled checks, since Wells Fargo treats them as if money's actually going in and out when it never, in fact, is. Are Reimbursements the best way in most cases, or is there another way?

Thank you so, so much for any help you can offer me!

 

SueTy

 

 

 

 

Best answer by BettyJaneB

Hi AileneA,

 

Thanks for getting back to me! I think my inexperience is possibly confusing the issue, which has to do checks, not credit cards.

 

In a nutshell:

  • We sent a check to a member in March 2020 and recorded it as an expense (it was for an award). Wells Fargo deducted this money from our checking account in the March statement.
  • She held onto the check for 90 days, so it was cancelled by Wells Fargo in June 2020, at which point, Wells Fargo deposited the money back into our checking account.
  • So, in effect, no money actually ended up moving anywhere, except in Wells Fargo's checking account. 
  • But, the expense is still showing up in the  member's chapter statement

 

So, what I need to find out is: How do I indicate in this chapter statement that the money was actually not spent? How do I get this expense off the books, since no money was actually spent and the check was cancelled?

 

One person is telling me I need to do a journal entry for this. Can you walk me through that, or is there another way I can get this phony expense to disappear, since it wasn't paid out?

 

Thank you again -- and, sorry if I'm not putting things the right way. It does seem so cumbersome in this system to take care of checks that a bank has cancelled because they weren't cashed in 90 days! I wish there were clear-cut steps to take that were in the QB help, because this happens fairly often, I'd think!


I'm grateful for the clarifications that you gave, @SueTy.

 

I'd like to share some solution that can help you clear the expense that's showing up on your member's chapter statement.

 

You can deposit the returned amount to the account that was used upon creating the check. This way, the expense will be zeroed out.

 

When creating the deposit you may follow the date on when the check was generated. Just make sure to select the correct expense account in where the funds will be deposited to. It can clear the expanse amount that's showing up in the member's chapter statement.

 

If you want to follow your bank statement, you may use the date when Wells Fargo returned the amount to your account upon depositing the funds. This can make your reconciliation easier.

 

To create a deposit:

  1. Click on + New.
  2. Select Bank Deposit.
  3. In the Account drop-down menu, select the account where you got the amount.
  4. In the Add funds to this deposit section, fill out the following fields.
    • Received from: Select the vendor who gave you a refund.
    • Account: Select the expense account that was tied with the check.
    • Amount: Enter the amount that was returned.

To learn more about creating bank deposit in QBO, please see this link: Record and make bank deposits in QuickBooks Online.

 

I'd still recommend reaching out to your accountant to ensure the best course of action for your business. They can give you the accurate solution in this situation.

 

I'm also adding here some articles that can help you categorize and reconcile your transactions smoothly:

Should you need clarifications or further assistance about this matter, let me know. I'd be pleased to help. Have a good one!

1 reply

T
TirzahC
October 12, 2021

I appreciate your time posting here in the Community, SueTy.

 

To answer your first question , I suggest consulting your accountant before removing the adjustments made. This is to ensure that it will not affect your accounts and financial reports in QuickBooks. There are different ways to record a bounced check in QuickBooks Online (QBO). You can either use an invoice, expense, or journal entry. You can check these articles for the detailed steps and instructions to record a bounced check using the following methods:

Please know that you're always welcome to post if you have any other concerns. Wishing you and your business continued success.

 

S
SueTyAuthor
October 13, 2021

Hi TirzahC,

 

Thank you for getting back to me, and also for the advice to consult an accountant re: the reconciliation adjustment I made. I appreciate it!

 

For my main question, though, which is what the screen captures were about: I'm a bit confused, because these checks aren't bouncing. The recipients of the refund checks are failing to cash them within 90 days, so the money is returned to our checking account (when the checks initially go out, they're recorded as expenses; when they come back in, I'm not sure how to properly account for these deposits).

 

As mentioned, I was advised to put the funds from the returned checks into Reimbursements. But, in the example I screen-captured, in one case, the refund was paid out of the account for one of our chapters, and the reimbursement is not showing on the chapter's expense report to cancel out this expense. So, in other words, it looks like the refund went out, but the funds from the cancelled check never came back in, so it's still reading as an expense in the chapter report.

 

I was wondering if you could help me solve that particular problem. Any advice you could give me would be deeply appreciated -- thank you! I'm re-attaching the file I sent yesterday to make life easier.

 

 

A
AileneA
October 13, 2021

Hello, SueTy.

 

Thanks for replying to us. Since the refund didn't go through, you can void the check. This way, the check will remove as an expense. Then you can add a note for what this void check is for. 

 

Once done voiding the check, you'll have to manually process the refund and enter them into QuickBooks Online. You can click this article to see the detailed steps on how to perform the process: Void or refund customer payments in QuickBooks Online.

 

If you're unsure, reach out to your accountant. This can get tricky and they know how to handle the next steps. Don't have an accountant? We can help you find one. 

 

I'm always here if you need more help in refund your transaction. Just let me know by leaving a reply below. Keep safe and have a wonderful day!

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