Accounting procedures for dealing with uncashed checks will vary in detail from state to state, but the general procedures are similar. They begin with frequent check reconciliation and the establishment of a separate uncashed checks register. Good internal controls and record-keeping are advisable, because several years may pass before you can remove these contingent liabilities from your company's accounts.
Identifying Uncashed Checks
The necessary first step in keeping track of checks your company has written is reconciling your checkbook. These days, the reconciliation is more likely to take place in QuickBooks or another digital accounting program. After accounting for bank charges that may not have been posted internally and any unrecorded payments to the bank, the two accounts -- your account of checks written, and the bank's account of checks cashed -- should match -- that is, they should "reconcile." The difference between them identifies the dollar amount of uncashed checks. If this is done regularly -- monthly in small companies and one-person operations and weekly in other companies -- it usually takes only a few minutes to identify which uncashed checks account for the difference.
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Setting the Policy
A company policy regarding uncashed checks may vary in accordance with state unclaimed property laws, but the overall structure will have these elements: identification and enumeration of uncashed checks in a separate "uncashed checks" register; tracking of checks subsequently cashed, which will show up as a discrepancies in later reconciliations; removal of cashed checks from the uncashed checks register; appropriate postings in the profit and loss accounts; and required transmission of money from uncashed checks to the state authority.
Uncashed checks are treated as contingent liabilities on account records. If there is a state requirement for the eventual transmission of money from uncashed checks to the state authority -- and increasingly there is -- when the money is sent, the contingent liability becomes a payment and you can remove the contingency from the books. You also remove the contingent liability if and when the unclaimed money eventually reverts to the company. A 2004article on unclaimed property in "The Journal of Accountancy" notes that strong internal controls and data retention are particularly important, because eventually the information must be passed on to the state authority.
In most businesses, the number of uncashed checks is small. It's often easier to contact the recipient of the check after 60 days to understand why the check hasn't been cashed than to keep track of it on the books for several years, then mail the money to the state. Customers will also appreciate it. A 2009 Bankrate article warns that some states are aggressive about collecting unclaimed property, but not diligent about returning it to intended recipients.
If your state has no requirement that money from uncashed checks be passed to a state authority, you may have an eventual right to recapture this money. The timing of this right differs from state to state; consult your attorney or an appropriate state authority, often the office of the Secretary of State. Otherwise, when according to state statute the money must be turned over to the state, do so promptly. The Journal of Accountancy article warns that failure to do so may even trigger a state audit.