Cash reconciliation involving voided check

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  • #1817582 Reply

    I got this question from my Wiley testbank where it is presented as a SIM question

    The check is recorded by the company before Dec 31 and cash reconciliation is being done on that date.
    The check is voided on Jan 5 Y2. But in the example it is added back to Y1 cash balance. Any idea why? This was a SIM and both sides would not reconcile if not for this entry.

    #1817636 Reply

    It doesn't seem correct to add it back if the check is not being voided until Jan 5. I would subtract it from the bank balance side as an outstanding check at year end and that should then reconcile. Did you try posting the question in the Wiley mentoring section? They are usually pretty quick at responding to questions.

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    FAR - 77
    REG - 83
    #1818904 Reply

    Yes someone asked the question but the response was not helpful at all. He just reiterated the answer.

    #1818955 Reply

    @ramana your comment about Wiley just reiterating the answer sounds a lot like gleim. You’re not alone. A lot of frustrating moments I’ve had when I send questions and don’t get beneficial help. I keep getting told it’s just a “review” course and not a teaching course.

    In regards to your question over the voided check added to the cash balance, when the check was issued, it was a credit to cash and debit to another account, but given the voided check, the addition to the cash balance is a reversal to now increase/debit cash, right? That would explain the addition from my perspective and is the way I’m rationalizing it based on the information you provided.

    #1819142 Reply

    This doesn’t seem like it was part of the fact pattern, but if a company hasn’t closed their books for the period, they will often make adjustments to the end of the period subsequent to the end date.
    I think this might be more what you were trying to make sense of?
    Like mentioned above, and I am assuming it was an outgoing check, they said they had x amount including the fact that check would be cashed and then on the 5th they discovered something that made them void it. It is common for them to accurately reflect the balance at the year end which now excludes that check. In an audit, if it was a significant amount, we would vouch when the check cleared and if we saw it was voided we would propose an adjustment – which is what they did in their own.
    Hope that helps.

    Almost always from my phone... please excuse my typos!

    All 4 passed - 2016

    CA CPA

    #1819361 Reply

    The voiding of a check actually happens on the date it was printed. The day that it is mechanically voided doesn't really matter, unless the check was sent out and actually cleared. If the check was subsequently voided, it means that it should NOT be an outstanding check at the statement date. You should always consider a check voided as of the date it was printed.

    #1820290 Reply

    I hadn't realized so many replies had been posted since my last checking in. Thank you so much for the replies.
    This was an outstanding check that got voided Jan 5 and it was left out of the bank side and added back to the books as of Dec 31. I found that really interesting. I am really glad I asked this question. I hope the logic of it will seep into my brain over time. At present, it completely evades me.

    #1820308 Reply

    I just realized that since this check was part of 3 checks outstanding, if i subtract it from the bank side, and didnt make any entry to add it back to the book side (because it was voided), it will reconcile. Just that I don't know what the right answer is per CPA Gods.

    #1821584 Reply

    AF and MaLoTu answered your question. It reflects the balance as of the date it was printed. (think about it) It’s December 31st year 1, the books are about to be closed and I want to show high earnings . I’ll record some deposits which will never clear the bank creating despots in transit which will increase my revenue for the year end. Now I go in and void the deposits after the books are closed. Whatever is voided should be subtracted from the cash balance and revenue for year 1 since both were overstated. It works the other way also. Say I want to show a low net income maybe for tax purposes so I’ll just write a bunch of checks creating outstanding checks which will increase my expenses and lower my net income. Now I go in and void the checks after the books are closed. Whatever is voided should be a increase in cash and decrease in the corresponding expense account for year 1.

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