[fxbinbin]

Hi all,

I have a cash reconciliation question that I’m looking for some discussions:

A check payable to supplier dated and recorded on 12/31/01 but not mailed out until 1/15/02 should be added back to 01’s cash balance? I originally thought that since it’s dated 12/31/01, it should be included in 01’s balance.

Anyone please help out? thanks !!!!!

[Finally_a_CPA]

That is correct, it should be added back to 01's cash. I think the reason behind it is that even though you wrote the check, it doesn't mean you will actually send it. As a business, you might be trying to reduce your net income by writing many checks in one year and then may decide to not send them the following year.

[fxbinbin]

thanks Finally_a_CPA, it still doesn't make sense to me. When you write checks, you credit cash and that's it, why bother adding it back and later credit cash again when you send it out? My reason for this is, when you mail the check out, it then becomes constructively available to the recipient, which should be an IRS rule, but GAAP? and does it mean that I need to do this for every monthly closing as well?
I'm so confused..

[Missy]

You'd only bother adding it back at year end and only because you never released control of the check. Its not constructively available if its sitting in someone's desk 🙂 Otherwise you'd have companies writing bunches of checks on Dec 31 to show either a more modest cash balance or lower liabilities balance then voiding the checks after year end.

If the checks were mailed you wouldn't add them back in.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[lam2848]

You add the check back for 2001 because the check wasn't mailed until 2002. So technically, the money was not taken out of your account until 2002 which is why it is added back for 2001.

[fxbinbin]

@Missy & @lam2848 thanks for the explanations. Appreciate it.

[Finally_a_CPA]

Yes, what missy and Iam2848 said.

The check should NOT have been recorded in year 01 in the first place because it was not mailed. But since it was recorded, that is why you have to add it back.

[Gimme_a_75]

I agree with the others, it's about control of the funds. You essentially relinquish control by mailing the checks. Of course, this doesn't stop the CFO from “taking the checks to the post office” and leaving them in his home office for weeks. Sadly, I worked many years ago for a now defunct company where the CFO did that exact thing every fiscal year end. The checks would be “mailed” on the last working day of the year, but the recipients wouldn't receive them until the end of the following month if not later.

[Anonymous]

Be sure to know bank rec very well for FAR. It's not difficult, but if you get a SIM on it, they will likely make it tricky with stuff like “check written on 12/31/Y1 and mailed 1/4/Y2”.
Most intro accounting courses do not teach bank rec very well. I remember the one we had was completely weenie, and then the topic never was seen again until studying for FAR, where they describe the situation at a very high level with multiple monkey wrenches thrown into what is inherently not very complex (they do that with stocks and bonds too – easy accounting made hard.) So just practice bank rec – should be easy points if you know what to expect.

[fxbinbin]

Thank you everybody for your posts. Yes @crazyleon, I don't even remember if I ever did bank reconciliation practise in school

[Author]

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