Accounting procedures while dealing with uncashed checks will vary from state to state, but the general procedures will be common. It begins with establishing a separate uncashed check register and with frequent check reconciliation. It is advisable to have good internal controls and record-keeping, because years may pass before you can remove these contingent liabilities from your company’s accounts.
Identifying Uncashed Checks
First necessary step by your company is to keep a track of checks and reconcile your check book. These days, reconciliation is happening in digital accounting programs like QuickBooks. Apart from bank accounting charges, your account of checks written, and the bank’s account of checks cashed should match with each other, this is called “reconciling”. The variation between them identifies the dollar amount of uncashed checks. If we do this regularly, say monthly for small companies where one person handles the operations and weekly in other companies, then it will take only a few minutes to identify which uncashed checks accounted for the variation.
Setting the Policy
A company’s policy regarding the uncashed checks will vary in accordance with state unclaimed property laws, but the overall structure will have the following elements:
- Identifying and enumeration of uncashed checks in a separate “uncashed checks” register
- Tracking of checks which are subsequently cashed, to verify discrepancies in later reconciliations
- Removing cashed checks from the uncashed checks register
- Appropriate placing in the profit and loss accounts
- Transmitting money from uncashed checks to the state authority.
In accounting records, uncashed checks are treated as contingent liabilities. When there is a requirement from the state for the eventual transmission of money from uncashed checks to the state authority then money is sent, the contingent liability becomes a payment and you can remove the contingency from the accounting books. In case, if the unclaimed money is reverted to the company you can remove from contingent liability. As per 2004 article on unclaimed property in “The Journal of Accountancy” states that there is a strong need for internal controls and data retention, because ultimately the information must be passed on to the state authority.
Most businesses have a small number of uncashed checks. It’s better to contact the recipient of the check after 60 days to know why the check hasn’t been cashed than to keep track of it for several years, and then transferring the money to the state. This will be appreciated by customers also. As per 2009 Bank rate article, some states are aggressive in collecting unclaimed property rather than returning it to intended recipients.
When the state has no requirement of the money sent from uncashed checks, you may have an eventual right to recollect that money. The timing of this right varies from state to state before taking a step, consult your attorney or an appropriate state authority usually it is the office of the Secretary of State. If not as per state statute, the money must be transferred to the state promptly.