PSA L&P - Checks: How voiding a check affects the books when the bill and check are months apart (Accrual)

How voiding a check affects the books when the bill and check are months apart (Accrual)

Consider a series of transactions where a bill is created early in the year and the subsequent check is accidentally created with a date late in the year. Because the check date is incorrect, the check is voided on the same date as the check date. A new bill is entered and paid, both on the correct date. This article will show how the accounts are affected by date.

If you think about how the transactions were entered without considering the transaction dates, you can see how all of the transactions cancel each other out and the expense and bank accounts are affected correctly.
Image X

However, when looking at the books, it helps to think about the transactions by transaction date rather than by date entered. This is because reporting is done by transaction date
Image Y

In the above screenshot, the correct transaction is recorded by Bill 2 and Check 2. Bill 1 and Check 1 and the subsequent voiding entry will cause a big gap in when an account reflects the correct balance.

  • As a result, your yearly expenses are overstated until December (in our example). Also, when you get to December, if you only run a monthly report, the expenses are understated for December because the original voided bill's transaction is not in December.

To remedy this issue, two journal entries must be added, one on the date of the original bill and one on the date of the void.
Image Z

Journal Entry 1: Reverses the entry of Bill 1, closing the gap shown in Image Y.

Journal Entry 2: Re-adds the entry of Bill 1 which is necessary to balance the original check and void. 


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