Accounting Policies for Stale-Dated Checks

It doesn't happen often, but sometimes a payee will never cash a check. Whether an employee forgot about the paycheck or a vendor went out of business, a stale-dated check can result in an accounting conundrum. Create an accounting policy to contact stale-dated check holders after a specified period of time. Set another time frame to write off the stale-dated check. If your state is subject to unclaimed property laws, request that accounting record a liability to the state.

Contrary to popular belief, a check never really "expires." A bank is not required to cash a check if it's more than six months past the check date. However, the bank does have the freedom to honor a stale-dated check, regardless of any restrictions listed on the check. Many states have unclaimed property laws that require businesses to turn unclaimed funds over to the state rather than simply write off the expense.

Set a policy to contact the owners of unclaimed checks. It may seem silly to urge a payee to cash a check, but it will save you administrative and accounting time and hassle down the road. Decide on intervals for contact, such as six months and one year. To ensure you can implement this policy, require accounting to collect contact information -- such as phone number, email address and physical address -- before disbursing any checks.

Set a time frame to write off stale-dated checks in your accounting policy handbook. The exact time frame is up to you, but one year or two years are both common benchmarks. To write off the check, debit the cash account and credit the original expense account. For example, say you paid a vendor $100 for supplies one year ago and he never cashed the check. To reverse the check, debit cash for $100 and credit supplies expense for $100.

If your state has unclaimed property laws you may have to turn the cash over to the state after a certain period of time. If an unclaimed property law applies, set a policy to create a new liability to account for the amount owed to the state. For example, if the $100 supplies check is subject to unclaimed property laws, you would debit the unclaimed property liability account for $100 and credit supplies expense for $100. When you do turn the funds over to the state, debit the liability account for $100 and credit cash for $100.