Accounting ManualDisbursements: Cancellation and Redrawing of Vendor Checks

UC Accounting Manual
VI. Accounts Payable Operations
D-371-12 (6/1/72)
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DISBURSEMENTS: CANCELLATION AND REDRAWING OF VENDOR CHECKS

Contents
Page
I.

Introduction

II. Definitions

2
2

III. Accounts Payable Groups

IV. To Cancel or To Redraw?

A.
B.
C.
D.
V.

No Replacement Check to Be Issued

Uncashed and Unclaimed Checks
Check Correct But Other Input Needs Correcting
Special Considerations for Local Checks

6
6
7
7

Use of Clearing Account

VI. Stop Payments

VII. Notification of Reconcilement Service

9
9

VIII. Related Policy

Appendix I: Vendor Check Adjustments Form

10

Appendix II: Entries for Replacement of Incorrect Check

11

DISBURSEMENTS: CANCELLATION AND REDRAWING OF VENDOR CHECKS

I. INTRODUCTION
Detailed procedures for the cancellation or redrawing of
vendor checks vary from campus to campus. This chapter
states the considerations underlying these procedures and
points out the choices each campus has within the
University's accounts payable system.
II.

DEFINITIONS

The following definitions apply in this chapter and should

also be used in any official policy and procedure write-ups
or University forms pertaining to vendor checks.
Outstanding check: Any University check that has not cleared
the bank and that has not been cancelled. Outstanding checks
are of either of two kinds: 1) uncashed and 2) unclaimed.
Uncashed check: A check which has been mailed or delivered
to the payee but which remains outstanding.
Unclaimed check: A check which is being held by any
University office for issuance or delivery to the payee; this
includes checks that have been mailed out but then returned
to the University.
To cancel a check: To rescind the issuance of a check by
debiting cash and crediting a clearing account the
outstanding check account (for explanation, see chapter C173-78), or the account originally charged. Vendor checks
may be cancelled either by journal entry (type entry 53) or
through the accounts payable system (type entry 42, group
code 9). If the accounting office has the check to be
cancelled in hand, it should stamp it "CANCELLED" so that it
cannot be deposited or cashed (per Business and Finance
Bulletin A-23, section III-H).
To redraw a check: To change the name of the payee to The
Regents and deposit the check in the University's bank
account, with a debit to cash and a credit to any of the
accounts mentioned above for cancellations. Redrawing a
check is an alternative to cancelling it when the accounting
office has the check in its possession.
To void a check: To make a check unusable by stamping it
"VOID" (BFB A-23, section III-H); checks are voided when they
have been spoiled in preparation and have not been entered in
the accounts payable system. Local checks are voided by
accounting offices; regular checks are voided by Data
Processing Centers.
Replacement check: A check drawn to take the place of a
cancelled or redrawn check.
Paid check: Any check that has been duly charged by the bank
against the University's account.
Stop payment order: An order to the bank not to pay a
particular check. Stop payments are issued 1) when a check
is missing and a replacement check is to be issued or 2) when
a check is to be cancelled for whatever reason and there is
any chance it could be cashed.
III. ACCOUNTS PAYABLE GROUPS
In order to understand cancellations and redraws, one must be
familiar with the "groups" in which invoices and Form 5's
(check request forms) are submitted to DPC for processing. A
complete list of group codes is given in chapter A-115-2,

section III-L, but the principal codes are given below. For
each group code, the types of input errors that may require
cancellation or redrawing of a check are also given.
Regular vendors (primarily group 2): For regular vendors,
DPC maintains a file of vendor names and addresses
corresponding to individual vendor numbers; the file is
produced from input documents prepared by accounting offices.
The vendors entered in the regular vendor file are the more
common ones.
When entering individual invoices, keypunchers enter only the
vendor number and the group code; they do not have to enter
the vendor's name. Then, in each check writing, the DPC
program combines the invoices entered under each vendor
number on a single check and prints out the vendor's name
from the regular vendor file.
Frequent error: Wrong vendor number entered by accounting or
keypunch. If the vendor number entered on the invoice has
never been recorded in the regular vendor file, the DPC
program will delete the entry. If the number entered on the
invoice for one vendor actually belongs to another vendor,
DPC will prepare a check payable to the second vendor. If
the second vendor is already receiving payment in the check
writing in which the error occurs, his check will contain the
erroneous payment as an extra item.
Irregular vendors, individual entries combined on one check
(group 4):
For irregular vendors, DPC has no master file; from each
invoice, keypunch must enter the vendor's name as well as the
vendor number. In each check writing, DPC combines on one
check all entries that match exactly on vendor number plus
the first 13 spaces of the vendor name.
Frequent errors:
1) Group 5 invoice (see below) submitted in group 4; the
group 5 invoice will then be combined with any other
invoices from the same vendor whereas a separate check was
required for some reason.
2) Vendor name does not match exactly among several items
submitted for one check writing; in this case, the
accounting office will receive two or more checks where
only one was needed. Usually this is not too important an
error, because the checks can still be used. However, if
some of the entries are credit items, the credits and the
offsetting debits of any one group of items will be
deleted by the DPC program if the net total is a credit
because of a debit item not being properly combined in the
rest of the group. The reason for the deletion is that s
check cannot be written for a negative amount. In this
case, the accounting office will have to cancel or redraw
the check paying the uncombined debit items and resubmit
the debit and credit items together. (This problem can be
alleviated by the use of a multiple coding skirt covering
all items to be combined; in this way, the vendor name is

keypunched from only one document, so there is a minimum

chance of keypunch entering the vendor name in two
different ways (for example, AMERICAN-LA FRANCE and
AMERICAN-LAFRANCE would net match in the DPC program;
separate checks would be produced for each version).)
3) Two vendors with names that match through the first 13
positions erroneously combined on a single check (example:
INTERNATIONAL BOOK, INTERNATIONS RUG). (Solutions: a)
Write a local check to one of the vendors; b) submit each
vendor's invoices in a separate DPC writing; c) submit one
vendor's invoices in group 5; d) abbreviate to shorten
name.)
4) Incorrect vendor number. The check produced will be
usable but the payment will be out of proper sequence in
the alphabetic vendor register. This error can be
corrected after the check is written on a Vendor Check
Adjustment form (form 100--see Appendix I).
Irregular vendors, single check produced from each entry
(primarily group 5): As with group 4, DPC does not
maintain a master file for group 5. This group will not
accept any credits.
Frequent
group 4;
from the
for some

error: Group 5 item erroneously submitted with

payment will be combined with any other items
same vendor whereas a separate check was needed
reason.

Local checks and cancellations (group 9): Local checks

are prepared by the accounting office rather than by DPC.
These checks and all check cancellations are submitted to
DPC in group 9, which is the only group from which DPC
does not produce checks.

IV.

TO CANCEL OR TO REDRAW?
There are three circumstances that may require the
cancellation or redrawing of a check:
1) Input error on DPC-produced checks, which can be due to
either coding error in accounting or a keypunch error.
This type of error is discussed in section III above.
2) Check not needed because it was requested in error or
because of a changed situation. This can apply to local
checks as well as DPC checks. Examples would be check
prepared for a duplicate vendor invoice or a scholarship
check prepared for a student who withdraws.
3) Check never cashed. Sometimes the payee simply does not
cash his check. In this case, the check entry is
cancelled or redrawn as specified in chapter C-173-78,
Cash: Unclaimed and Uncashed Checks.
When a transaction must be reversed for any of the above
reasons, the accounting office must decide whether to cancel

the check or redraw it. In many situations, either method is

equally acceptable, and the practice on this varies from
campus to campus. Accounting offices should consider the
following in the development of their procedures:
A. NO REPLACEMENT CHECK TO BE ISSUED
In this case, the choice between cancellation and
redrawing is influenced by the tax code.
Tax code 0: If the original check is tax coded 0 (i.e.,
no special tax considerations), it may be either cancelled
or, if the check is in hand, redrawn, whichever the
accounting office finds more convenient.
Tax code 1, 3, or 4: If the original check is tax coded
1, 3, or 4 (use tax accrued on original payment), it may
be easier to cancel the check than to redraw it. If it is
cancelled, the use tax accrual can be coded on the
cancellation form and will be reversed automatically by
the accounts payable system, whereas if it is redrawn, a
separate entry must be made on the redeposit form (type
entry 3X), as a journal entry (type entry 53), or on a
form 100 (type entry 42) to reverse the original tax
accrual.
Tax code 2 or 5 through 9: If the original check is tax
coded 2 or 5 through 9 (payment reportable to the Internal
Revenue Service), it may also be easier to cancel the
check, since the data used by DPC to prepare the tax
reporting forms (W-2, 1099, etc.) is accumulated in the
accounts payable system and therefore must be reversed out
of this system. If the check is cancelled, the original
charge and the tax reporting data can be coded on the
cancellation form and reversed out of the accounts payable
system in a single entry. If the check is redrawn, the
original charge is reversed out by a cash received entry,
but an additional pair for entries must still be made on a
form 100 to reverse out the IRS tax code from the accounts
payable system. (The accounting office could also pull
the IRS from manually after it had been prepared by DPC at
year end; this would require manual records of forms to be
pulled.)
B. UNCASHED AND UNCLAIMED CHECKS
For the purposes of preparing tax reporting forms,
accounting offices should consider uncashed and unclaimed
checks to have been received and cashed by the payee.
Uncashed checks should be cancelled by journal entry or on
an accounts payable cancellation form tax coded 0
(regardless of the original tax code) so as not to remove
the tax reporting data from the DPC accounts payable file;
unclaimed checks may be similarly cancelled or may be
redrawn. The reason for this tax reporting is that the
payee has an indefinite claim on the funds remitted to him
(see chapter
C-173-78, section VII), and the University has no way of
knowing when he might claim these funds. The issuance of
a tax reporting form might indeed remind the payee that

the University owes him money that he has not claimed.

C. CHECK CORRECT BUT OTHER INPUT NEEDS CORRECTING
If there is a coding error on a DPC check entry, but if
the check itself is for the right amount and to the right
payee, it should be used. The remaining coding--e.g., tax
coding, vendor coding, account coding, taxpayer ID number,
or any item but the amount--can be corrected on a form
100.
D. SPECIAL CONSIDERATIONS FOR LOCAL CHECKS
If the accounting office makes an error in preparing a
local check, it should void the check (as opposed to
cancelling or redrawing it) as long as it has not
submitted the check entry to DPC. Once the Check has been
entered by DPC, it must be cancelled or redrawn like a DPC
produced check.
V. USE OF CLEARING ACCOUNT
In deciding when to use a clearing account for drawing
replacement checks, the accounting office should consider the
following:
If a replacement check is to be issued, the accounting office
can clear the cancellation or redraw either through the
account originally charged or through a clearing account. If
a check to be replaced has been charged to a number of
different accounts and if all the charges were correct, as in
the case of a lost check, a clearing account should be used
(see Appendix II for sample entries). By using a clearing
account, the accounting office can cancel the original check
and write the replacement check with just one line of coding
for each check as opposed to one line for each account
originally charged (however, some manual adjustment of the
check stub will be required). Furthermore, the entry or
entries to the accounts originally charged are not disturbed.
If the check has been charged to a number of different
accounts, and if only part of the charges were correct (as in
the case of an incorrect amount on one line of a DPC-produced
check), the clearing account may be used to clear the correct
items of coding. The incorrect items must be cleared through
the account originally charged in order that the original
entry will be corrected in the Ledger.
One disadvantage of using a clearing account is that the
department whose expenditure account was originally charged
will not know the number of the replacement check. If the
department inquires about the check, the accounting office
will first have to locate the original voucher to find the
number of the replacement check (this information should be
written on the voucher of the original check). Therefore, if
only one or two lines of correct coding have to be reversed,
the accounting office may wish to clear the cancellation or
redraw through the account originally charged rather than
through the clearing account.

VI.

STOP PAYMENTS
Stop payment requests are normally handled by the accounting
office section that cancels or redraws checks. The
accounting office should telephone the stop payment request
to the bank if a check is reported stolen or if there is
otherwise some urgency; otherwise the check could be cashed
before the notice got to the bank. If there is no particular
urgency, a telephone call is not necessary. In any case, a
written stop payment request must always be sent as a
binding, official notice to the bank.
If a replacement check is to be issued, some campuses require
a written verification of stop payment from the bank before
issuing the replacement, while others will rely on a
telephone confirmation. The practice in this matter depends
primarily on the accounting office's relations with the bank,
the bank's reliability, and to some extent on the urgency of
issuing a particular replacement check.
Some banks have a standard form on which stop payment
requests must be submitted. At the campuses where the bank
does not have such a form, the accounting offices have all
developed a form letter for requesting stop payments. Some
accounting offices use a multipart form that serves as a stop
payment request, a DPC cancellation form, and a cancellation
form for the bank reconcilement service.

VII. NOTIFICATION OF RECONCILEMENT SERVICE

Each campus has contracted with its bank to assist it with
the bank reconciliation (except that Davis has a separate
account for local checks that is reconciled manually). Under
these agreements, the reconcilement services, which are
separate from the banks' operating divisions, receive
magnetic tapes from DPC (or typed lists, in the case of local
checks) recording check numbers and the amount of each check
issued. The reconcilement service removes paid checks from
the outstanding list and prints out a monthly list of
outstanding checks from the accounting office. To remove
cancelled checks from the outstanding list, the
accounting office must periodically send a list of these to
the reconcilement service.
VIII.RELATED POLICY
Accounting Manual chapter C-173-78:
Cash: Unclaimed and Uncashed Checks
______________________________
Historical note: Original Accounting Manual chapter published
6/1/72. Analyst: Kim Cranney.
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Appendix I: Vendor Check Adjustments Form

C H A R T -- not available on Gopher
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APPENDIX II: ENTRIES FOR REPLACEMENT OF INCORRECT CHECK
The following entries illustrate the use of a clearing account in
the replacement of an incorrect check. The check is paying
several invoices; three of the entries are correct and one is
incorrect.
1) Original entries: Assume the following invoices were
submitted to DPC for payment in one check writing and were
entered as follows:
Type
entry Account
42
42
42

Exp. #1
Exp. #2
Exp. #3

Payee (not key- Group Vendor Tax

Amount
punched--grp. 2) code
no. code Debit/Credit
Acme Scientific
Acme Scientific
Acme Scientific

2
2
2
(total)

42

Exp. #4

Ace Supply Co.

42

Cash (vendor revolving fund)

12324 0
12324 0
12324 0
12324

32.00
27.00
13.00
(72.00)
0

19.84
91.84

Due to a coding error, Ace Supply's invoice is assigned Acme

Scientific's vendor number. Since all four invoices are
submitted in group 2, regular vendors, DPC generates a check
from vendor number 12324 payable to Acme Scientific for
$91.84 (72.00 + 19.84).
2) Cancellation or redraw entries: The accounting office finds
the incorrect check when they are preparing the checks for
mailing. To correct the error, they cancel the incorrect
check or redraw it to The Regents (see section IV above for
explanation).
For a redraw the entry would be as follows (cancellation
entry would be similar but type entry 42 would be used):
Type
entry
Debit/Credit
32
32
32

Account

Amount
Description

Balance sheet clearing Acme Scientific

Expense account #4
Acme Scientific
Cash (campus depository) Receipts of
X/XX/71

72.00
19.84
91.84

The Acme Scientific entries are cleared through the clearing

account, since they are correct. By using the clearing

account, the accounting office combines three lines of coding
into one and avoids unnecessary entries in expense accounts
#1, 2, and 3. The Ace Supply invoice is cleared back through
expense account #4 in order to offset the original check
entry, which will appear incorrectly in the Ledger as Acme
Scientific.
3) Replacement check entries: To replace the incorrect check,
the accounting office resubmits the vendor invoices to DPC in
group 2 (or prepares local checks, group 9). The Acme
Scientific invoices are attached to a Form 5 coded with the
balance sheet clearing account. The Ace Supply invoice can
be resubmitted in its original form (with the vendor number
corrected), since the cancellation of this invoice was
cleared through the original expense account.
Since the use of the balance sheet clearing account requires
the preparation of a Form 5, the accounting office may prefer
to clear the cancellation entries through the original
expense account. In deciding whether to use the original
expense account or the clearing account, the accounting
office should consider the number of entries involved in the
cancellation. It should balance its own effort of preparing
a covering Form 5 and manually adjusting the replacement
check stub against keypunch's effort of making a number of
entries two times (once for cancellation, once for redraw).
Coding for the clearing account method is as follows:
Type
entry Account
42

Group Vendor Tax

Amount
code
no. code Debit/Credit

Payee

Balance Sheet Acme

clearing house Scientific

42

Exp. acct. #4 Ace Supply 2

Company
Cash (vendor revolving fund)

42

12324 0

72.00

12234 01

9.84
91.84

---------------------------------------------------------------At the end of the month, expense account #4 and the balance
sheet clearing account appear as follows:
Expense Account #4
Entry
no. (from
above)
2)
1)
3)

Type
Description
Acme Scientific
Acme Scientific
Ace Supply

entry Amount
32
42
42

19.8419.84
19.84

Balance Sheet Clearing Account

2)
3)

Acme Scientific
Acme Scientific

32
42

72.0072.00

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