We wrote a payroll check to one of our employees for $350.66 but while reconciling the account we noticed the bank cashed the check for $350.00. Obviously the employee didn't notice. What is the proper way to handle the error without affecting the employee's earnings?
Thanks for any input.
Usually I would enter a G/J entry debiting the bank the 66 cents, and either crediting the employee's wages default account OR crediting bank charges. Check with your accountant which they prefer.
This may seem like an immaterial amount but if it happens often, it can become a material amount over the course of a year.
However, my personal preference is the wages account.
One has to be careful about touching the wages account. While the bank may have debited your account for one amount, it may well have paid the employee the correct amount. Errors like that happen at the bank all the time, teller counts the correct amount of cash and enters the wrong amount into the computer. Also errors happen when the MICR amount is put on the check. I suspect for consistency you should treat them the same way you treat errors that happen in checks to your vendors.
Further I've been told that for errors under $5.00 many banks will not bother to charge back to the account as it costs them more than that to fix the error.
As for touching the wages account, I would want the total of W-2's and 941's to match what is on the income tax form.
It is a different matter if the employee says, Hey I got shorted ... then you fix it.
In that case, just write the 66 cents off to bank charges or a miscellaneous account.
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