NetCash Cutover Items Explanation

What Are Cutover Items?

Cutover items are discrepancies between your bank's balance and your general ledger (GL) balance on the cutover date—the date you choose to start reconciling transactions in NetCash. These differences usually arise due to timing issues, such as:

  • Outstanding Checks: Checks recorded in your GL but not yet cleared by the bank.
  • Deposits in Transit: Deposits recorded in your GL but not yet reflected in the bank statement.

Understanding and properly handling cutover items ensures that your financial records are accurate from the start of your use of NetCash.

How Do I Handle Outstanding Checks That Haven't Cleared by the Cutover Date?

Scenario A: You have a GL transaction for a check dated December 31st. Your cutover date is January 1st, but the check doesn't clear the bank until January 3rd.

Solution:

  1. Create a Cutover Item:
    • In NetCash, navigate to the Cutover Item screen.
    • The system will list transactions prior to the cutover date that could account for the difference.
  2. Select the Outstanding Check:
    • Identify and select the check dated December 31st that hasn't cleared yet.
  3. Submit the Cutover Item:
    • Click Submit to create a cutover item for this transaction.
    • NetCash will generate a journal entry to adjust the balances.
  4. Match When Cleared:
    • When the check clears the bank on January 3rd, match it with the cutover item during reconciliation.

Outcome: This process ensures that the outstanding check is accounted for, and your bank and GL balances align as of the cutover date.

What If I Have Old Outstanding Checks That Haven't Cleared for a Long Time?

Scenario B: You have a check that has been outstanding for six months and hasn't cleared the bank. You're unsure when, or if, it will clear.

Solution:

  1. Include as a Cutover Item:
    • Even if the check is old, it still affects your GL balance.
    • Navigate to the Cutover Item screen and select this check.
  2. Monitor the Check:
    • Keep the cutover item active until the check clears or until your company's policy allows you to void it.
  3. Follow Company Policy:
    • If the check remains uncleared beyond the acceptable period defined by your company, consider voiding it according to your procedures.

Outcome: Including long-outstanding checks as cutover items ensures your records remain accurate, and you comply with auditing standards.

How Do I Handle Transactions That Cleared Before the Cutover Date but Are Recorded After?

Scenario C: An item clears the bank on December 31st, but the corresponding journal entry in your GL is dated January 2nd. Should you create a cutover item?

Solution:

  1. Adjust the Transaction Date (Preferred):
    • Update the GL Entry Date:
      • Change the journal entry date from January 2nd to December 31st to match the bank clearing date.
    • Note: This aligns the transaction with the correct accounting period.
  2. If Books Are Closed (Alternative):
    • Create a Reversing Journal Entry:
      • Post a journal entry dated December 31st (posting in the next open period) to recognize the transaction.
      • Create a reversing entry dated January 2nd (also posting in the same period) to negate the impact.
    • Result: This approach moves the transaction before the cutover date without affecting closed periods.
  3. Do Not Create a Cutover Item:
    • Since the bank cleared the item before the cutover date, it shouldn't be a cutover item.
    • Adjusting the GL ensures consistency without introducing discrepancies.

Outcome: By realigning the GL entry date or using reversing entries, you accurately reflect the transaction timing without affecting closed accounting periods.

What Should I Do with Permanent Differences Between Bank and Book Balances?

Scenario D: You have a balance difference that you don't expect to clear—it represents a permanent discrepancy between your bank and books.

Solution:

  1. Eliminate Permanent Differences:
    • Post an Adjusting Journal Entry:
      • Create a journal entry dated the day before the cutover date to eliminate the difference.
      • This adjusts your GL balance to match the bank balance as of the cutover date.
  2. Avoid Permanent Differences in Reconciliations:
    • Permanent differences should not persist in your bank reconciliations.
    • Address them promptly to maintain accurate financial records.
  3. Handle Outstanding Checks Appropriately:
    • If the difference is due to an outstanding check, retain it as a cutover item until your company policy deems it void.
    • Follow procedures for uncashed checks, such as contacting the payee or reissuing payment if necessary.

Outcome: By clearing permanent differences before the cutover date, you start with reconciled balances, ensuring ongoing accuracy in your financial reporting.

How Do I Handle Deposits in Transit on the Cutover Date?

The same principles for handling outstanding checks apply to deposits in transit, but in reverse.

Scenario A (Deposits): You have a deposit recorded in your GL on December 31st. Your cutover date is January 1st, but the bank doesn't reflect the deposit until January 3rd.

Solution:

  • Create a Cutover Item for the Deposit:
    • Select the deposit transaction in the Cutover Item screen.
    • Submit it as a cutover item.
    • Match it when it appears on the bank statement on January 3rd.

Scenario B (Old Deposits): A deposit recorded six months ago hasn't appeared in the bank statement.

Solution:

  • Include as a Cutover Item:
    • Add it as a cutover item.
  • Investigate:
    • Verify with the bank why the deposit hasn't been processed.
    • Take corrective action as needed.

Scenario C (Deposits Cleared Before Cutover Date): A deposit appears on the bank statement on December 31st, but the GL entry is dated January 2nd.

Solution:

  • Adjust the GL Entry Date:
    • Change the date to December 31st.
  • Or Use Reversing Entries:
    • If the period is closed, create a reversing journal entry as described earlier.

Scenario D (Permanent Deposit Differences): You have a deposit difference you don't expect to reconcile.

Solution:

  • Post an Adjusting Entry:
    • Eliminate the difference with a journal entry dated before the cutover date.
  • Avoid Permanent Differences:
    • Ensure all deposits in transit are accurately reflected to prevent discrepancies.

 

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