@diageminc
"Should I unlink the original check (the one that was lost) from the original bill even though this was already reconciled, then link the old check to the new deposit and the new replacement check to the original invoice? Or leave the original bill and payment untouched and reconcile the deposit and payment?"
Don't unlink the original bill payment from the bill. You don't want to do that because you still paid the bill on that day. If you're a cash basis taxpayer, the bill payment date needs to stay the same so your expense is booked as of the original payment date. The lost check should not be reconciled since it never cleared so I'm not sure I understand what you're asking there. So, regardless if you're on cash or accrual basis, leave the original bill and the original bill payment alone.
When you discover you need to re-issue a check, create a deposit for the amount of the lost check. It's helpful to make a note as to why you're creating the deposit (lost check #12345, etc.). You can assign a bank Clearing Account (set one up if you don't have one) to the deposit or A/P. It doesn't really matter since you are going to immediately issue a check and assign the same account to the check that you assigned to the deposit, thereby zeroing it out. If you assign the deposit and re-issued check to A/P, that will create a "bill" and "bill payment" so make sure you apply the deposit to the check by going to Pay bills and clearing them against each other. After you issue the new check, you will now have three transactions that will show on your next bank rec: the original check, the new deposit, and the new check. The next time you reconcile, clear the original check and the deposit (those two will net to zero) and then clear the new check when it actually clears. Hope that helps.
