What Is An Outstanding Check? Definition Meaning Explanation

Since outstanding checks have already been recorded in the company’s books as cash disbursements, they must be subtracted from the bank statement balance. Outstanding checks are checks that have been issued but not yet presented for payment or cleared by the bank. They represent pending transactions where the funds have not yet been deducted from the issuer’s account.

As such, there is no incentive to wish for an outstanding check to permanently never be cashed as the payment is subsequently owed to the government for holding. When all differences between the ending bank statement balance and book balance have been identified bookkeeping for startups and entered on the bank reconciliation, the adjusted bank balance and adjusted book balance are identical. To remedy these situations quickly, be proactive with outstanding checks. After all, you still owe the money, and you’ll have to pay it sooner or later.

Emergency Services & Information

When a business writes a check, it deducts the amount from the appropriate general ledger cash account. If the funds have not been withdrawn or cashed by the payee, the company’s bank account will be overstated and have a larger balance than the general ledger entry. Tracking of payments can be accomplished through the use of checks, which provide both a paper trail and evidence of payment. Through the use of the check, the sender and the recipient of the payment are able to retain a record of the transaction, which includes the date, the amount, and the payee.

• This process is part of the accounting cycle, allowing the company to accurately report cash, a current asset, on its balance sheet.
• On your reconciliation sheet, outstanding checks are often subtracted from your balance per bank because these withdrawals have not yet happened but are simply a timing matter.
• Unrecorded service charges must be subtracted from the company’s book balance on the bank reconciliation.
• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

Accounting inconsistencies may arise if outstanding checks are not reported and tracked in the appropriate manner. Because of this, keeping correct financial records can be difficult, and it may lead to problems during audits or when reconciling finances. For example, payments may show as being paid but if the cash has not yet been debited from the account, there may be inconsistencies worth reconciling. Individuals need to account for outstanding checks when they balance their checkbooks.

Outstanding Checks and Unclaimed Property

Fortunately, banks don’t have a legal obligation to honor checks written more than six months in the past. If the old check isn’t six months old, or if you want an extra layer of protection, two strategies can protect you. The amount of outstanding checks is sometimes referred to as float.