What is an Outstanding Check?

bank reconciliation outstanding checks

Want to learn the outstanding checks? Read on.

An outstanding check is defined as a check that have been issued by a bank account holder but have not yet been presented for payment by the payee (the person or organization to whom the check is written).

In other words, it is a check that have been written and deducted from the account’s balance but have not yet been cashed or deposited by the recipient.

Outstanding check can also be referred to as “uncleared check.”

Meaning of outstanding checks

Outstanding checks refer to checks that have been issued to payees but are still uncleared in the bank.

While many people think of outstanding checks as simply forgotten or neglected funds, they can actually have significant financial meaning or implications.

For the payer, an outstanding check represents a potential liability that needs to be accounted for in their records, as it could still be cashed at any time.

On the other hand, for the recipient, an outstanding check may lead to uncertainty and inconvenience regarding when and if they will receive the funds owed to them.

Moreover, from a banking perspective, outstanding checks can impact account reconciliation and cause discrepancies in financial reports.

Issued check

To be recognized as an outstanding check, it must be issued first.

Some people may include unissued checks.

Journal Entry

There is no journal entry for an outstanding check unless it becomes stale.

an outstanding check is already disbursed by a depositor.

Deducted from Bank Account Balance and reason

Click here why outstanding checks are deducted from the bank balance.

When you write a check, the amount of the check is deducted from your account bank balance immediately.

This means that the money is earmarked for the payee, but it is still in your bank statement balance, until the payee deposits or cashes the check.

Record Keeping

It is essential for account holders to keep track of outstanding checks in their checkbooks or account registers.

This helps prevent overdrafts and ensures that there are sufficient funds available to cover the outstanding checks when they are presented for payment.

Bank Reconciliation

As part of the bank reconciliation process, account holders compare their records of issued checks with their bank statements to identify outstanding checks.

This reconciliation helps ensure that the account’s balance matches the bank’s records.

Preparation of bank reconciliation

In the preparation of bank reconciliation, outstanding checks are generally included in the bank section of the report.

Usually those are deducted from the bank balance.

Calculate oustanding checks

To calculate outstanding checks, match all checks recorded in the accounting records and all checks debited in the bank statements.

Next, list all unmatched checks from the bank statement.

Then, sum all unmatched check to calculate the total outstanding checks.

Gaap Rules

Under gaap rules, outstanding checks, in terms of accrual, remains in transit until they become stale.

Depending upon the depositor’s locality, stale outstanding checks are often reverted back to payables.

Stale Checks

In some cases, checks may become stale or expire if they are not presented for payment within a certain timeframe.

The rules for stale checks can vary by location, so it’s important to check with your bank regarding their specific policies.

Example of an outstanding check

Click here to see outstanding check examples.

What is outstanding check accounting?

Outstanding check accounting refers to the process of regulary tracking and managing checks that have been written by a company but have not yet been cashed by the recipient.

It is usually done monthly in a bank reconciliation.

How to find on bank statement?

To find outstanding checks in bank reconciliaiton, checks included in the depositor’s records but not found in the bank statement are usually the in-transit checks.

Impact on Account Balances

Outstanding checks can affect the available balance in your account.

Until the payee presents the check for payment, the money remains in your account but is effectively reserved for that purpose.

This can sometimes lead to account holders mistakenly believing they have more funds available than they actually do.

Communication with Payees

Account holders should stay in communication with payees and encourage them to deposit or cash outstanding checks promptly.

This helps prevent surprises and ensures that payments are made as intended.

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