Unreleased Checks in Bank Reconciliation: Guide

unreleased checks in bank reconciliation

Want to learn unreleased checks in bank reconciliation? Read on.

Unreleased checks can become an issue if overlooked during bank reconciliation.

Typically, we rely on a cash book and a bank statement for reconciliation, without specifically checking for unreleased checks in the records.

In this post, we’ll delve into how to handle unreleased checks found in the cash book that could impact the reconciliation process.

What is an unreleased check?

Unreleased checks are essentially approved and signed checks awaiting issuance. However, they remain unclaimed by payees or are yet to be released by the company for various reasons.

Possible factors include potential cancellation, insufficient funds, or a deliberate hold by the treasurer or finance department.

An issue arises when these checks have already been recorded in the accounting system. Contrary to the common assumption that checks are recorded only upon release to payees, some accountants preemptively record transactions before issuance.

This practice is driven by practical considerations, especially in cases where a large number of transactions need to be managed. Additionally, checks often undergo scrutiny in the accounting office for verification before issuance.

In larger companies, accountants are typically involved in the certification process, where they sign vouchers to attest to the completeness of supporting documents.

To streamline this process, unsigned checks are often attached to the voucher. Consequently, accountants may choose to record the transaction without waiting for approval from authorized personnel and subsequent release.

Consider a scenario where thousands of checks are released at the end of the month. Waiting for approval and recording each issuance individually may be impractical within the reporting deadline.

This is why unreleased checks become a crucial element in the bank reconciliation process, ensuring financial records align accurately despite the timing discrepancies in check issuance and recording.

Should not affect bank reconciliation

Typically, checks that haven’t been processed and recorded in a company’s cash book are not considered in bank reconciliation.

It’s usually not something to worry about. However, if you notice a significant number of outstanding checks lingering for several months, it could indicate an issue with unreleased checks.

For instance, if you find hundreds of checks still listed as outstanding after more than 3 months, they might be unreleased. There’s likely a reason these checks haven’t reached their intended recipients.

As mentioned earlier, it’s crucial to address this with the treasury, the department responsible for releasing checks and managing disbursements.

Don’t wait until the checks become stale before taking action, as the total value of unreleased checks included in outstanding checks could impact the accuracy of the reported Cash balance on the balance sheet.

It’s essential to maintain the reliability of financial statements by addressing any potential issues promptly.

What to do if recorded?

If checks that haven’t been issued yet are logged in the accountant’s cash book, they should typically be accounted for in the outstanding checks section of your bank reconciliation statement.

To address this, consider notifying the treasurer or finance department about the situation. Alternatively, you can choose to let the checks age until they become stale, and then advise the accountant to reverse them in the accounting records.

However, if the amounts involved are significant and could impact management decisions, it’s advisable to promptly inform the accountant about the situation, suggesting potential reversal journal entries.

It’s common practice to reverse unreleased checks with journal entries during year-end to accurately reflect the actual cash balance. This involves debiting Cash in Bank and crediting Accounts Payable account.

For public companies mandated to prepare quarterly financial statements, it’s crucial to present an accurate cash balance in the balance sheet. Therefore, reporting unreleased checks to the treasury is essential for validation.

This ensures that the disclosed cash balance aligns with the actual financial standing, contributing to transparent and reliable financial reporting.

Going forward

Even though it’s advised not to log unreleased checks in the cash book, there are practical reasons why accountants often do. As we’ve talked about earlier, it’s generally better to record checks even if they haven’t been released yet.

The key point is that when accountants need to present financial reports to management or the public (in the case of a public company), the reports should be accurate and not contain significant errors.

If there are only a few unreleased checks in the cash book and they don’t have a big impact, it might not be worth stressing over.

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