6 Outstanding Check Examples(With Details)


Want to learn different examples of outstanding checks? Read on.

Including:

  • Undeposited checks
  • Lost checks
  • Approved checks but still unreleased to payees
  • Checks with too many errors and erasures
  • Forged signatures on the checks
  • Incorrectly recorded outstanding checks

The six examples below dive deeply into what are outstanding checks. First, we discuss the examples. Next, we explain clearly what each example is about. Third, an adjusting entry is given so that the accountants and bookkeepers know what to do about them.

In accounting, the calculation of the actual bank balances assists the management relative to the business operation disbursements. For instance, they can determine whether disbursements for supplies and investments would not result in bank overdrafts. The total outstanding checks are deducted from the bank balance to calculate how much cash is available. Also, the balance of a bank statement does not necessarily mean available cash. In addition, the cash balance in a depositor’s record might be incorrect. Check issuances could be recorded in another bank account, increasing the number of outstanding checks. Hence, the preparation of a bank reconciliation statement gives assurance to the management about the cash availability of their organization.

1. Undeposited checks

It is common to have outstanding checks at the end of the month. For instance, the check remains outstanding because of bank clearing. The clearing time would take around three (3) to 15 days. The cashout period depends upon a bank’s policy. Also, check recipients have not yet cashouts. This is common because of too many possible reasons. In addition, payees often have to schedule the deposit date. Some companies would transmit collections to a bank daily, every three days, or weekly. They do it to save on transportation costs. Thus, an entity should have outstanding checks at the end of each month.

2. Lost checks/Forgotten

Many outstanding checks could remain outstanding for over a month due to lost checks. For example, a check recipient has no proper accounting. Good accounting helps payees determine all cash collections and deposits. It ensures that all cash collections are recognized in the records so that deposits are done on time.  Furthermore, the payee forgot about the check. This is common among individuals. Why? It is because record-keeping is usually not undertaken. Also, the receiver has no Identification card or a bank account. This is common among third-world countries but in the United States, it is not a problem. People without work do not usually have identification cards and bank accounts. Hence, notifying the payee could remind them about depositing the check.

3. Approved checks but still unreleased to payees

Approved checks at the end of the month could remain unreleased. Indeed, a company typically does not have assigned personnel just for check deliveries. The cost could become enormous which a company would avoid. In addition, check recipients often must do follow-ups and not the issuer. This is logical because a company will usually do its best to defer payments to suppliers and contractors. Also, checks released on the last bank day are usually deposited on the next ensuing month. An example would be a check released in the afternoon. Hence, approved but unreleased checks are normal each month.

4. Checks with too many errors and erasures

Issued checks with too many errors in words and figures get rejected by a bank. In this case, the check could have errors in words in the amount section. Legible words on a check are required for it to be valid. The bank will not honor a check that is unreadable. Also, the amount in numbers is not equal to the words written on it. The words on the check should equal the numbers written on it. In addition, the check number is not vivid. A check with an unreadable check number will not be accepted by a bank. Furthermore, erasures in a check render it invalid. So, the issued checks will never clear in a bank if they have so many inaccuracies and become outstanding checks.

Those checks would become outstanding unless an adjustment is done in the depositor’s records. For instance, upon communication from the payee, the accounting will debit the amount to Cash in Bank Account and credit it to Accounts Payable. Also, the payee sets up a receivable and decreases their cash balance. It effectively set the obligation of the check issuer. So, a journal entry will remove the check from the outstanding checks.

5. Forged signatures on the checks

Checks with forged signatures will not be accepted by a bank and will remain outstanding. Truly, the bank has the option to communicate with the check drawer. They have the moral responsibility to inform the drawee. Also, the check could have been drawn because of some employees of the depositor. They may have devised a scheme for their benefit. In addition, the bank could file a lawsuit because of forgery. Prosecuting forgery of checks prevents the same misconduct. So, a check recorded by accounting, but faked, will form part of outstanding checks.

6. Incorrectly recorded outstanding checks

Some issued checks are erroneously recorded by accounting in another bank account. Indeed, because of too many transactions being processed, mistakes are unavoidable. It typically occurs in an entity with thousands of disbursed checks. Also, when a check is journalized in the incorrect bank account, it will remain outstanding, unless an adjusting entry is made. Furthermore, when the check clears, it will be an unrecorded transaction on the correct bank account. Thus, errors in recording checks increase the outstanding checks of another bank account.

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