Outstanding checks are already recorded in the Cash Book, so there’s no need to prepare a journal entry for them.
You’ll see these checks in bank reconciliation reports, but don’t take any action or record anything in the books.
The only exception is when outstanding checks become stale; that’s when you should record them.
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When can you make journal entries?
You can certainly make journal entries for outstanding checks if errors occur.
For instance, double or multiple entries of an issued check in the cash book might understate the bank balance recorded in the books.
In this case, you’d debit Cash in Bank and credit either Accounts Payable for a supplier or Officers and Employees account for staff members.
This process helps correct mistakes and ensures your financial records accurately reflect your bank balance.
- Debit: Cash in Bank
- Credit: Accounts Payable/Other Suitable Accounts
For Stale Checks
Checks that remain outstanding for six months or longer are considered stale and should be reverted back to cash.
Banks typically don’t accept stale checks, so it’s necessary to adjust the accounting records.
To do this, debit the Cash in Bank account and credit the Accounts Payable or another suitable account.
This process ensures your financial records accurately reflect the current status of these outdated checks.
- Debit: Cash in Bank
- Credit: Accounts Payable or other payable accounts
Credit Entry Depends upon the Original Entry
When dealing with a communication expense payment as an example, the accounting entry differs.
Instead of crediting the Accounts Payable account, you’ll credit the Communication Expense account while debiting the Cash in Bank account.
The credit entry ultimately depends on the original journal entry of the outstanding check.
This approach ensures accurate tracking of expenses and maintains proper financial records.
Tracing the original entry is crucial when preparing a journal entry for outstanding checks.
The entry could involve a receivable, payable, or equity account.
Always refer back to the original entry to avoid accounting errors.
This ensures your records remain accurate and up-to-date.