Ready to learn outstanding checks on a balance sheet? Read on.
Understanding how outstanding checks can affect your balance sheet is crucial in maintaining accurate financial records.
This article will provide you with an overview of outstanding checks, their impact on your balance sheet, and the necessary steps for resolution.
Understanding Outstanding Checks
Outstanding checks are checks that you have issued but have not yet been presented for payment by the recipient or cleared by your bank.
These checks represent funds that have been deducted from your account when issued, but they are still pending and have not yet been reflected on your bank statement.
Essentially, they are payments that are in transit.
Effects on Your Balance Sheet
Outstanding checks can create discrepancies between the cash balance reported on your balance sheet and the actual amount in your bank account.
The outstanding checks should be reflected as a deduction from your cash balance on the balance sheet.
Therefore, the reported cash balance on your balance sheet should be lower than the actual amount in your bank account.
Additionally, outstanding checks affect your current liabilities.
These checks represent payments you owe to your suppliers, vendors, or employees.
Until the checks have cleared, these liabilities remain unpaid but in the balance sheet, it is already paid.
Rectifying Outstanding Checks
To rectify the effects of outstanding checks on your balance sheet, you need to reconcile your bank statement with your cash ledger.
Identify the outstanding checks that have not yet cleared by comparing the checks you have issued with the transactions recorded in your bank statement.
Make a note of the amounts and the parties they were issued to.
Over One-month Outstanding Checks
Contact the payees of the outstanding checks to determine if they have received the payment and deposited the checks.
If they have not yet deposited the checks, inquire about any delays or potential issues causing the delay.
Adjust your balance sheet by deducting the total amount of outstanding checks from the reported cash balance (if not yet recorded in the books).
This will ensure your cash balance accurately reflects the funds available in your bank account.
Similarly, subtract the amount of outstanding checks from the respective liability accounts to update your current liabilities (if not yet recorded).
Complete any necessary accounting transactions to reflect any changes related to outstanding checks.
Void or cancel checks that will not be deposited, and record any checks that have cleared after your reconciliation.
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