Outstanding checks should be deducted from the bank balance because they have already been issued to the payee, even though the bank has not yet cleared them.
The depositor records issued checks in their cash book as a deduction from the bank balance.
These checks remain outstanding until the bank processes them, at which point the bank balance is officially reduced.
Written By Kevin Mil - Author/Founder
Payees have valid claims
As a payee, receiving a check gives you a valid claim to the cash.
The issuing company must deduct the check amount from their bank balance.
Otherwise, they will report an incorrect cash balance on the balance sheet.
Without recording outstanding checks, the company’s records will be inaccurate and could lead to an overdraft in their bank account.
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