5 Reasons Outstanding Checks Occur at Month-End

Ready to learn why do outstanding checks occur at Month-End?

This tutorial will describe the five most common reasons. First, the reasons are not listed based on their importance. Each of the illustration can happen at the end of a month. Next, they are not to be complete. There are many reasons that could occur. Also, the examples are taken from actual experiences. Working in an accounting office gives familiarity to its occurrences.

Outstanding checks are usually normal at the end of a month. In fact, most bank reconciliation statements have them. Looking at monthly reconciliation, there will be at least one outstanding check unless there is a non-issuance of checks in the last week of a month. Indeed, some checks issued at or near the end of a month become part of the outstanding checks. This is common because checks are deposited by payees, usually within one to three days. Furthermore, there are other reasons they exist at a month end. Those reasons are explained in details below.

1. Undeposited checks by Payees

There are many reasons payees cannot deposit their checks immediately. First, it depends on their schedules. They could be still be preoccupied with their job or business and they limited time to send the checks to a bank. In addition, the time they received the checks can affect the day they deposit. It is common when it is already Four (4) P. M when they received the checks. Also, personal matters can also cause the delays. The need to go somewhere can delay further the deposits.

2. Unreleased checks but recorded in Accounting Records

There is an unwritten rule in Internal Control in which an issuance of a check should pass through an accounting office before approval. For instance, a check should be reviewed first, together with a voucher and supporting documents. It is necessary to verify all related documents before issuing a check. Next, an accountant will affix a signature on a voucher to certify the completeness of the required documents. It means that the transaction has been inspected for validity. Then, the Accounting office records the transaction in a cash book. The record is reversed when disapproved later on. Finally, the check is sent to a CEO, or an allowed personnel for approval.

Some checks may remain unreleased at the end of a month, although recorded in a cash book. For example, they were approved late in an afternoon. There is not enough time to send them to the payees. Also, the payees may have not yet claimed their checks. Unclaimed checks are already deducted for the cash balance of an organization. In addition, the checks could still be unapproved. Some checks are still in the process of approval. However, the checks are already recorded by Accounting and they will not be clear in a bank because of being unreleased. So, they become part of the outstanding checks at the end of a month.

3. Lost Checks

Payees can lose or damage their checks after receipt. For instance, they forgot where they placed them. They could have gone somewhere and accidentally left the checks there. Also, for people without keeping excellent records, checks can be forgotten. It is possible when there are too many check receipts without proper recording and monitoring. In addition, there are other reasons which we cannot cover here. Thus, lost checks become part of outstanding checks at the end of a month. They remain in the outstanding checks unless they are communicated to the issuer and replaced.

4. Late deposits

Sometimes payees cannot deposit the checks immediately because of some reasons. For instance, checks issued on the last day of a month are deposited in the first week of the following month. This can occur because the last day is a weekend or holiday. In addition, payees follow deposit schedules to save on transportation costs. It is practical to deposit checks in batches to save on traveling fees. Also, personal reasons can hinder prompt deposits. One example can be “busy at work”.

5. Errors on the check

Checks with errors are usually rejected by banks. For instance, the account numbers are not clear. Account numbers should be correct to have smooth cash-outs. Also, bank tellers will check all information in checks whether there are errors. Numbers in words and in numbers should match. In addition, checks with missing signatures are invalid. The checks are invalid when the signatures are missing. Thus, those checks become part of the outstanding checks at the end of the month, unless reported to the issuer and replaced.