Want to learn, on a bank reconciliation, what do you do with outstanding checks? Read on.
Here are the things you can do with outstanding checks:
1. List down and monitor
Every month, you list down all outstanding checks, which you find in a bank reconciliation.
Next, you need the list to be in chronological order.
Then, the list should be included in the bank reconciliation statement for monitoring purposes, which you can use in the next thing.
Monitoring can become a valuable process later on.
2. Account for unissued checks and prepare the adjusting entries
Sometimes, you have already recorded the checks in the accounting records before their issuance.
They, the unissued checks, are going to be part of the outstanding checks list if not careful.
Unissued checks are drawn checks which should not be included in the outstanding checks.
So, you need to remove the unreleased checks from the accounting records by preparing the adjusting entries.
Here is the accounting entry to reverse unissued checks:
Debit: Cash in Bank $10,000.00 Credit: Accounts Payable(if related to business operations) $10,000.00
3. Deduct from the bank balance
All outstanding checks should be deducted from the bank statement balance to avoid bank overdrafts.
The checks, that have not cleared in the bank, are actually already disbursed.
Payees already earned the right to cash the checks.
4. Contact payees
When payees have not cashed the checks, you can contact them.
Sometimes, you want your accounting records to balance with the bank statement, immediately.
However, some depositors do not contact their payees, which can also be a good thing.
Let me explain,
Some people like having stale checks.
5. Monitor for stale checks
When a check becomes stale, it can return the issuer’s account balance depending on the laws of the state.
If you are the issuer, you can record it as follows:
Debit: Cash in Bank $1,000.00 Credit: Accounts Payable $1,000.00
It is the reason that you have to monitor outstanding checks that become stale.
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