Outstanding checks are key components of the bank reconciliation process.
Outstanding checks represent checks you have written and recorded in your company’s accounting records but have not yet cleared your bank account.
A bank reconciliation is a financial accounting process that helps ensure the accuracy of your financial records by comparing your company’s records with the transactions and balances reported by your bank.
Here’s how outstanding checks work in the bank reconciliation process:
Recording in Your Books
When you write a check to pay for an expense or make a payment, you record the transaction in your company’s accounting records.
This transaction reduces the balance in your checking account on your books.
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However, it takes some time for the recipient of your check (the payee) to deposit and for the bank to process the check.
During this processing period, the check is considered “outstanding” because it has not yet been deducted from your bank account balance.
When you receive your bank statement, it reflects the transactions that the bank has processed.
This includes deposits, withdrawals, and any checks that have cleared.
Outstanding checks, those that haven’t cleared yet, are not reflected in your bank statement’s balance.
To reconcile your bank statement with your company’s records, you need to account for outstanding checks.
You deduct the amounts of these outstanding checks from your bank statement’s balance to arrive at the reconciled or adjusted bank balance.
You can use the VLOOKUP function for faster reconciliation of outstanding checks.