Outstanding Checks: What They Are and Why They Matter

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Outstanding Check Definition

When you write a personal check, you should record the date, check number, payee, and amount in your check register. This is very important because your bank balance will be higher than your available funds until the check clears the bank. Recording it in your register right away reminds you that those funds are earmarked for that check. During the bank reconciliation process, you note that your general ledger shows a month-end balance is $6,000 while the bank records show a balance of $6,010 because the bank paid you $10 of interest during the month. While performing a bank reconciliation, you note that your general ledger shows a balance of $7,000, while the bank shows a balance of $6,000. You note that a check for $1,000 that you deposited during the month was returned as the issuer didn’t have enough money in their account to cover the check amount.

What is a Bank Reconciliation?

While some reconciling items necessitate an adjustment to your book balance with journal entries, deposits in transit and outstanding checks do not. Instead, record them on the bank reconciliation, as these are Outstanding Check Definition timing differences that should be reversed during next month’s reconciliation. The ending balance on a bank statement almost never agrees with the balance in a company’s corresponding general ledger account.

  • This error is a reconciling item because the company’s general ledger cash account is overstated by $63.
  • Once the check is deposited by PaperMills Co. and cleared by the bank on August 2, 2023, it is no longer considered outstanding.
  • Accounting inconsistencies may arise if outstanding checks are not reported and tracked in the appropriate manner.
  • Outstanding checks are thus typically identified as part of the bank account reconciliation process.
  • If want to avoid Outstanding Checks altogether, consider online bill payment.

(c) Refund of Federal financial participation (FFP) for uncashed checks—(1) General provisions. If a check remains uncashed beyond a period of 180 days from the date it was issued, i.e., the date of the check, it will no longer be regarded as an amount expended because no funds have actually been disbursed. If the State agency has claimed and received FFP for the amount of the uncashed check, it must refund the amount of FFP received. When all differences between the ending bank statement balance and book balance have been identified and entered on the bank reconciliation, the adjusted bank balance and adjusted book balance are identical.

What happens to an uncashed personal check?

They also help you stay on top of cash flow by ensuring you know how much cash you have on hand. After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same. If they are still not equal, you will have to repeat the process of reconciliation again. Fortunately, banks don’t have a legal obligation to honor checks written more than six months in the past. If the old check isn’t six months old, or if you want an extra layer of protection, two strategies can protect you.

Outstanding Check Definition

Though only a deterrent rather than a guarantee, it will provide a paper trail that could prove useful if the payee deposits both checks. Hope with the above illustration, we can now calculate our outstanding checks? Errors in the cash account result in an incorrect amount being entered or an amount being omitted from the records. The correction of the error will increase or decrease the cash account in the books.

Effect of Unpresented Checks on Bank Balance

Be mindful of post office conditions and potential delays for seasonality, weather, or staffing issues. The difference between a checking and savings account can seem confusing. Huntington is here to help you understand the differences between a checking and a savings account and how both could help you manage your finances. If you wrote a check and it has been outstanding for a while, you may be wondering, “Do checks expire?

With banking activity becoming increasingly electronic, another way to avoid writing a check and forgetting about it is to use the checking account’s online bill pay service. This should provide real-time information about the total dollar amount of checks outstanding and the total dollar balance presently in the account. Because reconciling items that affect the book balance on a bank reconciliation have not been recorded in the company’s books, they must be journalized and posted to the general ledger accounts.