Outstanding Checks: What They Are and Why They Matter

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. The amount of outstanding checks is sometimes referred to as float.

Outstanding checks aren’t necessarily inherently bad; however, there are some risks and downsides to have checks linger. Row data in the table window is pulled from the Bank Transactions History
table. Businesses that mishandle these kinds of accounting situations are effectively in violation of the law. The Huntington National Bank is an Equal Housing Lender and Member FDIC. ®, Huntington®,Huntington.Welcome.® and Huntington Heads Up® are federally registered service marks of Huntington Bancshares Incorporated.

Unclaimed Property List

Since outstanding checks have already been recorded in the company’s books as cash disbursements, they must be subtracted from the bank statement balance. Outstanding checks are checks that have been issued but not yet presented for payment or cleared by the bank. They represent pending transactions where the funds have not yet been deducted from the issuer’s account.

• The $1,565 credit memorandum requires a compound journal entry involving four accounts.
• An outstanding check remains a liability of the payer until such time as the payee presents the check for payment, which then eliminates the liability.
• Oftentimes, a check may have been written by a company, recorded in the general ledger, but not yet shown on the company’s bank account statement.
• Some checks become stale if dated after 60 or 90 days, while others become void after six months.

Accounting inconsistencies may arise if outstanding checks are not reported and tracked in the appropriate manner. Because of this, keeping correct financial records can be difficult, and it may lead to problems during audits or when reconciling finances. For example, payments may show as being paid but if the cash has not yet been debited from the account, there may be inconsistencies worth reconciling. Individuals need to account for outstanding checks when they balance their checkbooks.

Outstanding Checks Report

In this context, an outstanding check need not be outstanding for long; it may simply be the short period of time between when a check is mailed and when it is received. An overdraft occurs when the account holder who wrote a check that is still pending does not have enough money in their account to cover the amount of the check when it is eventually submitted for payment. If you don’t account for outstanding checks properly, then you risk spending the money for the check on something else. This could result in a “bounced check”, and you may be charged a “non-sufficient funds” (NSF) fee by your bank. It may also damage your relationship with the vendor or person you gave the check to.

As such, there is no incentive to wish for an outstanding check to permanently never be cashed as the payment is subsequently owed to the government for holding. 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. To remedy these situations quickly, be proactive with outstanding checks. After all, you still owe the money, and you’ll have to pay it sooner or later.

Outstanding Check: Definition, Risks, and Ways To Avoid

When a business writes a check, it deducts the amount from the appropriate general ledger cash account. If the funds have not been withdrawn or cashed by the payee, the company’s bank account will be overstated and have a larger balance than the general ledger entry. Tracking of payments bookkeeping for startups can be accomplished through the use of checks, which provide both a paper trail and evidence of payment. Through the use of the check, the sender and the recipient of the payment are able to retain a record of the transaction, which includes the date, the amount, and the payee.