An outstanding check is a check that a recipient fails to deposit. Once such checks are finally deposited, they can cause accounting problems. Furthermore, checks that are never cashed may constitute “unclaimed property” that is turned over to the state.
The final transaction listed on the Vector Management Group’s bank statement is for $18 in interest that has not been accrued, so this amount is added to the right side of the following bank reconciliation. Banks use debit memoranda to notify companies about automatic withdrawals, and they use credit memoranda to notify companies about automatic deposits. To the bank, however, a company’s checking account balance is a liability rather than an asset. Therefore, from the bank’s perspective, the terms debit and credit are correctly applied to the memoranda.
Protocol for Issues Involving Prior Period Checks
The payment goes on the general ledger, but businesses must make adjustments during reconciliation, and they may need to reissue stale checks. Businesses must track outstanding items to avoid breaking unclaimed property laws. If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state.
Her jewelry design company, KAF Creations, has been in operation since 1998. At BKD, we understand this can be a confusing topic, and we want to help your company stay in compliance with state regulations. If you need assistance navigating this topic, reach out to your BKD Trusted Advisor™, fill out the Contact Us form below, or check out our Outsourced Accounting Services page. We also offer a suite of services related to state and local tax challenges. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Terms Similar to Outstanding Check
The statement also includes bank charges such as for account servicing fees. The State of Delaware’s unclaimed property reporting period is on a calendar year cycle (January 1st – December 31st). If outstanding checks reach 5 years of dormancy during the calendar year, the unclaimed property report and related payment are due by March 1st of the following calendar year. Organizations may request an extension by submitting a “Filing extension Request” form (found in the Handbook’s appendix). The extension request must be received by the State at least 15 days prior to the original filing deadline.
An outstanding check is a check payment that is written by someone but has not been cashed or deposited by the payee. The payor is the entity who writes the check, while the payee is the person or institution to whom it is written. An outstanding check also refers to a check that has been presented to the bank but is still in the bank’s check-clearing cycle. The ending cash balance on the GL is now reconciled to the adjusted bank statement balance. Below is the July reconciliation of the balance per bank statement to the correct cash balance.
Unrecorded service charges must be subtracted from the company’s book balance on the bank reconciliation. The Vector Management Group’s bank statement on page 120 includes a $20 service charge for check printing and a $50 service charge for the rental of a safe‐deposit box. Therefore, company records may show one or more deposits, usually made on the last day included on the bank statement, that do not appear on the bank statement. These deposits are called deposits in transit and cause the bank statement balance to understate the company’s actual cash balance.
Lastly, someone in My Company made an error posting a check #2005. The check was written for $5,843, but recorded in our books at $5,483. That’s a transposition error—accidentally switching two numbers. Something to remember about a transposition error is that it is always divisible by 9. More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February). If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank.
What Is an Outstanding Check?
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During your reconciliation, you note that you wrote a check for $500 on May 29 that hasn’t yet cleared the bank. You would have a reconciling item for that outstanding check on your May 31 bank reconciliation. Say for your May 31 bank reconciliation, you show an ending balance of $5,500 in your cash account as of May 31, but your bank balance per the statement is $6,000.
Instead, record them on the bank reconciliation, as these are timing differences that should be reversed during next month’s reconciliation. A check previously recorded as part of a deposit may bounce because there are not sufficient funds in the issuer’s checking account. When this happens, the bank returns the check to the depositor and deducts the check amount from the depositor’s account Therefore, NSF checks must be subtracted from the company’s book balance on the bank reconciliation. The Vector Management Group’s bank statement includes an NSF check for $345 from Hosta, Inc. Banks often require customers to pay monthly account fees, check printing fees, safe‐deposit box rental fees, and other fees.
Which action should be taken when the company has outstanding checks?
These checks are called outstanding checks and cause the bank statement balance to overstate the company's actual cash balance. Since outstanding checks have already been recorded in the company's books as cash disbursements, they must be subtracted from the bank statement balance.
Bank reconciliation done through accounting software is easier and error-free. The bank transactions are imported automatically allowing you to match and categorize a large number of transactions at the click of a button. This makes the bank reconciliation process efficient and controllable. You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business.
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. Your first step should be to use an accounting system that deducts any uncashed checks from your available funds. After that, there are a few more steps you can take to track down an old check.
Note that the $462.06 debit to Accounts Receivable indicates that The Tackle Shop is going to attempt to collect on the NSF check and related charge. The interest income of $569.34 reflects that posted by the bank ($119.34) plus the $450 on the collected note. The reconciliation of the balance per company records to the correct cash balance is presented below.
More Resources on Small Business Accounting
They represent pending transactions where the funds have not yet been deducted from the issuer’s account. These checks can pose risks such as overdrawing the account, potential fraud, accounting discrepancies, and delayed financial reporting. 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.