Outstanding Check: Definition, Risks, and Ways to Avoid

The $1,565 credit memorandum requires a compound journal entry involving four accounts. Cash is debited for $1,565, bank fees expense is debited for $25, notes receivable is credited for $1,500, and interest revenue is credited for $90. An outstanding check is a check that is written by a company to be withdrawn by the person the check is addressed to, but yet to be cleared from the companies bank account; due to the delay in cashing out the check. An outstanding check is a check payment that has been recorded by the issuing entity, but which has not yet cleared its bank account as a deduction from its cash balance. The concept is used in the derivation of the month-end bank reconciliation. An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on which it is drawn.

The term outstanding checks refers to those checks that have been recorded by a company as being written, but not yet cleared and posted to the account’s statement by the company’s bank. Outstanding checks are typically identified as part of the bank account reconciliation process. Outstanding checks are important in the reconciliation of a company’s bank statement.

Why Outstanding Checks Matter

If they haven’t received the payment, this may nudge them to notify you to reissue the check. Last, outstanding checks might have an impact on management of the cash flow. If a corporation has a substantial number of checks that have not yet been cashed, it may create ambiguity over the amount of cash that is available, making it difficult to efficiently plan for and manage Outstanding Check Definition expenses. If the outstanding check has expired, you may want to write another check; however, it’s possible that this check will go stale, too, and that would prolong the situation. When you ask them how they want to be paid, try suggesting a money order, cashier’s check, or cash. You can ask if they’re willing to deduct the stop payment fee from the original amount.

An outstanding check represents a check that hasn’t been cashed or deposited by the recipient or payee. One state is that the payee has the check but hasn’t deposited or cashed it. The other state is that the check has not yet reached the recipient and is still in the payor’s bank-clearing cycle.An outstanding check is a liability for the person (i.e., payor) who has written the check. They must make sure that enough money remains in their checking account to cover the check until it is paid. The payee may cash the check immediately or might hold onto it for months. Checks that remain uncashed for long periods of time are called stale checks.

Errors

Drawing of funds in an individual’s or business’s bank account without a proper calculation of the account balance at the end can lead to having outstanding checks. This article answers every question you pay possibly have about what outstanding checks are, the definitions, bank reconciliation, how to calculate them, and examples. You can also use bank statement reconciliation to track your business’s progress. Using your outstanding deposits to balance the accounts, you can measure profitability and project cash flow.

Once the check has been deposited or cashed by your vendor, your bank will debit your account and mark it as a cleared check on your next statement. 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. 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.

What to Do About Outstanding Checks

Letter of Credit Undrawn Amounts means, at any time, the aggregate undrawn face amount of all Letters of Credit outstanding at such time. Outstanding Principal Advances means, as of the last day of a Collection Period with respect to a Receivable, the portion of Outstanding Advances allocable to principal. Outstanding Letters of Credit means each letter of credit described on Schedule 1.1 and outstanding as of the Closing Date. Adjust your records by subtracting the outstanding deposit from your small business ledger. When you receive a check and do not cash it right away, the check is outstanding.

Cash deposits and transfers from another Wells Fargo account are immediately available for your use. An outstanding check is a check that a check writer has issued and recorded in their accounting system, but which has not yet been deposited or cashed by the recipient or cleared by the bank. Once the deposits in the business records is matching with those in the bank statement, there is a uniform account details. To remedy these situations quickly, be proactive with outstanding checks. Adjust the balance on the bank statements to the corrected balance.

HOW TO CALCULATE GROSS PAY: What Is Gross Pay & Its Component

However, for certain types of accounts up to 18 months of account activity may be available by choosing the time frame you want and selecting Download. Other errors can include withdrawals or deposits not noted in your company’s books and bank errors. It’s common to have differences between the amount recorded in the general ledger and the bank statement, but these differences should be accounted for in the reconciliation. You should discuss your personal situation with a tax or legal professional.

• This documentation will come in handy if you need to prove to state regulators that you made reasonable attempts to complete the payment.
• 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.
• 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.
• Balancing your checkbook is akin to what professional accountants do during reconciliation.
• It is imperative for an issuer to provide payees with timely communication regarding the issuance of a check as well as any pertinent details as soon as possible.
• If they haven’t received the payment, this may nudge them to notify you to reissue the check.

As a small business owner, you are in charge of making sure you close your books correctly. Knowing your outstanding deposits allows you to maintain correct financial records. When you pay someone by check, your payee must deposit or cash the check to collect the payment. Alternatively, if you both use the same bank or credit union, the transaction will conclude when the money is transferred from your account into the payee’s account. 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.

What is the approximate value of your cash savings and other investments?

There is a discrepancy between what your checkbook or accounting system says you have in your account and what the bank reports on your monthly statement. One of the main differences are the outstanding checks that have been recorded in the accounting system but haven’t been recorded by the bank. Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. Outstanding checks that remain so for a long period of time are known as stale checks. Be proactive when writing checks and make sure to call or write if the payee doesn’t deposit the check.

• If you write a check and the money never leaves your account, you may develop the false belief you can spend those funds, but the money still belongs to the payee.
• Automatic deposits occur when the company’s checking account receives automatic fund transfers from customers or other sources or when the bank collects notes receivable payments on behalf of the company.
• The payor is the entity who writes the check, while the payee is the person or institution to whom it is written.
• Outstanding checks are those that have been written and recorded in the cash account of the business but have not yet cleared the bank account.
• As a small business owner, you are in charge of making sure you close your books correctly.
• An outstanding check is a check that a check writer has issued and recorded in their accounting system, but which has not yet been deposited or cashed by the recipient or cleared by the bank.

Before sending one, ask the payee to return the old check to eliminate the possibility of both checks being deposited, either intentionally or unintentionally. If a check is destroyed or never deposited, the money remains in the payer’s account. At first glance, this may seem like a positive turn of events for the payer. The amount of outstanding checks is sometimes referred to as float. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. However, the receiving party may not present the check to the bank for payment on the same date.

What’s not included in my available balance?

Once the deposits in the business records is matching with those in the bank statement, there is uniform account detail. You receive a bank statement, typically at the end of each month, from the bank. The statement lists the cash and other deposits made into the checking account of the business. The statement also includes bank charges such as account servicing fees.