An outstanding check is a check that has been written by the company and send to a vendor, however, the vendor has not yet received or not yet deposited the check. Since the company mailed the check, they would have credited cash, but the bank would not process the check until the customer deposits the check. Outstanding checks should be subtracted from the balance per bank statement. To reconcile outstanding checks with your bank statement, compare the checks issued but not yet cleared with the information provided on the statement, ensuring that both records align.
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. Individuals need to account for outstanding checks when they balance their checkbooks.
- In the U.S., outstanding checks are considered to be unclaimed property and the amounts must be turned over to the company’s respective state after several years.
- The payor can void these fees using overdraft protection on their checking account.
- When BestBooks Store reconciles its bank statement, it must account for this outstanding check to make its books align with the bank statement.
- Outstanding checks also have the risk of being used in fraudulent conduct.
Outstanding checks that remain so for a long period of time are known as stale checks. Checks that remain outstanding for long periods of time cannot be cashed as they become void. Some checks become stale if dated after 60 or 90 days, while others become void after six months. 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.
If a payee receives a check and does not present it for payment at once, there is a risk that the payer will close the bank account on which the check was drawn. If so, the payee will need to receive a replacement payment from the payer. There are actually some benefits to have checks outstanding as well, though.
Balancing your checkbook is akin to what professional accountants do during reconciliation. It’s a way of making sure that you and your bank agree about your account balance and available funds. It can be tricky to balance a checkbook and we have a worksheet with step-by-step instructions to help you. If an outstanding check of the previous month clears the bank, it means the bank paid the check and the check will appear as a deduction on the statement. Outstanding checks are checks written by a company, but the checks have not cleared the bank account.
This period can range from 60 days to six months.Sometimes a payee forgets about the check or loses it without notifying the payor. The payor has no control over when the payee will cash or deposit the check. The payee cannot cash or deposit the check once a stop payment has been issued.The payer’s bank has no way of knowing that a check has been written until the payee deposits or cashes the check. Besides the liability it creates, the payor may forget that they wrote the check and spend money allocated for the check. When the payee cashes the check, and their bank tries to pull funds from the payor’s account, the payor will get hit with an overdraft or non-sufficient funds (NSF) fee.
How Outstanding Checks Work
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.
On your reconciliation sheet, outstanding checks are often subtracted from your balance per bank because these withdrawals have not yet happened but are simply a timing matter. 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. This means that the bank balance will be greater than the company’s true amount of cash.
Communicating Outstanding Checks to Payee
You can also call or write to remind the payee that the check is outstanding. If they haven’t received the payment, this may nudge them to notify you to reissue the check. Outstanding checks also have the risk of being used in fraudulent conduct. Someone else could be able to change the payee name or the amount if a check is misplaced or stolen before it is taken to the bank. All else being equal, it is safest if a check is deposited as fast as possible to avoid tampering with the instrument.
Risks of Outstanding Checks
When BestBooks Store reconciles its bank statement, it must account for this outstanding check to make its books align with the bank statement. From July 25 to August 1, the $500 check is considered an “outstanding check” from the perspective of BestBooks Store. As businesses have to abide by the unclaimed property laws, any checks that have been outstanding for a long time must be remitted to the state as unclaimed property.
How Do I Reconcile Outstanding Checks with My Bank Statement?
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. 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.
This makes it easier to set expectations and gives them the opportunity to plan properly. Be mindful of post office conditions and potential delays for seasonality, weather, or staffing issues. A debit card is a payment card connected to a checking account, and you can use it to make both online and in-person purchases, where cards are accepted. If you want a basic checking account with no monthly maintenance fee, or an interest-earning checking account, we’ve got the options that are right for you. The check may also be delayed if the issuing entity puts off mailing the check for any reason.
Therefore, rather than allowing checks to become stale and then remitting the amounts to a state government, companies should contact the payees of any checks that have been outstanding for several months. 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. The payor must be sure to keep enough money in the account to cover the amount of the outstanding check until it is cashed, which could take weeks or sometimes even months.