Outstanding Check: Definition, Risks, and Ways To Avoid

A check is a financial instrument that authorizes a bank to transfer funds from the payor’s account to the payee’s account. When the payee deposits the check at a bank, it requests the funds from the payor’s bank, which, in turn, withdraws the amount from the payor’s account and transfers it to the payee’s bank. When the bank receives the full amount requested, it deposits it into the payee’s account.

• This may present the false notion that there is more money in the account available to be spent than there should be.
• This is why your bank accounts need to be reconciled with the bank statement.
• When the bank receives the full amount requested, it deposits it into the payee’s account.
• The payor is the entity who writes the check, while the payee is the person or institution to whom it is written.
• The reconciliation process will identify these differences as due to outstanding checks.
• This could result in a “bounced check”, and you may be charged a “non-sufficient funds” fee by your bank.
• You can also call or write to remind the payee that the check is outstanding.

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What is a deposit in transit and why is it included in a bank reconciliation?

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” fee by your bank. It may also damage your relationship with the vendor or person you gave the check to. 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.

• 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.
• You are entirely dependent on when the vendor decides to cash the check.
• It’s important to keep enough money in your account to cover all the outstanding checks at all times.
• 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.
• They must make sure that enough money remains in their checking account to cover the check until it is paid.

Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. The value of the investment may fall as well as rise and investors may get back less than they invested. The amount of outstanding checks is sometimes referred to as float. The check may also be delayed if the issuing entity puts off mailing the check for any reason. 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.

How to prepare a bank reconciliation?

If you wrote a check and it has been outstanding for a while, you may be wondering, “Do checks expire? ” They do expire and that’s why it’s important to record the date you wrote the check. You’ll need to go to your bank to do this and most banks charge a fee for it. After getting the stop payment, mark the entry in your register as voided. Contact the recipient of the check and find out how they want to handle it.

• Hypothetical example are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
• Contact the recipient of the check and ask if they lost the check or when they plan on cashing it.
• Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors.
• If you wrote a check and it has been outstanding for a while, you may be wondering, “Do checks expire?
• 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.
• 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 present in the account.

The other state is that the check has not yet reached the recipient and is still in the payor’s bank-clearing cycle. When you write a check to vendor, the bank has no idea the check has been written. 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. You are entirely dependent on when the vendor decides to cash the check. 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.

Example of an Outstanding Check in the Bank Reconciliation

It’s important to keep track of the amount of checks outstanding because they could be cashed at anytime. You may have had even cash in the account when you wrote the check, but a month later your account might be lower. It’s important to keep enough money in your account to cover all the outstanding checks at all times. Individuals need to account for outstanding checks when they balance their checkbooks.

Outstanding checks are typically identified as part of the bank account reconciliation process. This is why your bank accounts need to be reconciled with the bank statement. There is a discrepancy between what your checkbook or accounting outstanding checks 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.