OUTSTANDING CHECKS

Businesses must track outstanding items to avoid breaking unclaimed property laws. If payments to employees or vendors remain uncashed, they outstanding checks eventually must turn over those assets to the state. This typically occurs after a few years, but timetables vary from state to state.

To do this, businesses need to take into account the bank charges, NSF checks, and errors in accounting. 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 check may also be delayed if the issuing entity puts off mailing the check for any reason.

How Do I Reconcile Outstanding Checks with My Bank Statement?

The bank deducted $25 for this service, so the automatic deposit was for $1,565. The bank statement also includes a debit memorandum describing a $253 automatic withdrawal for a utility payment. On the bank reconciliation, add unrecorded automatic deposits to the company’s book balance, and subtract unrecorded automatic withdrawals. Therefore, each transaction on the bank statement should be double‐checked. If the bank incorrectly recorded a transaction, the bank must be contacted, and the bank balance must be adjusted on the bank reconciliation. If the company incorrectly recorded a transaction, the book balance must be adjusted on the bank reconciliation and a correcting entry must be journalized and posted to the general ledger.

A bank reconciliation is a process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement. This process is also to ascertain the differences between the two and to book changes to the accounting bill records as appropriate. Bank reconciliations are completed at regular intervals to ensure that the company’s cash records are correct.

What to Do About Outstanding Checks

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 expenses. 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.

• 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.
• If a check is never deposited or if gets destroyed, the money remains in the check-writer’s account.
• If they are still not equal, you will have to repeat the process of reconciliation again.
• All else being equal, it is safest if a check is deposited as fast as possible to avoid tampering with the instrument.
• It may also damage your relationship with the vendor or person you gave the check to.
• An outstanding check is a check that a recipient fails to deposit.
• You are entirely dependent on when the vendor decides to cash the check.

Since outstanding checks have already been recorded in the company’s books as cash disbursements, they must be subtracted from the bank statement balance. To keep your small business’s finances on track, reconcile your books and bank account statement. Sometimes, transactions are only recorded in one financial record when you reconcile the balances. If your books and bank account balances don’t match, you might have an outstanding deposit. For example, a check may have been written and recorded by a company on December 31. However, due to the time necessary for the payee to receive and process the check, make a deposit, and the money to clear the banking system, this transaction will appear on the company’s January bank statement.

BUT….ACCOUNTANTS ARE TOO EXPENSIVE!

This means that the bank balance will be greater than the company’s true amount of cash. Best practices for managing and clearing outstanding checks include regular bank statement reconciliation, promptly voiding or canceling unused checks, and maintaining proper record-keeping. Also, always maintain in communication with payees about payments not fully processed.

In other words, it is still out there waiting to be cashed and drawn out of your checking account. These generally do not appear on the monthly bank statement because they haven’t been paid from the account as of the statement date. Because reconciling items that affect the book balance on a bank reconciliation have not been recorded in the company’s books, they must be journalized and posted to the general ledger accounts.

#1. Comparing Deposits

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After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same. If they are still not equal, you will have to repeat the process of reconciliation again. 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. 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.

How to Calculate Outstanding Checks

Be mindful of what outstanding checks you’ve written before drawing down your bank balance. One of the ways of making payment for a transaction is by check. 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.

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. There’s always potential to make an error while doing your bookkeeping.