What Is an Outstanding Check in Accounting?

An outstanding check is a payment that has been written and recorded by the issuer but has not yet been presented to or cleared by the bank. Maintaining accurate records of these checks is important for both individuals and businesses to understand their true available cash balance.

Understanding Outstanding Checks

An outstanding check arises from a timing difference between when a check is issued and when it is processed by the bank. When a check is written, the issuer deducts the amount from their internal accounting records. However, the bank does not reduce the account balance until the recipient deposits or cashes the check, and it clears the banking system.

The recipient might delay depositing the check. Mail delays can also extend the time it takes for a check to reach the payee. Bank processing times can add a day or two before a deposited check clears the issuer’s account.

This timing gap means that the balance shown on a bank statement may appear higher than the actual funds available according to the issuer’s records. For example, if a business writes a check for $1,000, their internal cash balance immediately decreases by that amount. However, the bank’s balance will only reflect this reduction once the check is presented and cleared, which could take several days. This discrepancy highlights the importance of tracking outstanding checks to avoid misjudging available funds.

Finding Outstanding Checks

Identifying outstanding checks is a key component of the bank reconciliation process, which aligns an organization’s cash records with its bank statement and helps uncover any discrepancies.

To begin, compare the checks recorded in their internal records against the transactions on the bank statement.

The goal is to pinpoint checks recorded as written in the internal records but do not appear as cleared transactions on the bank statement. A systematic approach involves ticking off each transaction that matches. Any check number and amount listed in the internal records that lack a corresponding cleared entry on the bank statement is considered outstanding. Summing the amounts of these unmatched checks provides the total value of outstanding checks.

Managing Outstanding Checks

Once identified, outstanding checks require specific handling within the bank reconciliation to determine the accurate cash balance. The total amount of outstanding checks is subtracted from the bank statement’s ending balance. This adjustment accounts for the funds that have been committed but not yet withdrawn by the bank, arriving at a true cash figure that should match the adjusted internal accounting records. This step is purely a mathematical adjustment on the reconciliation statement and does not require an immediate journal entry unless the check is later voided.

Checks that remain outstanding for an extended period, typically six months or 180 days from their issue date, are generally considered “stale checks.” While the Uniform Commercial Code (UCC) does not obligate banks to honor checks older than six months, it also does not prohibit them from doing so.

However, banks may, at their discretion, refuse to process a stale check. This can create complications for the issuer, as the intended payment may not reach the payee.

For checks that become stale, the issuer should take action. It is advisable to contact the payee to determine why the check was not cashed or deposited and whether the payment is still due. If the payment is still owed, the issuer should void the original stale check in their accounting records, which restores the funds to their available cash balance.

Subsequently, a new check might need to be issued or an alternative payment method arranged. In some situations, especially for businesses, checks that remain uncashed for very long periods may fall under state unclaimed property laws, which require the funds to be remitted to the state after a specified dormancy period.