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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. This is why your (or company) bank accounts need to be reconciled with the bank statement. 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.

Additionally, banks typically charge fees when a stop order is issued, so before taking this action it’s important to confirm the related fees. Outstanding checks refer to checks that have been issued to a recipient but have not yet been cashed by the recipient or the recipient’s bank. In other words, the person or company that issued the check is still waiting for the value of the check to be withdrawn from their account.

Outstanding Checks and Unclaimed Property

GlobalBanks USA is 100% personalized, with dedicated account management, tapping into our team’s expertise, including suggestions on which banks are best for you and direct banker introductions. Below are two of the most common questions that we receive from people looking into what an outstanding check is. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

Outstanding checks also provide the opportunity for payment delays, which can be advantageous when it comes to managing cash flow. Even if the checkwriter has sufficient funds, any delay from the depositor simply means higher interest revenue on the https://investrecords.com/the-importance-of-accurate-bookkeeping-for-law-firms-a-comprehensive-guide/ capital balance waiting to be drawn down. An overdraft occurs when the account holder who wrote a check that is still pending does not have enough money in their account to cover the amount of the check when it is eventually submitted for payment.

Outstanding Deposit: The Basics for Small Business

Online payments offer a more direct way of transferring the funds between you and the payee. Check to see that the contact information is correct, as checks may go missing simply because of an incorrect mailing address. These non-editable fields display the bank abbreviation and description,
currency, fiscal year, and period that were selected in the main inquiry
screen. If you would like to unlock more advanced account opening resources you can access our free guides that range from offshore banking to how to open a US bank account from India by clicking here. If you want to learn more about how to handle ripped or damaged checks, you can check out our online resource that can provide helpful information and guidance.

• If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state.
• Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
• The payee may cash the check immediately or might hold onto it for months.
• Since the NSF check has previously been recorded as a cash receipt, a journal entry is necessary to update the company’s books.
• You may have had even cash in the account when you wrote the check, but a month later your account might be lower.

Checks that remain uncashed for long periods of time are called stale checks. 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 only thing the payor can do, for a fee, is stop payment on 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.

What are Outstanding Checks?

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.

The Vector Management Group’s bank statement includes an NSF check for $345 from Hosta, Inc. For example, a check may have been written and recorded by a company on December 31. However, due to the law firm bookkeeping 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.

After receiving the bank statement, therefore, the company prepares a bank reconciliation, which identifies each difference between the company’s records and the bank’s records. The normal differences identified in a bank reconciliation will be discussed separately. A bank reconciliation begins by showing the bank statement’s ending balance and the company’s balance (book balance) in the cash account on the same date. 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. As a small business owner, you are in charge of making sure you close your books correctly.

You can ask if they’re willing to deduct the stop payment fee from the original amount. If the outstanding check is less than six months old, you should not write another check. The original check is still valid, and the payee can cash or deposit it. It’s fine to contact the recipient after a few weeks to find out if they’ve lost the check or when they plan on cashing it.

The reconciliation process will identify these differences as due to outstanding checks. 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. 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.