Outstanding Check: Definition, Risks, and Ways to Avoid

Outstanding Check: Definition, Risks, and Ways to Avoid

BestBooks Store records the check in its accounting system on the same day, reducing its cash balance by $500. 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 In other words, the person or company that issued the check is still waiting for the value of the check to be withdrawn from their account. 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.

An outstanding check is a check that a recipient fails to deposit. Once such checks are finally deposited, they can cause accounting problems. Furthermore, checks that are never cashed may constitute “unclaimed property” that must be eventually be turned over to the state. If a check was issued to you and it’s still outstanding after six months, contact the check issuer and request a replacement.

The bank statement balance and the company’s book balance will now align, assuming there are no other discrepancies. Businesses must track outstanding items to avoid breaking unclaimed property laws. If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state. This typically occurs after a few years, but timetables vary from state to state.

What Happens If a Check Is Outstanding for Too Long?

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. Tracking of payments can be accomplished through the use of checks, which provide both a paper trail and evidence of payment.

The payor is the entity who writes the check, while the payee is the person or institution to whom it is written. An outstanding check also refers to a check that has been presented to the bank but is still in the bank’s check-clearing cycle. 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.

What are Outstanding Checks?

Outstanding checks are deducted from the bank’s balance in the reconciliation process because the bank would not yet know about them or have deducted them from the account. Print the Outstanding Check List to view a list of general checks, accounts payable checks or trust checks that have not been cleared. You can print it by bank and for a specific date range, and you can choose whether to include check details for checks that were distributed to multiple clients/matters or general ledger accounts. Huntington explains how you can add a person to your account at any time or open a joint bank account together. When you receive a check and do not cash it right away, the check is outstanding.

As mentioned above, you may need to return the original check or sign documents confirming the check is lost or destroyed. If you cannot find the issuer, consult your state’s abandoned property program to claim assets. Call or email payees who fail to deposit checks and ensure that the check was, in fact, received. If they have the check, try to persuade them to deposit the check. If that doesn’t work, send a letter informing payees the check has not been presented and officially request they notify you if they have not received the payment. Furthermore, checks that are never cashed may constitute “unclaimed property” that is turned over to the state.

Example of an Outstanding Check

Unlike a check, deposits have already been received by the bank and are being processed. Different banks have different processing times, but most outstanding deposits typically clear within three business days. 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 is a check payment that is written by someone but has not been cashed or deposited by the payee.

• In most cases, they would then need to issue a replacement check.
• This is why your (or company) bank accounts need to be reconciled with the bank statement.
• When you write a personal check, you should record the date, check number, payee, and amount in your check register.

Most banks will continue to honor checks for the full 180 days, but that isn’t guaranteed. To prevent problems, you should cash or deposit a check promptly after receiving it. Like business checks, personal checks are generally considered invalid after six months (180 days).

1.57 Outstanding Checks

An outstanding check represents a check that hasn’t been cashed or deposited by the recipient or payee. One state is that the payee has the check but hasn’t deposited or cashed it. They must make sure that enough money remains in their checking account to cover the check until it is paid. The payee may cash the check immediately or might hold onto it for months. Checks that remain uncashed for long periods of time are called stale checks.

All outstanding checks are written off into a holding account after at least a year. At the end of seven years, the money is turned over to the Unclaimed Property Division of the State of Illinois. The money is no longer under the control of the University at this point. The Unclaimed Property definition and different types of income tax Division of the State of Illinois publishes in the major newspapers in Illinois a list of payees which have been turned over to them. Outstanding deposits are a critical part of bank statement reconciliation. Usually, you reconcile your bank statement with your books at the end of each month.

How Marisa Persevered and Passed Her CPA Exams

If you have further questions you would like answered, don’t hesitate to get in touch with us directly. This process is part of the accounting cycle, allowing the company to accurately report cash, a current asset, on its balance sheet. Check to see that the contact information is correct, as checks may go missing simply because of an incorrect mailing address.

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. 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. As a small business owner, you are in charge of making sure you close your books correctly. Knowing your outstanding deposits allows you to maintain correct financial records.

How to Avoid Outstanding Checks

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. 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.

Check that the balances of your books and your bank statement are equal. After a check is issued, the recipient does not have to deposit or cash the check immediately. In fact, in most jurisdictions, an issued check will still be deposited by banks up to six months after the issue date. However, it is ultimately up to the receiving bank whether they will cash (or deposit) a check or not. We will also answer a few important questions and compare outstanding checks to outstanding deposits. Some businesses print “Void after 90 days” on their checks to encourage recipients to deposit checks more promptly.