The payer’s bank has no way of knowing that a check has been written until the payee deposits or cashes the check. This puts the burden of tracking the check on the payor. Besides the liability it creates, the payor may forget that they wrote the check and spend money allocated for the check. When the payee cashes the check, and their bank tries to pull funds from the payor’s account, the payor will get hit with an overdraft or non-sufficient funds fee. The payor must then deposit funds to cover the check.
With recent changes to unclaimed property laws, you should check with your state to see what the requirements are for an outstanding check. Document each attempt that you make to tell the employee or former employee about their uncashed paycheck.
Definition of Outstanding Check
Document communication regarding outstanding checks. This documentation will come in handy if you need to prove to state regulators that you made reasonable attempts to complete the payment. If an outstanding check is cashed after you asked a bank to stop the payment, you will be responsible for proving that you took the necessary steps to complete the payment.
- A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash.
- Checks that remain outstanding for long periods of time cannot be cashed as they become void.
- It’s a way of making sure that you and your bank agree about your account balance and available funds.
- If an employee tries to cash an expired paycheck, their bank can choose whether to cash it or not.
Check drawn by company for $375, but incorrectly recorded by company as $735. Check for $50 incorrectly charged by bank as $500. If the outstanding check has expired, you may want to write another check; however, it’s possible that this check will go stale, too, and that would prolong the situation. When you ask them how they want to be paid, try suggesting a money order, cashier’s check, or cash. You can ask if they’re willing to deduct the stop payment fee from the original amount. They may not agree to that, but it’s worth asking.
Outstanding check definition
Written, recorded, sent to the payees, but not yet paid by the bank. An outstanding check is still a liability for the payor who issued the check. A company borrowed $80,000 from a bank by signing a long-term note payable.
Outstanding checks can also create discrepancies between your accounting books and bank account. Your bank account will show a higher balance than your books. To fix this, you will need to reconcile your bank account with your accounting books. After bank statement reconciliation, adjust your bank statement balance.
Time and Attendance
B) Written and not yet recorded in the company books. 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. A check of $520 deposited by the company has been charged back as NSF. Our payroll services have built-in safeguards to help ensure accuracy, so you can catch any issues before payroll runs. Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. An outstanding check is also known as an outstanding cheque.
Some reconciling items require adjustments to the book balance with an actual entry and some do not. An outstanding check represents a liability for the payor. 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. A company received $250 in cash from clients for consulting services rendered. Prepare the general journal entry to record this transaction. A company received an order for $12,000 in services to be provided.
This will arrive at the adjusted company cash balance. Identify any current deposits in transit by comparing the deposits on the current bank statement to deposits outstanding checks refer to checks that have been: recorded on the books. Outstanding checks are checks that have been written and recorded on the books, but have not yet been cashed or have not cleared the bank.
- 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.
- If they haven’t received the payment, this may nudge them to notify you to reissue the check.
- Even if the bank statement does coincide with the accounting period end, there will be items that cause differences in the balances.
- Outstanding checks can wreak havoc on your time, the accuracy of your records, and even your finances.
Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates. Human Resources Hire, onboard, manage, and develop productive employees. Time and Attendance Track employee time and maximize payroll accuracy. 401 and Retirement Help employees save for retirement and reduce taxable income. Employee Benefits Offer health, dental, vision and more to recruit & retain employees. Business Insurance Comprehensive coverage for your business, property, and employees.