In this context, an outstanding check need not be outstanding for long; it may simply be the short period of time between when a check is mailed and when it is received. 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. 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.

• The check may also be delayed if the issuing entity puts off mailing the check for any reason.
• Checks issued from Radford University that have not been cashed within three months of the issue date are considered outstanding.
• Be mindful of post office conditions and potential delays for seasonality, weather, or staffing issues.
• A check that a company mails to a creditor may take several days to pass through the mail, be processed and deposited by the creditor, and then clear the banking system.
• Also, always maintain in communication with payees about payments not fully processed.

At this point, if the payee chooses to claim the funds, he must contact the Commonwealth. The check may be lost, stolen, destroyed, or just not presented by the payee for payment. The checks which have been written but have not cleared the bank are called outstanding checks. 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 Does Outstanding Checks Mean?

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.

This presents a thorny situation—two checks might be circulating for a single payment. If the old check is deposited, your bank might honor it, and you could consequently end up paying double. If you write a check and the money never leaves https://www.vizaca.com/bookkeeping-for-startups-financial-planning-to-push-your-business/ your account, you may develop the false belief you can spend those funds, but the money still belongs to the payee. If the payee finally deposits the check after months of delay, you risk overdrawing your account and bouncing the check.

City Government & Departments

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 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. If they can’t get to the bank, you may want to ask them to return the check to you and you can pay them using another method. Balancing your checkbook is akin to what professional accountants do during reconciliation.

• The final transaction listed on the Vector Management Group’s bank statement is for $18 in interest that has not been accrued, so this amount is added to the right side of the following bank reconciliation.
• If a payee receives a check and does not present it for payment at once, there is a risk that the payer will close the bank account on which the check was drawn.
• Professional accountants and bookkeepers deal with outstanding checks during reconciliation, a time where they are balancing their ledgers as they approach closing the books for the month.
• 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.
• The payment goes on the general ledger, but businesses must make adjustments during reconciliation, and they may need to reissue stale checks.