Outstanding checks: what they are, how to treat them in a bank reconciliation, and what to do with old ones

What an outstanding check is

A check becomes outstanding the moment you record it in your books and lasts until the bank pays it. In between, the money has left your books but not your bank account. The payee may still have the check in the mail, may be holding it, or may have deposited it at their own bank without it reaching yours yet.

This is a timing difference, not an error. The bank statement is right as of its date, and so are your books. The reconciliation exists to explain the gap between the two, and outstanding checks are usually the biggest part of it for a business that still writes paper checks.

IRS Publication 583, the IRS’s guide to starting a business and keeping records, lists checks that did not clear before the statement date as one of the reasons a statement balance may not agree with your books, and recommends reconciling your checking account each month.

Why outstanding checks happen

Most outstanding checks come from ordinary delays. Knowing the cause helps you decide whether a check needs follow-up.

• Mail time: a check written and mailed on the last days of the month is often still in transit on the statement date.
• The payee holds it: suppliers and contractors sometimes batch deposits weekly or monthly.
• Bank processing: a check deposited by the payee late on the last day of the month may be paid by your bank on the next business day.
• The check was lost or never received: this is the case that needs action, and it usually shows up as a check that stays on the list for months.
• The check was recorded but never sent: a printed check left in a drawer looks exactly like an outstanding check in the reconciliation.

How to treat outstanding checks in a bank reconciliation

Outstanding checks go on the bank side only. Start with the ending balance on the bank statement, add deposits in transit, and subtract outstanding checks. The result is the adjusted bank balance. Then start with your book balance, add bank credits you have not recorded, such as interest, and subtract bank charges you have not recorded, such as fees. The two adjusted balances should agree.

You do not make a journal entry for an outstanding check. The payment entry already exists in your books. Entries are only needed for items on the book side: fees, interest, returned customer checks, or your own recording mistakes. A bank error is not one of them: it goes on the bank side, and the bank corrects it.

IRS Publication 583 includes a fictional bank reconciliation that shows this layout: the sole proprietor in the example adds two deposits not yet on the statement to the bank balance, subtracts four outstanding checks totaling $526.50, and arrives at an adjusted bank balance that equals his adjusted checkbook balance.

How to find outstanding checks

Match by check number first, then by amount. Check numbers are the most reliable key because two checks can have the same amount, and an electronic payment may share an amount with a check.

If your bank statement is a PDF, the check numbers are usually printed in a checks paid section, sometimes with images of the paid checks. Copying them into a spreadsheet by hand invites transposed digits. If the statement is only available as a PDF, a converter such as Fulla Ledger can turn it into reviewed rows you export as CSV or XLSX and match against your check register.

In accounting software, the reconciliation screen does the matching for you: checks you have recorded but not ticked as cleared are your outstanding checks. Review the list anyway, because a check matched to the wrong bank line will hide a real outstanding item.

Old outstanding checks: stale checks, voids and unclaimed property

Section 4-404 of the Uniform Commercial Code, as published by Cornell Law School’s Legal Information Institute, says a bank is under no obligation to a customer with a checking account to pay a check, other than a certified check, that is presented more than six months after its date. The same section says the bank may still charge the account for a payment it makes after that in good faith. So an old check may be refused, or it may still be paid. Do not assume a six-month-old check is dead money, and do not write it off just because of its age.

When a check has been outstanding for a while, contact the payee. If they never received it, you can stop payment on the original and issue a new check. If the payment is no longer owed, void the check.

Uncashed checks can also become unclaimed property. The National Association of Unclaimed Property Administrators explains that after a dormancy period with no activity or contact with the owner, property such as uncashed payroll checks, refunds and customer overpayments must by law be turned over to the state. Its reporting overview adds that laws and reporting deadlines vary by state, that each state sets the dormancy period, and that a business must make a good-faith effort to contact the owner before turning the property over. Check the unclaimed property office for the state that applies before you reverse an old check to income. Removing an old payment you still owe from your books does not end the obligation to the payee.

The entry when you void an outstanding check

Voiding reverses the original payment entry, so cash goes back up in your books. Date the reversal in the period when you void the check. Do not reopen the month the check was written: that month has already been reconciled and probably reported.

If you wrote the check to pay a bill recorded in accounts payable, debit cash and credit accounts payable. The bill is open again and you can pay it with a new check. If the check paid an expense directly, debit cash and credit the same expense account, or credit accounts payable if you still owe the money and will reissue. If you are holding the amount for a payee you cannot reach while you follow your state’s unclaimed property process, credit a liability account for it instead of income.

When you reissue, record the new check as a normal payment with its own number. Note the old and new check numbers on both entries so the next person can follow the trail.

Outstanding checks versus pending or uncleared transactions

Outstanding check is a reconciliation term. It means a check you have recorded that is missing from the bank statement as of the statement date. Pending is a term from online banking. It usually means a card purchase or transfer the bank knows about but has not finished posting.

A pending payment does not appear on the statement, so if you have recorded it in your books it acts like an outstanding item on the statement date: subtract it from the bank balance in the same way. Accounting software may call these uncleared transactions. Whatever the name, the rule is the same. A payment in your books that is not on the statement is subtracted from the bank side until it clears.

Keep a running outstanding check list

One list, carried forward every month, saves most of the work. Keep these columns:

• Check number, date written, payee and amount.
• The reconciliation month it first appeared on the list.
• The date it cleared, taken from the bank statement.
• Days outstanding, calculated from the date written to the statement date.
• Follow-up notes: payee contacted, stop payment placed, voided, reissued as check number, or reported as unclaimed property.