The term outstanding checks refers to those checks that have been recorded by a company as being written, but not yet cleared and posted to the account's statement by the company's bank. Outstanding checks are typically identified as part of the bank account reconciliation process.
At the end of each accounting period, companies go through a bank statement reconciliation process to understand any differences between the company's record of cash deposits and withdrawals, and the account statement issued by the bank. Oftentimes, a check may have been written by a company, recorded in the general ledger, but not yet shown on the company's bank account statement.
For example, a check may have been written and recorded by a company on December 31. However, due to the 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. The reconciliation process will identify these differences as due to outstanding checks.
This process is part of the accounting cycle, allowing the company to accurately report cash, a current asset, on its balance sheet.
Company A recorded $200,000 in checks drawn from its general account in the month of December. During the November bank statement reconciliation process, Company A determined it has a balance of $12,000 in outstanding checks. The bank statement received by Company A showed checks paid of $196,000 in December. Company A's outstanding checks at the end of December would be calculated as:
|Outstanding Checks (Starting Balance)||$12,000|
|Add: Checks Written||$200,000|
|Total Checks to be Paid||$212,000|
|Less: Checks Paid (Per Bank Statement)||$196,000|
|Outstanding Checks (Ending Balance)||$16,000|