What is an outstanding check?

Definition

An outstanding check is a payment the company has already recorded on its books that the bank has not yet paid. In books-language, this is cash the ledger already reduced, while the bank still shows that cash sitting in the account.

The books move when the check is issued. The bank moves later, when the payee deposits it and the payment clears.

Where it shows up

Balance sheet: Related to cash on the books that is already lower than the bank.

P&L: Related to nothing extra.

Cash flow: Related to cash the books say left, waiting on the bank to pay the check.

See also: Bank Reconciliation · Bank Statement · Deposit In Transit

When you look at the Balance Sheet, cash sits in current assets. The cash line already reflects checks you wrote, even if those checks have not left the bank.

The bank's ending balance is often higher than book cash for this reason. That gap is not extra money you can spend a second time.

The Income Statement does not change while a check stays uncleared. Expense or the payable was recorded with the bill and the payment, not with the later bank clearing.

On the Statement of Cash Flows, the outflow follows the books' payment date. Clearing at the bank does not create a second cash movement.

You will not find a separate general-ledger account for this item. It lives on the reconciling worksheet that ties book cash to the bank's period record.

How it works

You approve a vendor bill and include it in a check run. The payment reduces cash on the books and clears that amount from accounts payable.

How an outstanding check usually works:

• Write and record the check so book cash falls that day
• The check travels by mail or sits until the payee deposits it
• Until the bank pays it, list the amount as outstanding on the reconciling worksheet
• Subtract outstanding checks from the bank's ending balance
• When the bank clears the check, remove it from the list — do not reverse the original payment

The check then leaves the office by mail or by hand. The vendor deposits it, the bank processes it, and only then does the bank reduce its own record of your cash.

Until that happens, the item is outstanding. It is a reconciling item, not a new journal, because the original payment already posted.

At month end you compare the cash account to the bank's period record. Every check the books show as paid that the bank has not yet paid goes on the outstanding list.

You subtract those amounts from the bank's ending balance. The adjusted bank total should then match book cash, aside from other timing items such as a deposit in transit.

When the check finally clears in a later period, it drops off the list. You do not reverse the original payment or write a second cash entry.

A check that stays on the list for months is no longer ordinary timing. You look for a lost envelope, a void that never hit the books, or a vendor that never deposited it.

The original check run is a separate step. This page is only about the uncleared remainder after that run has already posted.

Keep a copy of the check number, date, payee, and amount on the worksheet. Those details are what you match against later bank activity.

Example

A neighborhood cafe mails a $1,200 check to its bakery on Friday. The books record the payment that same day, so cash on the books is already $1,200 lower.

On Monday the bank still has not paid the check. The bank's balance is $1,200 higher than the books.

The owner lists that $1,200 when matching the two totals. After subtracting it from the bank figure, book cash and the adjusted bank cash agree.

No new journal is made for the uncleared check. Friday's payment already reduced cash and cleared the bakery payable.

Later in the week the bakery deposits the check and the bank pays it. The bank balance falls by $1,200, and the item leaves the outstanding list on the next worksheet.

If Monday's books show cash of $8,400 and the bank shows $9,600, the $1,200 check is the entire gap. Once it is listed, the two records tell the same story.

Common mix-ups

An outstanding check is not a voided check. A voided check was canceled and should not keep reducing cash on the books.

An outstanding check is not the vendor bill. The bill created the payable; the outstanding item is only the payment that has not cleared yet.

An outstanding check is not a deposit in transit. A deposit in transit is cash the books already increased that the bank has not posted, which is the opposite gap.

Related terms

• Bank Reconciliation: Matching the book cash balance to the bank statement and explaining every difference.
• Deposit In Transit: A deposit recorded on the books but not yet showing on the bank statement.
• Bank Statement: The bank's period record of every transaction and the ending balance.
• Check Run: The scheduled batch in which approved vendor bills are paid.
• Reconciliation Discrepancy: An unexplained difference left after a reconciliation is attempted.
• Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.
• Float: The timing gap between when a payment is issued and when the cash actually moves.
• Cash Position: The amount of cash on hand at a given moment across all accounts.