There are actually some benefits to have checks outstanding as well, though. Writing checks makes it possible for organizations and individuals to make payments without requiring instantaneous cash or electronic transactions to be completed. Checks that linger only buy the company more time to gather up enough resources for payment to clear if more time is needed.
When Are Outstanding Checks Deposited Into a Bank Account?
On the payee side, outstanding checks create a risk of expiring or becoming “stale.” When this happens, the check can’t be cashed or deposited, and the payment must be reissued or made another way. Holding on to checks for a long time also increases the likelihood that they will get lost or destroyed before they are cashed or deposited. An outstanding check is a check payment that has been recorded by the issuing entity, but which has not yet cleared its bank account as a deduction from its cash balance. The concept is used in the derivation of the month-end bank reconciliation. Proper management of outstanding checks involves tracking, reconciliation, timely communication, and ensuring sufficient funds are available to honor the checks when presented for payment. Outstanding checks are an important component of your financial records, as they directly impact your account balance.
The money to cover the check must be available when your recipient deposits the check. Because the check written for a payee has not yet been presented to the bank for clearance, the company’s funds will reflect a deduction, but the bank balance will remain unchanged. As a result, the company’s bank balance will show a more excellent balance than its actual amount of cash in hand.
Potential for Overdrafts and Insufficient Funds
A check is a financial instrument that authorizes a bank to transfer funds from the payor’s account to the payee’s account. When the payee deposits the check at a bank, it requests the funds from the payor’s bank, which, in turn, withdraws the amount from the payor’s account and transfers it to the payee’s bank. When the bank receives the full amount requested, it deposits it into the payee’s account. Bounced checks result when there is not enough money in the account to cover the check amount.
- These checks help to reflect financial transactions in accounting records accurately.
- As businesses have to abide by the unclaimed property laws, any checks that have been outstanding for a long time must be remitted to the state as unclaimed property.
- Avoiding outstanding checks involves communication with your payees, prompt tracking, and considering alternate methods of payment like digital transfers.
- Outstanding personal checks can cause budgeting problems, but you may have an easier time reminding a friend or family member to cash a check than a business payee.
- Forgotten outstanding checks are a common source of bank overdrafts.
Putting a stop payment on a misplaced or stale check may prevent issues down the road, especially if there’s a concern that it could fall into the wrong hands. However, this doesn’t always solve the problem, as it costs a fee to the payor and is only valid for a limited time. An outstanding check example could be a rent check you mailed to your landlord, but they have not deposited it yet.
The wholesale mobile dealer promptly presents the outstanding check to their bank and encashes it for credit to their account. Ask the payee to sign a document promising not to deposit both checks. This won’t prevent banks from processing two deposits, but the document can provide a useful paper trail if you want to dispute one of the deposits. It may be necessary to issue a new check without getting the old check back if the original check was lost or destroyed. 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 filing back taxes could consequently end up paying double.
Communicating Outstanding Checks to Payee
Be mindful of post office conditions and potential delays for seasonality, weather, or staffing issues. Last, outstanding checks might have an impact on management of the cash flow. Checks that remain outstanding for long periods of time cannot be cashed as they become void. Some checks become stale if dated after 60 or 90 days, while others become void after memo entry definition six months. If you’ve issued an outstanding check, you need to monitor your account.
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She debits the outstanding checks account and credits the cash account by $800 to reconcile her book balance with the actual bank balance. This adjustment ensures that her financial statements accurately reflect the funds available in her business account, considering the outstanding check. Additionally, the issuer must regularly contact the payee to inquire about the status of the check. This also helps to understand the intended use of the check in case the payee loses or faces check theft.
She records the transaction in her accounting system by debiting rent expenses and crediting cash. If you write a check and the money never leaves 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. Outstanding checks are deposited into a bank account once they are deposited by the recipient and processed by the receiving bank. Unfortunately, the issuing individual or business does not have any way to force a check to be deposited.
You can tell if a check is outstanding by reviewing your online bank account. From there, you can confirm whether or not the check has been processed. Alternatively, you can contact your bank directly with the check number and ask them to confirm. Lastly, you can contact the recipient of the check and ask them to confirm whether they have deposited or cashed the check. It is imperative for an issuer to provide payees with timely communication regarding the issuance of a check as well as any pertinent details as soon as possible. This makes it easier to set expectations and gives them the opportunity to plan properly.
During this processing period, the check is considered an outstanding check. In essence, it is a payment that has been issued but has not yet been cleared by the bank. The payment goes on the general ledger, but businesses must make adjustments during reconciliation, and they may need to reissue stale checks.
Unaccounted-for outstanding checks can disrupt the delicate balance of incoming and outgoing funds. Keep track of it and contact the payee if you suspect they’ve forgotten or misplaced the check. If you’ve received an outstanding check, deposit or cash it promptly.
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