Outstanding Check

An outstanding check is a check that has been written and recorded by the payer but has not yet been cashed or deposited by the recipient, meaning the funds have not cleared the bank account. The moment you write a check, your bookkeeping shows a reduced balance, but your bank statement still shows the original, higher balance. That gap between the two figures is the outstanding check.

Outstanding checks are a normal part of banking, but they create real problems when you forget about them and spend the same money twice.

Why Outstanding Checks Create Problems

Your bank balance and your actual available funds diverge whenever a check is outstanding. If you write a check for $500 and your bank shows $800, you might assume you have $800 available. You do not. You have $300 once that check clears.

Spending the money before the check clears leads to an overdraft, a non-sufficient funds fee, and a damaged relationship with whoever you paid. Banks typically charge $25 to $35 per overdraft incident.

How Outstanding Checks Appear in Bank Reconciliation

When businesses reconcile their bank accounts at month-end, outstanding checks are a standard reconciling item. The bank statement shows a higher cash balance than the company's books because the checks have been recorded as paid but have not cleared.

The accounting treatment is straightforward. You subtract the total value of all outstanding checks from the bank statement balance to get the true available cash. The company does not need to make any additional journal entry because the payment was already recorded when the check was written.

Checks Go Stale After Six Months

Under the Uniform Commercial Code, banks are not legally required to honor checks more than six months old. Most banks treat checks as stale after this point and will refuse to process them, though some may still do so at their discretion.

If someone holds your check past six months, you still need to place a stop payment on it. A teller who misses the date might process it anyway, and you would be charged.

What to Do If You Have an Outstanding Check

• Keep the amount reserved in your account and do not spend it.
• Contact the recipient after a few weeks to confirm they received the check and intend to deposit it.
• If the check is lost, issue a stop payment order through your bank, then reissue a replacement payment.
• If the check is older than six months, contact the bank about their stale-check policy, issue a stop payment, and arrange a new form of payment with the payee.

Uncashed Checks Become Unclaimed Property

For businesses, outstanding checks that go uncashed for a long time become a compliance issue. Most states require companies to turn over unclaimed funds to the state government under unclaimed property or escheatment laws after a set dormancy period, typically one to five years depending on the state and the type of payment. The state then holds the funds until the original payee claims them.

Sources

• https://www.accountingtools.com/articles/outstanding-check
• https://www.pnc.com/insights/personal-finance/spend/what-is-an-outstanding-check.html
• https://www.accountingcoach.com/blog/what-is-an-outstanding-check