Definition
The term outstanding checks describes all those checks which were listed by means of a company to be written, however, maybe not cleared and submitted to the accounts ‘s announcement by the business ‘s bank. Outstanding checks are generally recognized as a member of their banking accounts reconciliation procedure.
Explanation
At the conclusion of every accounting period, employers move through a bank statement reconciliation process to know any gaps between your provider ‘s listing of cash withdrawals and deposits, and also the accounts statement issued with the bank. In most cases, a test may possibly have been compiled by an organization, listed on the general ledger, however, maybe not shown to the provider ‘s banking accounts announcement.
For instance, a test might have already been written and recorded with means of a business on December 3 1. But as a result of period essential for that payee to receive and process the test, make a deposit, and also the sum to clean the banking system, this trade may show up on the business ‘s January bank statement. The reconciliation procedure will determine these gaps because of checks that are outstanding.
This procedure a part of this accounting practice, allowing the corporation to report money, and a present asset, on its own balance sheet.
Example
Company A listed $200,000 in tests drawn out of the overall accounts from the month of December. Throughout the November financial statement reconciliation procedure, Company A determined it’s a balance of $12,000 in checks that are outstanding. The lender announcement received by Company A revealed checks paid at $196,000 in December. Company A’s excellent checks at the end of December will be computed as:
| Outstanding Checks (Starting Balance) | $12,000 |
| Add: Checks Written | $200,000 |
| Total Checks to become Paid | $212,000 |
| Less: Checks Paid (Per Bank Statement) | $196,000 |
| Outstanding Checks (Ending Balance) | $16,000 |
