Money Matters

What are outstanding checks in bank reconciliation? How to identify, record, and handle them

Understanding what outstanding checks are in bank reconciliation is key to keeping your finances on track. Learn how to identify, record, and manage them to maintain a healthy accounting system.

Reconciling your bank statements is fundamental to keeping your business’s finances on track.

Whether you’re a small business owner, a staff accountant, or a bookkeeper, one issue you’re likely to run into is handling outstanding checks.

So, what are outstanding checks in bank reconciliation exactly?

Simply put, these are checks your business has written and recorded in your accounting system—but they haven’t yet been cashed or deposited by the recipient.

They’re in limbo, creating a temporary mismatch between your books and your bank statement.

In this article, we’ll go through outstanding checks, why they matter, how to identify and record them, and the best practices for managing them efficiently.

We’ll also show you how accounting software can simplify this process.

Here’s what we’ll cover:

What are outstanding checks in bank reconciliation?

Outstanding checks are payments you’ve issued but haven’t yet cleared your bank account.

You’ve done your part; written the check, updated your records, and maybe even mailed it.

But until the recipient deposits or cashes that check, it’s considered “outstanding.”

These timing differences are entirely normal.

For instance, the customer might wait a few weeks to deposit a check or misplace it altogether.

During that gap, your bank balance appears higher than your books show—because the bank still hasn’t processed the transaction.

When preparing a bank reconciliation, outstanding checks are subtracted from the bank’s ending balance to bring it in line with your records.

This step ensures your cash position reflects your actual available funds, not just what appears on the bank statement.

The role of outstanding checks in bank reconciliation

Outstanding checks play a key role in the reconciliation process.

They help bridge the gap between your internal accounting records and what your bank statement shows.

When a check has been issued but not yet cleared, it creates a temporary difference between your book and bank balances.

List and subtract these outstanding checks from the bank’s ending balance during reconciliation to keep your financials accurate.

This adjustment makes sure both records align and that your cash position reflects the funds available to your business.

Skipping this step can lead to overstated balances, which may result in overdrafts, bounced payments, or inaccurate cash flow projections.

But the importance of outstanding checks goes even further:

• They affect cash flow planning: forgetting about them can lead you to commit to no longer available funds.
• They impact financial accuracy: unreconciled checks can cause your account balances to be incorrect.
• They raise audit concerns: long-outstanding checks may appear suspicious and draw auditor attention.
• They reveal inefficiencies: a recurring pattern of uncashed checks might signal issues in your payment or vendor communication process.

Risks of outstanding checks

In addition to causing inaccuracies, outstanding check can pose some financial and operational risks, including:

• Risk of Non-Sufficient Funds (NSF): if you forget about an outstanding check and later commit those funds elsewhere, it could lead to overdrafts or NSF fees when the check is eventually cashed.
• Risk of fraud: the longer a check remains uncashed, the greater risk it could be lost, stolen, or altered. Unmonitored outstanding checks increase your exposure to unauthorized transactions, especially if proper controls aren’t in place.

Recording outstanding checks in your accounting system

Once you understand what outstanding checks are and why they matter, the next step is learning how to record outstanding checks in bank reconciliation accurately and consistently.

As soon as you issue a check, enter it into your accounting system.

Each record should include the following details:

• Check number
• Date issued
• Payee
• Amount

Even though the check hasn’t cleared yet, recording it right away helps ensure your cash position is accurate and makes it easier to track pending payments.

If you’re using accounting software, the system will typically flag checks as “outstanding” until they clear through your bank feed.

This automation helps reduce errors, ensures nothing gets missed, and makes following up on uncashed checks more efficient.

For businesses managing a high volume of payments, a centralized dashboard can be especially helpful—allowing staff accountants to stay organized across multiple accounts and streamline the reconciliation process.

Identifying and calculating outstanding checks

Understanding how to find outstanding checks on bank reconciliation is essential for maintaining accurate financial records.

Here’s a simple step-by-step process to guide you:

1. Start with your check register

Pull a list of all checks issued during the reconciliation period.

2. Compare with the bank statement

Review your statement and identify which checks have cleared.

3. Spot the differences

Any check listed in your register that doesn’t appear on the bank statement is likely outstanding.

If you’re wondering how to calculate outstanding checks in bank reconciliation, the process is simple.

Add up the amounts of all checks that have been issued but haven’t yet cleared the bank.

The total becomes the adjustment you subtract from the bank balance to complete the reconciliation accurately.

A helpful tip is to match records regularly, either monthly or weekly, to catch discrepancies early and avoid any last-minute surprises at the end of the month.

Best practices for managing outstanding checks

Adopting proactive habits can make a big difference when managing outstanding checks effectively.

Here are some key best practices to follow:

1. Reconcile regularly

Make bank reconciliation a monthly routine. Frequent reconciliation helps you catch outstanding checks early and act before they become stale.

2. Communicate with payees

If a check hasn’t been cashed after a couple of weeks, follow up with the payee. A quick email or phone call can prevent unnecessary delays or the need to reissue the check.

3. Void stale checks

Most banks consider checks “stale” after six months, meaning they may no longer process them. How you handle outstanding checks depends on how long they’ve been uncashed:

If the check is less than six months old:

• Continue to track the check in your account register.
• Contact the recipient to confirm they received the check.
• Ask if they’ve misplaced it or when they plan to deposit or cash it.
• You should not write another check during this period, as doing so could lead to duplicate payments and reconciliation issues.

If the check is older than six months:

• Consider voiding the stale check.
• If the payment is still owed, reissue a new check to replace the original.
• Update your accounting records to reflect both the voided check and the reissued one.

Following these steps helps maintain accurate financial records, prevents duplicate payments, and avoids confusion during reconciliation.

4. Keep detailed records

Maintain a complete and up-to-date check register. Include information about issued, voided, and reissued checks and any relevant notes to support audits and internal reviews.

5. Use accounting software

Accounting software can alert you when a check has been outstanding for too long. These tools also help identify duplicates, reduce manual errors, and streamline reconciliation.

Streamline reconciliation with bank reconciliation software

Manual reconciliation can be time-consuming and prone to errors.

If you’re still relying on spreadsheets or paper-based processes it may be time to explore how bank reconciliation software can transform your workflow.

Here’s how it can help:

Auto-import bank transactions

Eliminate the need to toggle between tabs or enter numbers manually. Transactions are imported automatically, saving time and reducing input errors.

Automatically flag outstanding checks

The software matches issued checks with cleared ones, making it easy to spot any that are still pending.

Receive real-time alerts

Get notifications when checks remain uncashed for a specific period so you can follow up before they become stale.

Maintain detailed audit trails

Keep a complete and organized record of all reconciliation activities, making audits smoother and less stressful.

Whether you’re a solo bookkeeper or part of a larger accounting team, using the right bank reconciliation software can save you hours each month and significantly improve the accuracy of your financial reports.

Wrapping up: Why understanding outstanding checks in bank reconciliation matters

Outstanding checks may seem minor, but if not handled properly, they can disrupt your cash flow, lead to inaccurate financial records, and complicate audits.

Understanding how they work—and how to manage them—helps to make sure your financial statements reflect your true cash position.

Here are the key takeaways:

• Outstanding checks are payments you’ve issued that haven’t yet cleared the bank.
• They must be subtracted from the bank’s balance during reconciliation to align with your books.
• Accurately recording and identifying outstanding checks is essential for maintaining clean financial records.
• Following best practices like regular reconciliation and timely follow-ups helps prevent issues before they arise.
• Accounting software can simplify the entire process, from tracking outstanding checks to keeping your records audit-ready.

With the right tools and processes, managing outstanding checks becomes easier, helping you keep your books accurate and your business financially healthy.