In a Bank Reconciliation, Outstanding Checks Are Deducted

Quick Answer: In preparing a bank reconciliation, outstanding checks are deducted from the balance per bank statement. They are checks you have written and recorded in your books that the bank has not paid yet, so the bank balance is too high by their total. No journal entry is needed for them; they clear in a later month. A check that never clears eventually has to be voided, reissued, or reported to the state as unclaimed property.

Outstanding checks are subtracted from the bank's ending balance, never from your book balance. Your ledger already reduced cash when you wrote each check; the bank only reduces it when the payee deposits it. Subtracting the uncleared total from the bank side shows what the bank balance will be once those payments land, which is the number your books should agree with.

In a bank reconciliation, outstanding checks are deducted from which balance?

The bank balance. This is the answer to the textbook multiple-choice question in all its forms ("in preparing a bank reconciliation, outstanding checks are…", "on a bank reconciliation outstanding checks are…"): deducted from the balance per bank.

The reasoning is about who already knows. On the day you mail check #2214 for $1,105.00 to a landlord, you record it, and your cash account drops by $1,105.00. The bank has no idea the check exists. It learns when the landlord deposits it, maybe two days later, maybe three weeks later. Until then the bank statement shows $1,105.00 more than you really have to spend.

So the adjustment belongs on the side that is behind. The books are right; the bank is late. Subtracting the check from the bank balance brings the bank forward to where the books already are.

A short illustration. A design studio's bank statement on September 30 shows $5,872.40. Three checks written in late September have not cleared:

Balance per bank $5,872.40 − outstanding checks $1,611.80 = $4,260.60 adjusted bank balance. If there are no book-side items that month, the studio's ledger should read $4,260.60 too.

Why don't outstanding checks get a journal entry?

Because nothing in the books is wrong. Journal entries in a reconciliation fix the ledger: a fee you did not know about, interest the bank credited, a customer check that bounced. An outstanding check is the opposite situation. The ledger is already correct, and the bank will catch up on its own when the check is presented.

This is also why outstanding checks are called timing differences. They disappear without anyone touching them. Next month, when #2214 shows up on the October statement, you tick it as cleared and it drops off your list.

Two consequences follow:

• The outstanding list carries forward. Any check still uncleared at the end of October reappears on October's reconciliation. Your list is cumulative, not monthly.
• A recording error is not an outstanding check. If check #2219 actually cleared at $78.60 while your ledger says $76.80, the $1.80 gap is a book error that needs an entry. Only the full, uncleared amount of a check belongs on the outstanding list.

How do you find outstanding checks during a bank reconciliation process?

During the bank reconciliation process you compare the ledger's check payments against the statement's paid checks. Every check on the ledger side that has no partner on the statement, and every check from last month's outstanding list that still has not cleared, is outstanding.

A practical order of work:

1. Start with last month's outstanding list. Tick off each check that appears on this month's statement.
2. Go through this month's ledger checks in number order and tick each one the statement shows as paid.
3. Anything unticked on either list goes on this month's outstanding list with its number, date, payee and amount.
4. Scan for gaps in the check-number sequence. A missing number is usually a voided or spoiled check that should be recorded as void, not a lost payment.
5. Total the list and subtract it from the bank balance.

Matching by check number is far faster than matching by amount, because the bank prints the number on every paid check. If you work from a converted statement, keep the check numbers in the description column so you can sort on them. QuickBankConvert keeps the description text as the bank printed it; just know that scanned or photographed statements are read less accurately than PDFs downloaded from online banking, so check numbers on a scan deserve a second look.

When does an outstanding check become a problem?

Most checks clear within a couple of weeks. One that sits on your list for months is telling you something: the payee lost it, never received it, or no longer exists. Leaving it there forever inflates your outstanding total and hides real money.

Six months is the legal marker in the US. Under UCC § 4-404, a bank is under no obligation to pay a non-certified check presented more than six months after its date, though it may still pay one in good faith. That is why "void after 90 days" or "void after 180 days" is printed on many business checks, and why people call older checks stale-dated.

An aging view helps you decide what to chase:

What do you do with a check that never clears?

You have three options, and which one applies depends on whether you can reach the payee.

1. Void and reissue. If the payee confirms they never cashed it, place a stop payment with your bank on the original (banks often charge a fee for this), record the original as void, and write a new check. In the books, voiding reverses the original entry: debit Cash, credit the account the check was charged to (often Accounts Payable or an expense). The new check is then recorded normally and starts its own outstanding life.

2. Void and reverse. If the payment was a duplicate or was never owed, void it and reverse the entry, with no replacement. Cash goes back up and the expense or payable goes back where it was.

3. Report it as unclaimed property. If you cannot find the payee, the money is still not yours to keep. Every US state has unclaimed property law that requires businesses to report and remit uncashed checks (payroll checks, vendor payments, customer refunds) after a dormancy period set by that state, and to do so annually. The National Association of Unclaimed Property Administrators names uncashed payroll checks as one of the largest categories states hold and points businesses to each state's reporting rules at unclaimed.org. Dormancy periods differ by state and by type of payment, so check the rule for the state of the payee's last known address before you write anything off.

Until the check is resolved one of these ways, keep it on the outstanding list. Removing it without an entry would leave the reconciliation balanced on paper while the books overstate your payables or expenses.

Mistakes that throw the bank side off

• Deducting outstanding checks from the book balance. This double-counts them, since the books already did it once. The reconciliation will be off by exactly the outstanding total.
• Forgetting last month's list. A check written in August that clears in October will look like an unrecorded bank debit in October if you start the outstanding list fresh each month.
• Counting electronic payments as checks. ACH payments you initiate can also be "outstanding" for a day or two around month-end, and they belong on the same deduction line. Label them so they are not confused with paper checks.
• Listing a check written after the statement date. A check dated October 2 does not belong on September's reconciliation, even if you wrote it before you sat down to reconcile.

For a full reconciliation that uses outstanding checks alongside deposits in transit, fees and an error, work through the bank reconciliation example. The book-to-bank reconciliation guide explains the same timing logic starting from the ledger.

Related guides

• Bank reconciliation example with solution
• Book-to-bank reconciliation
• Bank statement reconciliation guide
• Bank charges in a reconciliation