Outstanding Checks and the Bank Reconciliation

Learn where outstanding checks belong in a bank reconciliation, which differences require entries, and how bank and book balances reach one answer.

Quick answer

Outstanding checks are payments a company has issued and recorded in its books but the bank has not yet processed. The company book balance already reflects the cash reduction. The bank statement remains temporarily higher, so outstanding checks are subtracted from the bank-statement balance when preparing the bank reconciliation.

Why outstanding checks reduce the bank side

Do not record a second cash credit for an outstanding check. Carry it on the bank side until it clears or the facts require separate investigation.

Timing differences already in the ledger usually adjust the bank side. Items first revealed by the statement usually adjust the books and require an entry.

Bank reconciliation side and entry map
ItemSide adjustedDirectionCompany entry?
Deposit in transitBankAddNo
Outstanding checksBankSubtractNo
Bank service chargeBooksSubtractYes
Interest earnedBooksAddYes
Bank errorBankCorrect as facts requireNo company entry
Company errorBooksCorrect as facts requireYes

Worked example: reconcile bank and book cash

  1. 1Start with the $28,000 bank balance. Add the $2,500 deposit in transit and subtract $1,200 of outstanding checks to reach $29,300.
  2. 2Start separately with the $29,550 book balance. Subtract the unrecorded $250 bank service charge to reach the same $29,300.
  3. 3Record only the book-side service charge. Agreement supplies the corrected cash balance for these facts, but old or unusual reconciling items still require investigation.
Two-sided bank reconciliation worksheet
Reconciliation lineBank sideBook side
Unadjusted balance$28,000$29,550
Add deposit in transit+$2,500Already recorded
Subtract outstanding checks-$1,200Already recorded
Subtract bank service chargeAlready on statement-$250
Adjusted balance$28,000 + $2,500 - $1,200 = $29,300$29,550 - $250 = $29,300
Book-side journal entry
EventAccountDebitCredit
Record bank service chargeBank Service Charge Expense$250
Record bank service chargeCash$250
Outstanding checksNo additional entry

Practice the CPA topics covered on this page

Practice CPA exam questions and use your results to find the topics that need more work.

Find My Weak Areas

Sort every difference before calculating

Add deposits in transit and subtract outstanding checks on the bank side because both transactions are already in the company ledger.

Record service charges, returned customer payments, interest, bank-initiated electronic activity, and company errors on the book side as the facts require. Keep bank errors on the bank side.

This page owns the FAR calculation. Control design remains with Aud Internal Controls and Internal Controls Coso, while audit evidence and testing remain with Aud Audit Procedures.

Bank reconciliation workflow
  1. 1Classify each differenceAssign each item to the bank side or book side before choosing its sign.
  2. 2Calculate both sidesAdjust bank and book balances independently until they reach one corrected cash balance.
  3. 3Record book itemsJournalize statement-only company items and company errors, but not bank-side timing items.
  4. 4Roll timing items forwardVerify that deposits in transit and outstanding checks clear in the next period.

Mistakes that create a false reconciliation

Do not add outstanding checks or subtract deposits in transit. Explain which record is missing the item before choosing the sign.

Do not adjust both sides for one item. A timing difference already in the books does not receive a duplicate book entry.

Finally, do not confuse a bank reconciliation with a statement of cash flows. A reconciliation aligns two records of the cash balance at a date. Operating, investing, financing, and indirect-method adjustments remain with Cash Flow Statement Methods. The similar word reconciliation does not make the page jobs identical.

A reliable bank reconciliation workflow

  • Use separate bank and book columns, assign every item to one side, and calculate both adjusted balances independently.
  • Record only book-side items and company errors. Roll unresolved timing items forward and verify that they clear.
  • Tie the adjusted balance to the general-ledger Cash account after posting the required entries.
  • Use CPA exam blueprints and FAR study guide for scope, then practice at free FAR practice and label wrong-side, wrong-sign, duplicate, omitted-entry, or arithmetic misses.

Frequently asked questions

What are outstanding checks?

Outstanding checks are checks the company issued and recorded as reductions of book cash that have not yet cleared the bank. They are timing differences between the company records and the bank statement.

Do outstanding checks require a journal entry?

No additional entry is normally required because the company recorded the cash reduction when it issued the check. The item is subtracted on the bank side of the reconciliation until the bank processes it.

What items usually require book-side entries?

Items first learned from the bank statement, such as service charges, returned customer payments, interest, or electronic activity not yet recorded, generally require entries. Company recording errors also require correction in the books.

Sources