Accounting for outstanding checks can be time-consuming and troublesome, but you'll want to make sure you do so on a regular basis to prevent serious balance sheet reconciliation problems later. Every business needs to maintain a general ledger as a recording mechanism for all the expenses and monies taken in as the business operates day to day. Ideally this general ledger will be maintained properly, but you will also want to reconcile this general ledger against the bank statement to make sure your accounting matches up.
Missing Money
As you work with your general ledger and bank statement, you'll notice outstanding checks throw a wrench into your accounting process. Monies that should have been credited or debited will be missing whenever you have checks that have not been cashed or checks that have bounced, whether the insufficient funds are reflected from your side-the business side-or the patron side.
Outstanding checks present a problem because you will have debited your business account for these amounts, but then you will find your bank statement does not reflect the same balance as your general ledger sheet. You will therefore need to establish a system for marking and tracking outstanding checks such that the debits reflected are not committed repeatedly or that debits spent are not accounted for.
Other Benefits Of Accounting For Outstanding Checks
While reconciling the general ledger to the bank statement, you may also catch bank errors, bank charges and errors in your own accounting process. Sometimes you will come across issues with deposits in transit that have not yet been reflected by the bank statement. You'll need to indicate all deposits in transit and outstanding checks on the bank statement so you can reconcile it with the general ledger.
A common accounting rule is reflected simply as "Put it where it isn't," meaning you should write into the bank statement the debits and credits that are currently in transit or not realized so you can have an accurate record of your actual financial state of your business.
 | The basic accounting equation elements are simple concepts you need to grasp in order to run a small business. Accounting is based on the concept that a balance must be maintained through debits and credits. |
 | What is a CPA? "CPA" stands for "Certified Public Accountant," and you would go to a CPA for tax advice. However, not everyone who provides tax advice is a CPA. The three letters "CPA" can mean a lot if you need any kind of tax or business help. |
 | Need to know how to prepare a general ledger? Wondering if you're properly recording your small business expenses and credits? The following advice will help you set up your general ledger sheets properly. |
 | You'll have to read a balance sheet if you ever consider going into venture capitalism, investing in small businesses or getting involved on a corporate level with accounting. |
Need to know how to reconcile a general ledger? Not sure what column represents what? Afraid you're going to end up with a wrong balance? Try following these simple tips. |
