An unpresented check, also known as an “outstanding check,” is a check that has been written and recorded in an entity’s accounting records but has not yet cleared through the bank. In other words, the check has been issued by the payer and may even have been received by the payee, but it has not been deposited or cashed, and therefore has not yet been subtracted from the payer’s bank account.
Unpresented checks are important in the reconciliation of a company’s cash account. During the bank reconciliation process, the company must account for all checks issued but not yet cleared to accurately reflect its available cash balance.
Unpresented checks can cause discrepancies between the accounting records and bank statements, making it crucial to account for them during the reconciliation process to get an accurate picture of an entity’s financial position.
Example of an Unpresented Check
Let’s go through an example to illustrate the concept of an unpresented check and how it affects bank reconciliation.
Imagine you run a small business, and your accounting records show that you have a cash balance of $10,000 as of September 30. On that same day, you issue a check for $2,000 to one of your suppliers for goods received. You promptly record this payment in your accounting books, reducing your cash account balance to $8,000. However, as of October 5, the supplier has not yet deposited the check.
Accounting Books as of September 30:
- Cash Account: $8,000 (originally $10,000, reduced by $2,000 for the check issued)
- Accounts Payable: Reduced by $2,000, acknowledging that you’ve paid your supplier
Bank Statement as of September 30:
- Cash Balance: $10,000 (because the $2,000 check has not yet been presented to the bank)
Bank Reconciliation as of September 30:
When you reconcile your bank statement with your accounting records, you’ll notice a discrepancy of $2,000 ($10,000 in the bank statement vs. $8,000 in your accounting books). This discrepancy is due to the unpresented check of $2,000.
To reconcile, you would do the following:
- Start with the ending bank balance: $10,000
- Subtract unpresented checks: $10,000 – $2,000 = $8,000
- Compare with accounting books: The adjusted bank balance ($8,000) should now match the cash balance in your accounting records ($8,000).
Why This Matters:
- Accurate Financial Statements: By accounting for unpresented checks, you ensure that your financial statements accurately reflect your company’s financial position.
- Cash Management: Knowing the true cash balance helps you manage your company’s liquidity and make informed financial decisions.
- Audit and Compliance: Accurate reconciliation is crucial for audits and can affect the company’s tax obligations.
Once the supplier eventually deposits the $2,000 check and it clears, the bank statement will align with your accounting books in this regard, confirming the effectiveness of your reconciliation process.