Checks outstanding are checks that the company has written that have yet to be recorded by the bank!
We can pinpoint here...
Question: On April 31st, 2022, Hats LLC has a Cash balance of $800. Over the course of the month, they wrote $10,000 in checks, but $200 of those checks haven’t been processed by CashForDays bank. In addition, $170 out of their $20,000 in cash receipts still needs to be deposited in CashForDays Bank.
However, on their bank statement, it shows a Cash Balance of $850 and includes the following items not yet recorded by the company: a note receivable collected by the bank for $200, interest earned on that note of $20, and a bank service fee of $50. In addition, the bank accidentally charged Hats LLC $50 for a service fee that was meant to be on another customer’s account. Lastly, one of Hats LLC customer’s checks for $100 returned back with non-sufficient funds.
Prepare the bank reconciliation to correct the ending Cash Balance on April 31st, 2022.
...that "they wrote $10,000 in checks, but $200 of those checks haven’t been processed by CashForDays bank". Those $200 in checks are the definition of checks outstanding!
Remember, checks outstanding subtract from the Bank's Cash Balance...
Bank's Cash Balance Items
|Reconciling Item||Description||Add or Subtract to Cash Balance?|
|Deposits outstanding||Deposits made by the company, not recorded by the bank yet.||Add|
|Checks outstanding||Checks written by the company, not recorded by the bank yet.||Subtract|
|Bank error||Bank accidentally charges (or forgets to charge) the company.||Add / Subtract (it depends)|
...so we'll place those $200 of checks outstanding on the Bank's Cash Balance side of our bank reconciliation like so:
(It's in parentheses because it is a negative number subtracting away from the Bank's Cash Balance.)
Bank's Cash Balance
|Per Bank Statement||$850|
|Bank Balance per Reconciliation||???|
Company's Cash Balance
|Per General Ledger||$800|
|Company Balance per Reconciliation||???|