Future Business Leaders of America (FBLA) Accounting Practice Test

What are outstanding checks?

1. Checks that have been cleared by the bank

2. Checks that have been written but not yet cashed

3. Checks that have been reported lost

4. Checks returned for insufficient funds

The correct answer is: Checks that have been written but not yet cashed

Outstanding checks are checks that a company has issued and recorded in its accounting books but have not yet been presented to the bank for payment. This means that the recipient of the check has not cashed or deposited it, which indicates that the funds have not yet left the account. The distinction of outstanding checks is important in reconciliation processes, especially when comparing a company’s cash balance in its accounting records with the balance shown on its bank statement. Recognizing these checks is crucial for accurate cash management and financial reporting, as they represent liabilities that the company is aware of but that have not yet impacted its available cash. In contrast, checks that have been cleared by the bank are no longer considered outstanding because the payment has already been processed. Checks reported as lost are a separate matter entirely and typically involve additional actions, such as canceling the original check and potentially issuing a replacement. Lastly, checks returned for insufficient funds occur after they've been presented, meaning they have already entered the bank's processes, which disqualifies them from being classified as outstanding.