What it means
When you run a business, keeping track of your cash is vital. You might write a check to a supplier, record that expense immediately in your accounting software, and reduce your internal cash balance.
However, that supplier might take a week to visit their bank, or perhaps they misplaced the check and only deposit it later. Until that check clears through the banking system, your bank statement will show a higher balance than your internal financial records.
This situation is the most common reason for discrepancies when performing a monthly bank reconciliation. It matters because assuming your bank account has more money than it actually does can lead to bad spending decisions or accidental overdrafts.
You must account for these outstanding payments to ensure you always know your true available liquidity. Understanding this timing difference helps you avoid bounced payments and keeps your financial management accurate and reliable.
Imagine you hand a cinema ticket to a friend who is running late, so you tick them off your guest list immediately. Until they actually walk through the door, the venue's head count does not match your list.
In practice
Real-world examples
Example 1
You issue a $1,200 check to a commercial landlord for repairs on 28 November and record it in your books straight away. The landlord banks it on 4 December, so your 30 November bank statement still shows the $1,200 as available. Your reconciliation lists it as unpresented and clears the difference.
Example 2
A small design agency mails a $450 check to a freelance illustrator on Friday. The illustrator is travelling and does not deposit the check for ten days, creating an unpresented check. During that time the agency's bank balance looks $450 higher than its real position.
Example 3
A manufacturing firm writes a $5,000 check for raw materials on the last day of the financial quarter. The supplier banks it after the new quarter begins, so the quarter-end bank reconciliation needs an adjustment for the timing difference. The auditor asks to see the check's later clearing date as evidence.
Think of it
Imagine you hand a cinema ticket to a friend who is running late, so you tick them off your guest list immediately. Until they actually walk through the door, the venue's head count does not match your list.
Formula
Calculation
Adjusted Bank Balance = Bank Statement Balance - Unpresented Checks + Outstanding Deposits
Example 1:
Bank Statement Balance = $10,000
Unpresented Checks = $1,500
Outstanding Deposits = $500
Adjusted Bank Balance = 10,000 - 1,500 + 500 = $9,000
Example 2 (reconciling to the cash book):
The cash book shows a balance of $9,000 after you recorded all payments and receipts. The adjusted bank balance is also $9,000, so the two agree and the reconciliation is complete.
If the cash book instead showed $9,350, a difference of $350 would remain, which signals an unrecorded bank charge, a missing entry or an error, to be investigated before the books are closed.
Example 3 (spending decision):
A bank portal shows $20,000, but three checks of $4,000, $2,500 and $1,500 have not been presented.
Real available cash = 20,000 - (4,000 + 2,500 + 1,500) = 20,000 - 8,000 = $12,000.
A planned $15,000 equipment purchase would overdraw the account by $3,000, so it should wait.Case study
Seen in the real world
This is a fictional, illustrative scenario. GreenLeaf Landscaping, a growing garden design firm, faced a cash flow scare at the end of October. The owner, Sarah, checked her online bank portal and saw a balance of $7,000, which made her feel comfortable enough to buy a new $4,500 lawnmower. However, Sarah forgot about three separate checks totalling $5,000 that she had mailed to plant nurseries two weeks earlier. Those nurseries had not yet banked the paper slips, meaning those unpresented checks were still outstanding.
When the checks cleared in the first week of November, Sarah's account fell to 7,000 - 4,500 - 5,000 = -$2,500, triggering an unexpected overdraft fee of $35 and an awkward call with the bank. This event taught GreenLeaf the importance of looking past the headline bank balance. The illustrative owner now reconciles every month and keeps a running list of written checks. She works out her real available cash first, which in October would have been 7,000 - 5,000 = $2,000, before agreeing any purchase.
Watch out
Common mistakes
- Forgetting to record a check in your ledger when you write it, assuming it only matters once it clears.
- Panicking and assuming fraud when a supplier takes a long time to bank a check you sent them.
- Spending the money sitting in your bank account without accounting for checks you have already posted out.
Questions
People also ask
How long can a check remain unpresented?
It depends on local banking rules and the issuer, but many banks will refuse to cash checks older than six months.
Do unpresented checks affect my profit and loss statement?
No, expenses are recorded when you commit to the transaction and log the check, not when it clears your bank.
What should I do if a check is never presented?
Contact the payee after a reasonable period, and if it is lost, arrange to cancel the check and reissue a new one.