During reconciliation, outstanding checks reduce the bank statement balance.

• A. True
• B. False
• C. Sometimes
• D. Not applicable

Answer: (D)

Outstanding checks are checks you’ve issued that haven’t yet cleared the bank. Because the bank hasn’t deducted these payments, the bank’s balance shows more cash than your company’s records. When you reconcile, you subtract the total outstanding checks from the bank balance to arrive at the amount that should equal your cash ledger. For example, if the bank shows $10,000 and you have $1,200 in outstanding checks, the adjusted bank balance becomes $8,800. This is why outstanding checks reduce the bank statement balance on the reconciliation.