Held Checks

What is a held check? We know that outstanding checks are checks that the company has mailed out, but haven’t cleared the bank yet (they decrease the cash balance). A held check is a check that the company has not even mailed out yet. In other words, it’s not even available to be used yet, so it should not decrease the cash balance. For example, if a company records a check on December 30th, but doesn’t mail the check until January 3rd, it shouldn’t decrease the cash balance until January 3rd.

Study Tip: Held checks should be added back the cash balance.

Practice Question – Held Checks

The following information pertains to Grey Co. at December 31, Year 1:

Checkbook balance

$12,000 Bank

statement balance

$16,000

Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/Year 1 but not mailed until 1/10/Year 2 $1,800 On Grey's December 31, Year 1, balance sheet, what amount should be reported as cash?

This question asks, “What amount should be reported as cash?” (i.e., what is the ending cash book balance?). We have a checkbook balance of $12,000 (i.e., our book balance before adjustments is $12,000). We have a bank statement balance of $16,000. We don’t need to use the $16,000 bank balance to find the answer. Since the question already pro- vides the $12,000 checkbook balance, we make any adjustments directly to the $12,000 checkbook balance.

We have a check that is drawn on Grey’s account (i.e., a subtraction to cash). It is dated and recorded in year 1, but it was not mailed out until January 10th of year 2. Therefore we mistakenly decreased our cash in year 1 when it should have been decreased in year

2. This is because the check was held and not sent until year 2.

Therefore, we need to add back the held check of $1,800 because we’re not allowed to decrease our cash until we actually mail it out on January 10th. We add the $1,800 check back to the $12,000 checkbook balance, giving us an ending balance of $13,800.