Held Checks
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Writing a check and mailing a check aren't the same event, and FAR cares which one actually happened before your balance sheet date.
What is a held check?
An outstanding check is one the company has already mailed, but the bank hasn't cleared yet — it correctly decreases the book cash balance. A held check is different: it's a check the company has recorded but hasn't mailed out at all.
Since the check isn't in anyone's hands yet, it hasn't actually reduced the company's cash. If a company writes and records a check on December 30th but doesn't mail it until January 3rd, cash shouldn't decrease until January 3rd.
Held checks get added back to the book balance. If the check was recorded but not yet mailed as of the balance sheet date, reverse the reduction — the company hasn't actually parted with that cash yet.
Worked example: Grey Co.
Grey Co. had the following information at December 31, Year 1:
| Item | Amount |
|---|---|
| Checkbook balance | $12,000 |
| Bank statement balance | $16,000 |
| Check dated and recorded 12/31/Yr 1, mailed 1/10/Yr 2 | $1,800 |
The question: what amount should Grey report as cash on its December 31, Year 1 balance sheet?
The question already gives the checkbook balance directly, so adjustments happen right on the $12,000 — the $16,000 bank statement balance isn't needed to answer this one.
The $1,800 check was dated and recorded in Year 1, but it wasn't mailed until January 10th of Year 2. That means Grey's books mistakenly decreased cash a year early. Since the check wasn't actually sent until Year 2, it needs to be added back:
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 95 on FAR. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.