Treatment of Uncleared Checks in Bank Reconciliation Statement

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on September 15, 2021

What Are Uncleared, Uncollected, Uncredited Checks?

A check that a customer has deposited but that the bank has not yet credited or collected in the customer’s account by the date on which the bank statement is issued is known as an uncleared check.

Effect of Uncleared Check on Bank Balance

Whenever a check is received from a debtor or third party and deposited into the bank for collection, it is immediately recorded in the bank column on the debit side of the cash book.

In the cash book, the bank balance increases on the day that the check is deposited. The bank, however, needs time to process the check. The bank will credit the customer’s account only when the amount has been collected from the debtor’s bank.

Until the check has been collected, the bank balance appearing in the bank statement will be less than the balance appearing in the bank column of the cash book.

Example

On 20 January 2019, Mr. John’s balance in his cash book and bank statement was$10,000. On the same day, a check amounting to $5,000 was received from a debtor, Harry, which was deposited at the bank for collection.

The bank does not collect the amount of the check until 31 January 2019. Also, a bank statement is sent by the bank on that date, as shown below.
Mr. John's Cash Book
Mr. John's Bank Statement
The bank column of the cash book shows a balance of $15,000 at the end of the month. According to the bank statement, however, the balance is $10,000.

This discrepancy of $5,000 is due to an uncollected check. As this indicates, whenever checks are uncollected, uncleared, or uncredited, the cash book will show a greater bank balance compared to the bank statement.

Treatment of Uncleared Checks in Bank Reconciliation Statement

As discussed above, the cash book will show a greater bank balance compared to the bank statement when checks are uncredited. However, the discrepancy is temporary because the amount of the uncollected check will eventually be collected and credited.

Nevertheless, on the other hand, on the date of the bank statement, the amount of the deposited check was not shown in the bank account. This is why the bank statement shows less bank balance compared to the cash book.

For this reason, it is necessary to credit the total amount of any uncredited checks when preparing a bank reconciliation statement to bring down the balance to the level of the bank statement.

Learn more

Got some more questions about this topic or on another closely related subjects? Get help from a financial advisor in Woburn, MA to get a good discussion. Visit our financial advisor page if you live outside the area to connect with one who’s a fit for you.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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