Accounting Fundamentals Certification (AFC) Practice Test

An outstanding check decreases the bank statement balance because it represents a liability that has been written by the account holder but has not yet been processed by the bank. When a check is issued, the amount of the check is immediately deducted from the account holder's records, reflecting a decrease in their available balance. However, it will not be reflected on the bank's records until it is presented for payment and cleared.

The impact of an outstanding check can be crucial for account holders to consider when managing their finances. Since the check has not cleared, the funds are still reserved for the transaction; thus, the actual balance that the bank shows may be higher than the account balance that the account holder is working with. Therefore, it's important for individuals to keep track of these outstanding checks to avoid overdrawing their account when they assume their bank balance is higher than it actually is.