What are Undeposited Checks?

Undeposited checks are checks that have been received from customers, but not yet deposited. There are several possible reasons why a business might have undeposited checks, including the following:

Deliberate delay of income recognition. The business operates on the cash basis of accounting, and does not want to record any additional income in the current reporting period.
Inefficient to make a deposit. The amount of cash represented by the undeposited checks is so small that the accounting manager does not bother to make a deposit, preferring to instead wait for more checks to arrive.
Post dated checks. The checks are post dated, so the entity cannot yet deposit them.

A business should at least record undeposited checks in its accounting system promptly, so that it can flag the indicated customer accounts receivable as having been received. Otherwise, the collections staff will keep calling customers about supposedly overdue invoices that have actually already been received.

Ideally, undeposited checks should be reported by the recipient in its balance sheet as cash.