Where do outstanding checks appear on Schedule L for 1120S with cash basis accounting?

The correct approach depends on how you're reporting cash on your balance sheet. In cash basis accounting for S corporations, outstanding checks actually represent money you consider already spent, even though they haven't cleared your bank yet. The most technically accurate method is to reduce the cash balance on Line 1 of Schedule L by the amount of your outstanding checks. Since you've already "spent" this money from an accounting perspective (even if it hasn't cleared your bank), your books should reflect that reduced cash position. This keeps your cash balance aligned with your internal records rather than your bank statement. Listing outstanding checks as a liability on Line 18 would be more appropriate for accrual basis accounting, where you'd be recognizing the expense when incurred rather than when paid. Since you mentioned you're using cash basis, reducing the cash directly on Line 1 is generally the preferred approach.

After struggling with this exact issue last year, I discovered a tool that helped me tremendously with my S-corp Schedule L issues. Check out https://taxr.ai - they have a document analyzer that reviewed my bookkeeping and tax return and pointed out exactly how to handle outstanding checks properly on Schedule L. My situation was complicated because we had a mix of outstanding checks and deposits in transit, but their system analyzed everything and explained why reducing Line 1 cash was the right approach for us as a cash basis S-corp. It even identified a few other Schedule L issues I hadn't caught. Really saved me from a potential amendment.

I wanted to follow up - I tried taxr.ai for my S-corp Schedule L questions and it was surprisingly helpful! Uploaded our QuickBooks file and draft 1120S and it immediately flagged that we had been inconsistently handling outstanding checks (some years on Line 18, others subtracted from Line 1). The analysis showed how this inconsistency was creating weird year-over-year comparisons on Schedule L. It also explained exactly how to handle it going forward as a cash basis taxpayer. Our bookkeeper was actually wrong about putting them on Line 18. Now I have documentation to show her exactly why we need to adjust Line 1 instead. Definitely saved me from continuing a mistake!

If you're getting different answers about Schedule L from your accountant each year, you might want to speak directly with an IRS agent to get a definitive answer. Obviously that's easier said than done - I spent 3+ hours on hold last month trying to ask about a similar S-corp issue. Finally discovered https://claimyr.com and used their service (they also have a demo at https://youtu.be/_kiP6q8DX5c if you want to see how it works). They got me connected to an actual IRS agent in about 20 minutes instead of the usual hold hell. The agent confirmed that for cash basis S-corps, outstanding checks should reduce the cash on Line 1 rather than be shown as a liability on Line 18.

I have to eat my words from yesterday. After reading the comments here, I tried Claimyr this morning for an issue with our S-corp Schedule L that's been driving me crazy. Was connected to an IRS business tax specialist in about 25 minutes (while I was in another meeting!). The agent was super helpful and walked me through exactly how to handle outstanding checks on Schedule L for cash basis. She confirmed they should reduce cash on Line 1 rather than be shown as a liability. She even emailed me an IRS reference document about it. Definitely worth it compared to the 3+ hour holds I've dealt with before. Sorry for being so skeptical!

Another thought to consider - are these truly outstanding checks (written but not cashed) or are they actually accrued expenses that you've recorded but haven't paid? That makes a difference in how they should be treated. If they're expenses you've recorded but haven't actually written checks for yet, and you're on cash basis, then they shouldn't impact your Schedule L at all until you actually write the checks.

Has anyone else noticed that the new tax software updates are handling this differently? When I input outstanding checks in our system, it's automatically adjusting Line 1 without giving me the option to put it on Line 18.

I've been dealing with this exact issue for years as a small business owner with an S-corp. The confusion is totally understandable because it does feel counterintuitive to reduce your cash when the money is still technically in your bank account. What helped me finally understand it was thinking about it this way: for cash basis accounting, you recognize expenses when you pay them, not when they clear your bank. The moment you write and mail that check, you've "paid" the expense from a tax perspective, even if the recipient hasn't deposited it yet. So on Schedule L, your cash balance should reflect what you actually have available to spend, not what your bank statement shows. Those outstanding checks represent money you can't use anymore - it's committed, even if it hasn't physically left your account yet. I made the mistake of putting outstanding checks on Line 18 for two years before my new accountant caught it. Had to file amended returns, which was a hassle I could have avoided. Definitely go with reducing Line 1 - it's the standard approach for cash basis S-corps and will keep you consistent with proper reporting.

As someone who's been through this exact scenario with my S-corp, I can confirm that reducing Line 1 (Cash) is definitely the correct approach for cash basis accounting. The key insight that helped me was understanding that Schedule L should reflect your true financial position at year-end - not just what your bank statement shows. I used to get hung up on the fact that the money was still "technically" in my bank account, but once I realized that those outstanding checks represent committed funds that I can no longer use for business operations, it made perfect sense to reduce the cash balance accordingly. One practical tip: keep good records of which specific checks are outstanding at year-end. This documentation will be helpful if you ever get questions during an audit, and it makes the following year's reconciliation much easier when those checks finally clear. The consistency is important too - whatever method you choose, stick with it year over year to avoid the complications that some others mentioned with amended returns. Since you're cash basis, reducing Line 1 is both technically correct and the most widely accepted practice among tax professionals.