A cancelled check is a check payment for which the stated amount of cash has been removed from the payer's checking account. Once the cash draw down is completed, the bank stamps the check as cancelled. Once a check is cancelled it can no longer be used as an authorization to remove additional funds from the account of the payer.
A cancelled check has passed through the entire set of payment activities, which include the following:
- Received by the payee
- Endorsed by the payee
- Deposited with the payee's bank
- Paid by the drawee bank to the payee bank
- Cash is paid into the payee's account by the payee bank
A payer can verify whether the checks it has issued have been classified as cancelled by accessing the on-line check record posted by the payer's bank. This information is most commonly used as part of the bank reconciliation process, but can also be used to prove to a payee that a check payment was made, and that the check was cashed.
Less commonly, the bank instead mails all cancelled checks back to the payer along with the monthly bank statement. If so, the payer typically stores the checks as evidence of payment, and eventually shreds them once the company-mandated retention period has passed. A variation on the concept is for the bank to print check images in reduced size on the back of the bank statement, or on accompanying pages.