diff --git a/modules/core/04-channel/keeper/timeout.go b/modules/core/04-channel/keeper/timeout.go
index b954ed4e8ad..2cf23767c73 100644
--- a/modules/core/04-channel/keeper/timeout.go
+++ b/modules/core/04-channel/keeper/timeout.go
@@ -153,6 +153,11 @@ func (k Keeper) TimeoutExecuted(
 
 	k.deletePacketCommitment(ctx, packet.GetSourcePort(), packet.GetSourceChannel(), packet.GetSequence())
 
+	if channel.FlushStatus == types.FLUSHING && !k.hasInflightPackets(ctx, packet.GetSourcePort(), packet.GetSourceChannel()) {
+		channel.FlushStatus = types.FLUSHCOMPLETE
+		k.SetChannel(ctx, packet.GetSourcePort(), packet.GetSourceChannel(), channel)
+	}
+
 	if channel.Ordering == types.ORDERED {
 		channel.Close()
 		k.SetChannel(ctx, packet.GetSourcePort(), packet.GetSourceChannel(), channel)
diff --git a/modules/core/04-channel/keeper/timeout_test.go b/modules/core/04-channel/keeper/timeout_test.go
index e2f8ebc9305..1d3b33b0936 100644
--- a/modules/core/04-channel/keeper/timeout_test.go
+++ b/modules/core/04-channel/keeper/timeout_test.go
@@ -13,6 +13,7 @@ import (
 	host "github.com/cosmos/ibc-go/v7/modules/core/24-host"
 	"github.com/cosmos/ibc-go/v7/modules/core/exported"
 	ibctesting "github.com/cosmos/ibc-go/v7/testing"
+	"github.com/cosmos/ibc-go/v7/testing/mock"
 )
 
 // TestTimeoutPacket test the TimeoutPacket call on chainA by ensuring the timeout has passed
@@ -246,8 +247,9 @@ func (suite *KeeperTestSuite) TestTimeoutPacket() {
 	}
 }
 
-// TestTimeoutExectued verifies that packet commitments are deleted on chainA after the
-// channel capabilities are verified.
+// TestTimeoutExecuted verifies that packet commitments are deleted on chainA after the
+// channel capabilities are verified. In addition, the test verifies that the channel state
+// after a timeout is updated accordingly.
 func (suite *KeeperTestSuite) TestTimeoutExecuted() {
 	var (
 		path    *ibctesting.Path
@@ -255,38 +257,111 @@ func (suite *KeeperTestSuite) TestTimeoutExecuted() {
 		chanCap *capabilitytypes.Capability
 	)
 
-	testCases := []testCase{
-		{"success ORDERED", func() {
-			path.SetChannelOrdered()
-			suite.coordinator.Setup(path)
+	testCases := []struct {
+		msg       string
+		malleate  func()
+		expResult func(packetCommitment []byte, err error)
+	}{
+		{
+			"success ORDERED",
+			func() {
+				path.SetChannelOrdered()
+				suite.coordinator.Setup(path)
+
+				timeoutHeight := clienttypes.GetSelfHeight(suite.chainB.GetContext())
+				timeoutTimestamp := uint64(suite.chainB.GetContext().BlockTime().UnixNano())
+
+				sequence, err := path.EndpointA.SendPacket(timeoutHeight, timeoutTimestamp, ibctesting.MockPacketData)
+				suite.Require().NoError(err)
 
-			timeoutHeight := clienttypes.GetSelfHeight(suite.chainB.GetContext())
-			timeoutTimestamp := uint64(suite.chainB.GetContext().BlockTime().UnixNano())
+				packet = types.NewPacket(ibctesting.MockPacketData, sequence, path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, timeoutHeight, timeoutTimestamp)
+				chanCap = suite.chainA.GetChannelCapability(path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID)
+			},
+			func(packetCommitment []byte, err error) {
+				suite.Require().NoError(err)
+				suite.Require().Nil(packetCommitment)
+
+				// Check channel has been closed and flush status is set to NOTINFLUSH
+				channel := path.EndpointA.GetChannel()
+				suite.Require().Equal(channel.State, types.CLOSED)
+				suite.Require().Equal(channel.FlushStatus, types.NOTINFLUSH)
+			},
+		},
+		{
+			"success UNORDERED channel in FLUSHING state",
+			func() {
+				suite.coordinator.Setup(path)
+
+				timeoutHeight := clienttypes.GetSelfHeight(suite.chainB.GetContext())
+				timeoutTimestamp := uint64(suite.chainB.GetContext().BlockTime().UnixNano())
+
+				sequence, err := path.EndpointA.SendPacket(timeoutHeight, timeoutTimestamp, ibctesting.MockPacketData)
+				suite.Require().NoError(err)
 
-			sequence, err := path.EndpointA.SendPacket(timeoutHeight, timeoutTimestamp, ibctesting.MockPacketData)
-			suite.Require().NoError(err)
+				packet = types.NewPacket(ibctesting.MockPacketData, sequence, path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, timeoutHeight, timeoutTimestamp)
+				chanCap = suite.chainA.GetChannelCapability(path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID)
 
-			packet = types.NewPacket(ibctesting.MockPacketData, sequence, path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, timeoutHeight, timeoutTimestamp)
-			chanCap = suite.chainA.GetChannelCapability(path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID)
-		}, true},
-		{"channel not found", func() {
-			// use wrong channel naming
-			suite.coordinator.Setup(path)
-			packet = types.NewPacket(ibctesting.MockPacketData, 1, ibctesting.InvalidID, ibctesting.InvalidID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, defaultTimeoutHeight, disabledTimeoutTimestamp)
-		}, false},
-		{"incorrect capability ORDERED", func() {
-			path.SetChannelOrdered()
-			suite.coordinator.Setup(path)
+				// Move channel to FLUSHING state
+				path.EndpointA.ChannelConfig.ProposedUpgrade.Fields.Version = mock.UpgradeVersion
+				path.EndpointB.ChannelConfig.ProposedUpgrade.Fields.Version = mock.UpgradeVersion
 
-			timeoutHeight := clienttypes.GetSelfHeight(suite.chainB.GetContext())
-			timeoutTimestamp := uint64(suite.chainB.GetContext().BlockTime().UnixNano())
+				err = path.EndpointA.ChanUpgradeInit()
+				suite.Require().NoError(err)
 
-			sequence, err := path.EndpointA.SendPacket(timeoutHeight, timeoutTimestamp, ibctesting.MockPacketData)
-			suite.Require().NoError(err)
+				err = path.EndpointB.ChanUpgradeTry()
+				suite.Require().NoError(err)
 
-			packet = types.NewPacket(ibctesting.MockPacketData, sequence, path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, timeoutHeight, timeoutTimestamp)
-			chanCap = capabilitytypes.NewCapability(100)
-		}, false},
+				err = path.EndpointA.ChanUpgradeAck()
+				suite.Require().NoError(err)
+			},
+			func(packetCommitment []byte, err error) {
+				suite.Require().NoError(err)
+				suite.Require().Nil(packetCommitment)
+
+				// Check flush status has been set to FLUSHCOMPLETE
+				channel := path.EndpointA.GetChannel()
+				suite.Require().Equal(channel.State, types.ACKUPGRADE)
+				suite.Require().Equal(channel.FlushStatus, types.FLUSHCOMPLETE)
+			},
+		},
+		{
+			"channel not found",
+			func() {
+				// use wrong channel naming
+				suite.coordinator.Setup(path)
+				packet = types.NewPacket(ibctesting.MockPacketData, 1, ibctesting.InvalidID, ibctesting.InvalidID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, defaultTimeoutHeight, disabledTimeoutTimestamp)
+			},
+			func(packetCommitment []byte, err error) {
+				suite.Require().Error(err)
+				suite.Require().ErrorIs(err, types.ErrChannelNotFound)
+
+				// packet never sent.
+				suite.Require().Nil(packetCommitment)
+			},
+		},
+		{
+			"incorrect capability ORDERED",
+			func() {
+				path.SetChannelOrdered()
+				suite.coordinator.Setup(path)
+
+				timeoutHeight := clienttypes.GetSelfHeight(suite.chainB.GetContext())
+				timeoutTimestamp := uint64(suite.chainB.GetContext().BlockTime().UnixNano())
+
+				sequence, err := path.EndpointA.SendPacket(timeoutHeight, timeoutTimestamp, ibctesting.MockPacketData)
+				suite.Require().NoError(err)
+
+				packet = types.NewPacket(ibctesting.MockPacketData, sequence, path.EndpointA.ChannelConfig.PortID, path.EndpointA.ChannelID, path.EndpointB.ChannelConfig.PortID, path.EndpointB.ChannelID, timeoutHeight, timeoutTimestamp)
+				chanCap = capabilitytypes.NewCapability(100)
+			},
+			func(packetCommitment []byte, err error) {
+				suite.Require().Error(err)
+				suite.Require().ErrorIs(err, types.ErrChannelCapabilityNotFound)
+
+				// packet sent, never deleted.
+				suite.Require().NotNil(packetCommitment)
+			},
+		},
 	}
 
 	for i, tc := range testCases {
@@ -300,12 +375,7 @@ func (suite *KeeperTestSuite) TestTimeoutExecuted() {
 			err := suite.chainA.App.GetIBCKeeper().ChannelKeeper.TimeoutExecuted(suite.chainA.GetContext(), chanCap, packet)
 			pc := suite.chainA.App.GetIBCKeeper().ChannelKeeper.GetPacketCommitment(suite.chainA.GetContext(), packet.GetSourcePort(), packet.GetSourceChannel(), packet.GetSequence())
 
-			if tc.expPass {
-				suite.NoError(err)
-				suite.Nil(pc)
-			} else {
-				suite.Error(err)
-			}
+			tc.expResult(pc, err)
 		})
 	}
 }