Deposits in transit

Deposits in transit
See also

Deposits in transit is a cash receipt added to the company's cash balance but not yet added to the balance reported on the bank statement. When a company received a check, it increases its Cash account. A period of time may pass before the check is deposited by the company and recorded by the bank. At the end of each month the company may have deposits in transit (either cash or checks) that cause its Cash account balance to be greater than the balance on the bank statement[1].

Deposits in transit made to a bank account that have not been credited to the bank statement. Or a company's receipts that appear on the company's records but do not yet appear on the bank statement. For example, a retail store's receipts of March 31 are deposited after banking hours on March 31 or on the morning of April 1. Those receipts are in the company's general ledger Cash account on March 31, but are not on the March 31 bank statement. As a result, they are said to be "in transit" on March 31. On the bank reconciliation a deposit in transit is an adjustment to the balance per bank[2].

Difference between balances

The following steps should reveal all the reconciling items that cause the difference between the two balances[3]:

  • Deposits in transit Compare the individual deposits listed on the bank statement with deposits in transit from the preceding bank reconciliation and with the deposits per company records or duplicate deposit slips. Deposits recorded by the depositor that have not been recorded by the bank are the deposits in transit. Add these deposits to the balance per bank.
  • Outstanding checks Compare the paid checks shown on the bank statement with
  1. checks outstanding from the previous bank reconciliation
  2. checks issued by the company as recorded in the cash payments journal. Issued checks recorded by the company but that have not yet been paid by the bank outstanding checks. Deduct outstanding checks from the balance per the bank.
  • Errors Note any errors discovered in the foregoing steps and list them in the appropriate section of the reconciliation schedule. For example, if the company mistakenly recorded as $169 a paid check correctly written for $196, it would deduct the error of $27 from the balance per books. All errors made by the depositor are reconciling items in determining the adjusted cash balance per books.
  • Bank memoranda Trace bank memoranda to the depositor's records. List in the appropriate section of the reconciliation schedule any unrecorded memoranda.

Stolen deposits

A final strategy used to conceal stolen deposits is to carry the missing money as deposits in transit, which are a way of accounting for discrepancies between the company's records and the bank statement[4]:

  • it is a normal business practice to transfer the surplus assets at certain location to the location where the resources are scare
  • assets are considered to be in transit when they do not belong to any location
  • the deposits in transit are required to be accounted for at the end of the reporting period
  • the position of the organization as a whole never changes. Since the cash is reduced from one location, branch, department, division and is added in the other location
  • now in the era of electronic worlds the time lag between the transfers have been reduced

Footnotes

  1. L.A. Nikolai, J.D. Bazley, J.P. Jones 2010, p.344
  2. K. Masoom 2013, p.162
  3. J.J. Weygandt, P.D. Kimmel, D.E. Kieso 2010, p.329
  4. M. Kranacher, R. Riley, J.T Wells 2010, p.331

References

Author: Adam Jawor