Outstanding deposit

Outstanding deposit
See also

Outstanding deposit is money received from a customer in the form of cash or cheques and recorded in the financial book - on the same day that the money was received - but the deposit has not yet appeared on the company's bank statement. In other words, outstanding deposit is a way to settle money that has been received but not yet processed by the bank [1].

Outstanding deposit from an accounting perspective

Whenever money has left point A but has not yet reached point B, it means cash in transit. In everyday life, transit cash is:

  • physical cash for example when money from cash registers is transferred to a bank.

Most cash transactions take place behind the scenes, such as a check that is in a state of suspension while the bank receives the settlement.

In accounting terms, transit cash is:

  • any item on your profit and loss account that has not yet appeared on your bank statement.

For example, if you log in to a customer's payment, but the check is still cleared at the bank or you can check office expenses, but the recipient has not yet done so. Since the cash balance shown in the balance sheet is supposed to reflect all the cash available to the company, a misrepresentation that the bank has not processed would be misleading. Cash Transit is a way of adjusting your cash balance to the bill of checks received or paid but not yet cleared [2].

Benefits from outstanding deposit

Making sure that all cash and deposits in transit are registered in a separate general ledger avoids many problems because the company always has an accurate record of how much money has been received and how much money is in cleared funds that can be used. After conducting a bank settlement at the end of the year, the company has a clear $10,000 account that will not appear on the bank statement on December 31, because the bank has not booked the cheque before that date, even though the company had a receipt in the cashier's book on the day the deposit was made [3].

Bank deposit box for customer accounts an outstanding deposit

In the case of using a bank-operated POI system, invoice payments made by customers will be sent directly to a special postal address served by the bank instead of to the company. This means that there are no cheques to pay. The bank collects incoming cheques, processes them and deposits funds directly to the company's bank account. Then it sends the document for transfer to a secure website where the accounting team can access it to update the company's receivables. When using a bank safe-deposit box for customer accounts, there are no payments in transit. This is because the bank updates its records at the same time as or just before the transfer advice is sent. If the accounting team slightly slows down the registration of receivables, you may even experience reverse cash in transit, where the bank updates the data before the company [4].

Footnotes

  1. K. Kim, et al. 2016, pp. 5 - 6
  2. D. I. Groves, et al. 2003, pp. 8 - 12
  3. N. Janssen 2005, pp. 367 - 368
  4. H. Uchida, M. Satake 2009, pp. 792 - 795

References

Author: Aleksandra Morzywołek