5 Bank Reconciliation Deposit in Transit Examples


Today, you’ll learn about bank reconciliation deposit in transit examples.

These examples of deposits in transit are the most common in bank reconciliations. They illustrate how a deposit remains outstanding for a month. They can be used as a guide when preparing a bank reconciliation statement since they are frequent.

A deposit in transit is a deposit recorded in the cash book but has not yet been reflected in the bank statement. It is still in transit because it has to pass from one bank to another. This process is called bank clearing and during this period, the deposit is still on hold. For instance, a check deposit usually is cleared by a bank within three banking days. So, a deposit can take a few days before it is shown in a bank statement.

Similarly, a deposit of cash is recorded by the bank only on the next banking day, when it is beyond bank hours. In other words, cash deposits on Saturdays are usually recorded in a bank on Mondays. Generally, deposits can also be made on a machine anytime. Hence, when a deposit is outside the bank’s operating hours, it should be recorded on the next business day.

Additionally, unidentified NSF checks remain a deposit in transit in the reconciling items, which is an error. Indeed, an inexperienced bank reconciliation officer may not identify those checks. So, they persist in the bank reconciliation report. NSF checks can be reported incorrectly as deposits in transit each month.

Sometimes, when it is a weekend or a holiday, deposits continue to be outstanding or in transit. Banks usually would not process deposits during those days. They process all transactions only on business days. Thus, deposits on weekends and holidays become outstanding deposits at the end of each month.

In addition, the deposit may have not been made because the bank has already closed during the day. Normally, this usually falls near the end of a month, a weekend, a special day, or a non-banking day.

In-depth: What is deposit in transit?

In a bank reconciliation deposits in transit are:

Example 1

To give an example, let’s say a bank transfer amounting to $ 5,000 was made on a Saturday, January 30. The receipt was then recorded in the depositor’s book on the same day through an adjusting entry. However, a bank usually reports this type of financial transaction on the bank statement only on the next regular banking day, February 1. Hence, reconciling items are reported in the bank reconciliation statement, as of January 31, because the transaction appeared in the bank statement only on February 1.

Read also: Bank reconciliation deposits in transit

Example 2

In addition, processing of check deposits requires at least three (3) banking days if it is in transit. A transit check means money has to pass from one bank to another, and this security feature is enforced to ensure that the sender’s account has a sufficient fund balance. If a check deposit is made near the end of the month, it may only be reflected in the bank statement on the next month because of the minimum number of bank clearing days.

Read also the deposit in transit journal entry

Example 3

Moreover, undeposited cash collections may also cause a deposit in transit because most deposits are usually made in the ensuing month due to bank cutoff hours. Generally, this practice is usually normal for businesses operating 24 hours a day and seven (7) days a week.

Example 4

Similarly, cash collections were not actually deposited into a bank after a day or two due to kiting. It becomes a warning sign if a deposit is still in transit for over two weeks or more. Moreover, daily collections and deposits are periodically reviewed to uncover the causes of long outstanding deposits.

Example 5

Correspondingly, deposits still in transit for over two weeks are usually clues of recording errors. For example, an incorrect bank account may have been debited to recognize the cash deposit in the book. Hence, a journal entry is normally made in the depositor’s record to rectify the mistake.

What to do with a deposit in transit?

A deposit in transit is added to the bank reconciling items when preparing a bank reconciliation statement. It is added when the reconciliation method used is the adjusted method mostly preferred because it shows the actual Cash in Bank balance of the depositor. Moreover, the addition reconciles the accounting records with the bank statement balance.

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