Best Way to Find Deposit in Transits

Deposits in transit are found through reconciliation between cash book debits and bank statement credits. To find deposits in transit, all book debits or cash deposits are matched with all bank credits regularly each month after receipt of a bank statement. Unmatched transactions usually mean that deposits are still being processed from one bank to another, for example, a check deposit.

A check deposit, still in transit, does not appear in the bank statement until it has passed from one bank to another, a process referring to bank clearing. Bank clearing is often undertaken within three to five banking days for local, and over 10 days for international.

What is a deposit in transit?

A deposit in transit is a deposit made to a bank and recorded in the accounting record, but not yet been reflected in the bank record because of the time difference between bank statement issuance and deposit. (source)

Purpose of a bank reconciliation statement

The identification of differences between the depositor’s record and the bank’s records is the main purpose of bank reconciliation. These differences are referred to as reconciling items, which have two types: — Book items and bank items. (source)

The book items are reconciling items that have not been adjusted in the depositor’s record, while bank items are usually bank errors that have not been corrected in the bank.

Book items are usually corrected in the depositor’s record to correct the Cash in Bank balance.

The meaning of In-transit

In-transit means a cash transaction that is made between different banks, for example, a check deposit from a customer using a bank other than a bank from a seller. First, the recipient bank has no access to the sender’s bank accounts, so deposits are not yet reflected in the bank statement until it clears (source).

Next, the Federal Reserve Banks usually process a check deposit within one to three business days, which may cause a deposit in transit if it has been drawn near the end of the month.

Hence, a bank usually holds a deposit, usually a check, because a deposit takes time to clear, which may extend in the ensuing month.

Accounting for deposits in transit

Deposits in transit or outstanding deposits in financial accounts are accounted for by adding them to the bank balance. They should clear in the bank normally within one week. However, some deposits remain in transit for an extended period due to insufficient funds and errors. Hence, they are deducted from the depositor’s record for review and investigation.

Using the SUMIF function to find deposits in transits

The SUMIF Function is an excel function that can assist in the identification of deposits in transits.

To use this function, each book debit should have criteria so that the function can work correctly, for example, an official receipt number or a deposit batch number.

To be effective, bank credits are encoded in an excel column with dates, including their corresponding deposit batch number.

The column of batch numbers will serve as the range of the SUMIF function.

Two columns are necessary to use the SUMIF function because if it finds the criteria in a column, it adds all the amount in a selected column.

Thus, all unmatched amounts found in the book debits are deposits in transit.

Add batch numbers to deposits – Tip

To match bank statement credits with book deposits, it is recommended to add deposit batch numbers manually in the depositor’s record. Next, encode batch numbers in the bank statement credits and use the SUMIF function to find matching deposits.
Hence, unmatched deposits are usually deposits in transits because they did not clear in the bank.

What to do with deposits in transit?

Deposits in transit require periodic review and evaluation to ensure deposits of collections to a bank within the prescribed period, the management prescribes.

It is a bad sign when a deposit in transit does not clear in a bank for more than a month. The sender’s account may be insufficient, or the deposit in transit is not deposited.

First, the insufficient funds may be the culprit of the uncleared deposit in transit that has lasted over a month.

Second, the deposit may have been recorded to another bank account erroneously, which may require an accounting entry to correct the error. This is common when holding multiple bank accounts.

Deposits in transit journal entries

A journal entry for a deposit in transit is usually carried out when there is a deposit recorded in an incorrect bank account by a mistake, or when a collection has not been sent to the bank.

Normally, it happens when deposits in transits remain in the reconciling items in the bank reconciliation report because of errors not yet been corrected or adjusted in a book. Sometimes, undeposited collections show up in a bank reconciliation report because of bad intentions.

Hence, this further stresses the value of a regular cash reconciliation report to review and validate the cash transactions.

Read also: Types of Transactions a Bank Reconciliation Looks at