Today, you’ll learn what is a deposit in transit.
A deposit in transit, relative to bank reconciliation, refers to a situation in accounting where a company or individual deposited funds into a bank account, but the bank has not clear it.
In other words, we made the deposit and added it to the cash book account balance, but do not appear yet in the bank statement.
In this case, the bank reconciliation statement shows an outstanding deposit because the bank balance appears to be lower.
This can occur for several reasons, such as:
Timing differences make a deposit in transit what it is.
It can arise when there is a delay between when a depositor makes a deposit and when the bank officially credits the deposit to the account.
Here’s how timing differences can occur concerning deposits in transit:
Bank Processing Time:
The time it takes for a bank to process a deposit can vary.
While some banks may update account balances in real-time, others may have batch processing schedules.
If a depositor makes a deposit near the end of a business day or during a weekend, the bank may delay processing the deposit, leading to a timing difference.
Many banks have cut-off times for processing transactions each day.
Deposits made after the cut-off time may not be processed until the next business day.
This can result in a timing difference between when the depositor made the deposit and when the bank officially records it.
Banks may place holds on certain types of deposits, especially large or out-of-town checks, to ensure that the funds are valid.
During the hold period, the depositor may see the deposit in their records, but the bank has not officially credited the funds to the account.
This creates a timing difference until the hold is released.
Weekends and Holidays:
Suppose a depositor makes a deposit on a Friday evening or before a bank holiday.
In that case, the funds may not be processed until the next business day, leading to a timing difference between the depositor’s records and the bank’s records.
The transit period is also what causes deposits in transit.
Checks or other forms of payment made as a deposit may take some time to clear, especially if they are drawn from another bank or financial institution.
The deposit is considered “in transit” until it fully clears during this transit period.
For example, you made a check deposit in a bank and it cleared after three days.
Bank Processing Delays
Bank processing delay, which also creates deposits in transit, may occur due to unforeseen events.
Occasionally, banks may experience delays or technical issues that prevent them from promptly processing deposits, resulting in a deposit in transit.
Reconcile Deposits in transit
To reconcile deposits in transit, most accountants use different tactics.
For instance, they can use Excel and its functions for faster reconciliation.
Deposits in Transit Examples
Click here for more deposits in transit examples.