Today, you’ll learn are deposits in transit considered cash.
- Cash was already received and deposited into a bank
- Check payments were deposited on the last banking day of the month
- Online Fund transfers were done during weekends
- International Fund Transfers are normally credited within 10-15 days after receipt.
- Collections were not deposited by an accountable officer
The five (5) reasons below, why deposits in transit are considered cash, are just some of the examples. First of all, the two types of Deposits in Transit (DIT) are discussed in detail. Next, online fund transfers could also be part of DIT. Also, undeposited collections, although recorded in the collections are studied.
The real question is when should deposits in transit be considered cash. Generally, deposits in transits are equivalent to cash because they are part of collections and they are also deposited as soon as possible. Furthermore, they normally are added to the bank balance within a few days. However, this post will dive deep into the details of deposits in transit.
Users of a bank reconciliation statement would want to understand the reconciling items, for example, the DITs. Indeed, they might ask are they cash and are they available for disbursements. They want to know whether there is enough cash for business expenditures. In addition, deposits in transit are not yet available for operational expenditures, yet they are regarded as cash. It is confusing for people who have not taken basic accounting courses. Thus, there is a need to study further the reasons.
Let’s discuss the five (5) reasons below:
1.Cash was already received and deposited into a bank
Collectors and cashiers issue Official Receipts for all their cash and check collections. First of all, an O.R shall serve as the supporting documents. Next, they will summarize all collections in a report. It consists of O.R numbers issued together with the names and amounts paid. Next, they will forward the report to a liquidating officer/supervisor for review of correctness. The officer shall certify the accuracy of the report. Then, all collections for the day are deposited in a designated bank. The collections are either sent to a bank or the depository bank has to pick them up. So, the deposits are already secured and forwarded to a bank, but not yet recorded by a bank during the month.
2.Check payments were deposited on the last banking day of the month
Check deposits on the last banking day of the month are usually credited by a bank in the ensuing month. First, check deposits must undergo bank clearing. It is a process that banks do to confirm the transfer of cash from the check drawer’s bank. Next, check clearing could take at least three days. Some banks allow one to two days, but three days are normal. Also, the process is done to ensure the existence of enough funds from the check sender. It is an internal control that protects the bank from crediting depositors’ accounts without a valid source of funds. Generally, the recipient bank could have a policy that could increase the minimum bank clearing days. Hence, deposits in transit are considered cash unless they are NSFs. NSF checks in the deposits in transits are not regarded as cash.
3.Online Fund transfers were done during weekends
Online fund transfers done on weekends are normally reflected in the next banking day. If the transfer was made on the last day of the month, the transfer is reflected only on the ensuing bank statement. This is normal for most banks. Banks usually operate at least five days a week from Monday to Friday. Also, the transfer is added to the transferee’s account only on the next business day. It can be seen on the bank statement. For example, online receipt of an internet service on December 31, Saturday, will appear in the bank statement only on January 2 (if not a holiday). However, the transferee can normally spend the cash because the cash is normally available on their account, although it is reflected only on a later date.
4.International Fund Transfers are normally credited within 5-15 days
Fund transfers from one country to another could take between five to 15 days. For instance, funding a brokerage account in the United States while living outside the country. Some firms may credit the transfer within five days, but it could take longer. It depends upon their customers’ policy. Also, international fund transfers for import and export payments usually have a long processing time. The processing could be more than a week or more. However, the collections are usually recorded by the recipient which becomes part of the deposits in transit. The exporter would send the goods immediately once the international fund transfer is confirmed. Thus, the international fund transfers are reported as cash and revenue of the exporter.
5.Collections were not deposited by an accountable officer
A strong internal control provides that all collections must be deposited daily or as soon as possible. For instance, an arrangement with a bank for daily pickup can be made. It is the most secure and efficient, but expensive. Also, the collector and liquidating officers have to send the collections at least on the next banking day. They have to prepare Report of Daily Collections and Deposits (RDCD) to document the daily transactions. Thus, when collections are not deposited, the accountable officers are held responsible because DITs are already considered cash. The accounting entry would be a debit to Due from Officers and Employees Account and a credit to Cash in Bank Account.