Today, you’ll learn how to compute for deposits in transit or undeposited collections.
These five steps deposits in transit and undeposited collections calculation are simple to follow. Moreover, read here to learn more.
Before delving into deposits in transit calculation, let’s dive into its diverse reasons and backgrounds.
Deposits in transit equally exist because of time delay during the check clearing in the bank, and a check clearing usually takes three days for transactions covering local transfers, and then deposits directly made to the depository banks may be already beyond their daily hours.
However, the process is usually normal and at the end of each month deposits in transit exist, and it becomes part of the reconciling items in the bank reconciliation statement, warrant monitoring, and evaluation, and may need adjusting entries in the depositor’s record.
Adjusting entries comes into the picture after they have not been credited in the bank statement because of some errors or fund insufficiencies, which may be the reason, and the cash balance in the financial statement is incorrect and should be investigated to correct the erroneous balances.
In addition, erroneous balances may result from inadvertently recording transactions, and posting to other bank accounts, which increase the balance of one bank account instead of another and make management’s financial decisions harder.
The decisions are harder because of inaccurate information in the financial statements, believing that cash is still available in one account, but only to discover that there is an ongoing depletion of funds, resulting in insufficient fund charges because of uncleared significant deposits in transits.
Deposits in transit are sadly not shown in the financial statement facades, for example, balance sheets do not show whether significant deposits in transit exist within an entity, and for this reason, disclosure is important to users of the balance sheet can deduct the significant uncleared deposits on the cash balance.
Significant deposits in transit are outstanding deposits still uncleared in the bank, for known and unknown reasons which can be clearing delays or actual undeposited amounts, exceeding more than a month.
1. Have records of all collections from the book
Before the calculation of deposits in transit, all deposit records are arranged by dates in a spreadsheet for preparing the reconciliation, and the reconciler can use excel for this tutorial or other spreadsheet apps if excel is not available.
However, in these steps, we will stick with Excel and use its native functions later so that the process is simple, and everything is easy to follow.
First, get all the data from the depositor’s records and then arrange them by date or if not possible otherwise according to each deposit made, which must coincide with each amount, for if collections are grouped first before the deposit, so the depositor’s records are also organized by how collections are deposited.
This is usually a problem with bad accounting, for there is no tracking of deposits, and the reconciliation cannot be pursued, since the reconciliation is too difficult to accomplish for the records were not done correctly.
2. Get all bank credits from a bank statement
This step requires some encoding if the bank statement is not computerized. Furthermore, a bank reconciliation becomes difficult to accomplish when it is done manually.
It is better to download the bank statement online and convert it to excel readable data. Similarly, there are many converters on the web that transform a pdf into an excel file.
The conversion is simple but can provide financial information to third-party services.
If security is important, it is better to have employees encode bank statements. This ensures that financial data is not shared by somebody else.
3. Use the SUMIF function if using an excel spreadsheet
The Excel SUMIF function is a useful tool for calculating deposits in transit. First, assign deposit numbers in the depositor’s book and encode that number in the bank statement credits data.
The process is not automatic, yet it reveals its effectiveness.
Then, repeat the above steps for every batch of deposits.
Reconciling deposits in the bank conveys its difficulty because it is not automatic.
However, the use of the SUMIF function has some advantages. First, it adds all column amounts if a criterion is found. Next, it does not include deposits not found in the deposit batches.
Thus, the identification of uncleared deposits is established easily.
The next step is to calculate the differences to display under deposits and outstanding deposits.
Read also: The deposit in transit journal entry
4. Sort the under deposits and uncleared deposits
The SUMIF function can reveal under deposits and uncleared deposits.
These can be established by sorting and looking at the differences in amounts.
List all uncleared and under deposits and calculate the total amount.
5. Summarize deposits in transits or unrecorded transactions
Finally, summarize all outstanding deposits identified and also list their dates. The dates are used to age deposits in transits.
If the age is over a month, then there are some things to be corrected immediately.