Deposits in Transit
There may be a time lag between when a company deposits cash or cheque in its account and when the bank credits it. Since the company records the increase in bank balance in its accounting records as soon as the cash or cheque is deposited, the balance as per bank statement would be lower than the balance as per cash book until the deposit is processed by the bank. Therefore, any outstanding deposits must be subtracted from the balance as per cash book in the bank reconciliation statement.
Example
ABC & Co. deposits a cheque of $1000 it had received from a credit customer on 29 December 2010. The following accounting entry was recorded by the company on that date:
| $ | $ | ||
| Debit | Bank | 1,000 | |
| Credit | Receivable | 1,000 | |
While preparing a bank reconciliation statement, ABC & Co. finds out that the bank had not credited the cheque in its account until 2nd January 2011. Therefore, $1000 of deposits in transit should appear in the bank reconciliation on 31 December 2010 because the bank had not accounted for the transaction by that date even though ABC & Co. had recorded the receipt in its cash book on the date of deposit.
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