Deposits in Transit
A deposit in transit, or un-cleared deposit, is cash or check deposit that is recorded in a companyís accounting system but not in the bankís records. A deposit in transit usually occurs because there is a time lapse between when the company records the deposit in their accounting software and when the deposit makes it to the bank and is recorded in the account. This process could take several days or even a week depending on the deposit.
Take Tonyís Pizza for example. Tony receives several checks from customers during the week and records them in his accounting system as he receives them. Tony waits until the end of the week to make his weekly deposit. The bank has no idea that these checks even exist all week until Tony deposits them.
Even then, some banks require a day or two before check deposits are finalized to ensure the personal checks clear. In the meantime, Tonyís cash balance in his accounting system is different than what his bank account balance shows because of the deposits that the bank hasnít recorded to his account.
This situation happens at the end of period when the bank issues a statement to Tony with all the balances they have recorded. The bank statement balance and the book balance need to be reconciled at the end of each period to account for the deposits in transit and outstanding checks.
Itís important to track all of the outstanding deposits to make sure they make it in the bank account. It doesnít matter what your accounting software claims you have in cash if none of it actually gets deposited. This will ensure your book balance and statement balance are reconciled, so you donít overdraft your account with an NFS check.
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