What Are Deposits in Transit?
Deposits in transit are deposits a business has recorded in its books but that the bank has not yet added to the account by the statement date. They mirror outstanding checks. The business counts the cash as received, while the bank counts it only once the deposit is processed. Deposits in transit are also called outstanding deposits.
How to Find Deposits in Transit
- Start with the cash receipts record.
List every deposit made through the statement date. - Match to the bank statement.
Mark each deposit that appears as a credit. - Identify unmatched deposits.
Any recorded deposit without a statement credit is in transit. - Confirm on the next statement.
Each should post within a few business days. - Investigate stragglers.
A deposit that has not posted after several business days warrants a call to the bank.
Why Deposits End Up in Transit
- Cutoff timing:
Deposits made after the bank's daily cutoff are credited the next business day. - Month-end deposits:
Receipts deposited on the last day of the month often land on the next statement. - Weekends and holidays:
Bank processing pauses, so the credit date moves. - Remote deposit and lockbox timing:
Scanned and lockbox deposits can post one to two days later, described in lockbox.
How Deposits in Transit Work in Bank Reconciliation
Deposits in transit are added to the bank statement balance, because the books already include them. The reconciliation process is described in bank reconciliation.
FORMULA
Adjusted bank balance = Bank statement balance + Deposits in transit - Outstanding checks
EXAMPLE
A company deposits $4,750 in customer checks on the last business day of the month, after the bank's cutoff. The statement balance is $31,900 and outstanding checks total $2,100. The adjusted bank balance is $31,900 + $4,750 - $2,100 = $34,550.
A deposit in transit must appear on the next statement. If it does not, the deposit may be lost, rejected, or recorded in the wrong amount.
Deposits in Transit vs. Outstanding Checks
- Deposits in transit:
Cash received and recorded by the company, not yet credited by the bank. Added to the bank balance. - Outstanding checks:
Payments issued and recorded by the company, not yet cleared by the bank. Subtracted from the bank balance.
Both are timing differences, so neither needs a journal entry. They clear on their own as the bank catches up, which is why they are reconciling items rather than errors.
Deposits in Transit vs. Undeposited Funds
Some accounting software uses an undeposited funds account to hold payments received but not yet taken to the bank. Funds leave that account when the deposit is made. Only after that does a deposit become a deposit in transit. Confusing the two leaves cash overstated in the books, so both should be reviewed at month-end.
Warning Signs in Deposits in Transit
Most deposits in transit are routine, but the line deserves a look every month because it is a place where problems can sit unnoticed.
- Items that do not clear:
A deposit still missing on the next statement was lost, rejected, or never made. Call the bank rather than carrying it forward. - Large month-end deposits:
A big deposit booked on the last day and credited weeks later can overstate cash at the statement date, so check these first. - One person, both tasks:
If the same person handles deposits and prepares the reconciliation, a deposit in transit can hide missing cash, described in segregation of duties. - Lapping:
A long-standing deposit in transit can conceal cash taken from one customer and covered with another customer's payment.
RULE OF THUMB
Most deposits in transit clear within one to three business days. Anything still open on the next reconciliation needs an explanation, not a rollover.
Frequently Asked Questions About Deposits in Transit
1. Why is a deposit in my books but not on the bank statement?
Usually timing. The deposit was made after the bank's daily cutoff, on the last day of the month, or over a weekend. The bank credits it on a later date, so the reconciliation adds it to the bank balance until it appears.
2. How do you determine deposits in transit?
Compare the company's cash receipts record to the bank statement. Any deposit recorded in the books that does not appear as a credit on the statement is a deposit in transit. Confirm it posts on the following statement.
3. What is the deposits in transit formula?
There is no standalone formula. Deposits in transit are the total of recorded deposits missing from the statement, then added in the reconciliation: adjusted bank balance equals bank statement balance plus deposits in transit minus outstanding checks.
4. Do deposits in transit need a journal entry?
No. The company already recorded the cash when it made the deposit, so the books are correct. Deposits in transit are a timing difference on the bank side only, and the bank will credit the amount on a later statement.
5. How are deposits in transit different from outstanding checks?
Deposits in transit are receipts the company has recorded but the bank has not credited, so they are added to the bank balance. Outstanding checks are payments the company has recorded but the bank has not paid, so they are subtracted.
