In bank reconciliations, deposits in transit are treated as what?

In bank reconciliations, deposits in transit are treated as what?

• A. Added to bank balance
• B. Subtracted from bank balance
• C. Added to book balance
• D. No effect

Answer: (A)

Deposits in transit are timing differences where the company has recorded a cash receipt, increasing its book balance, but the bank hasn’t yet recorded it. Because the company’s books show more cash than the bank shows, you adjust the bank’s balance upward by the amount of the deposit in transit to bring the two records into agreement. For example, if the company records a deposit of 2,500 but the bank shows only 2,200, the 300 difference is a deposit in transit and is added to the bank balance on the reconciliation. Subtracting from the bank balance would make the bank balance even lower and not match the company’s records. Adding to the book balance would double-count the amount already recorded in the books. No effect would ignore a real timing difference between the books and the bank.

Deposits in transit are timing differences where the company has recorded a cash receipt, increasing its book balance, but the bank hasn’t yet recorded it. Because the company’s books show more cash than the bank shows, you adjust the bank’s balance upward by the amount of the deposit in transit to bring the two records into agreement. For example, if the company records a deposit of 2,500 but the bank shows only 2,200, the 300 difference is a deposit in transit and is added to the bank balance on the reconciliation.

Subtracting from the bank balance would make the bank balance even lower and not match the company’s records. Adding to the book balance would double-count the amount already recorded in the books. No effect would ignore a real timing difference between the books and the bank.