An outstanding deposit, sometimes called a deposit in transit, is money that has been received and recorded by a company in its accounting records, but which has not yet been processed and recorded by the bank. These deposits typically result from checks or electronic transfers received from customers that have not yet cleared the banking system by the time the company’s bank statement is generated.
For example, if a company receives a check from a customer and records it in their books on the last day of the month, but the bank doesn’t process and post the check until the next day, the deposit will be outstanding on the bank reconciliation for the end of the previous month.
Outstanding deposits need to be considered when a company is reconciling its cash account with the bank statement. The company needs to add the outstanding deposits to the balance per bank in order to reconcile the bank balance with the company’s books.
Example of an Outstanding Deposit
Let’s consider an example using a small business, Elegant Fashions Store.
On July 31, 2023, Elegant Fashions Store received a check for $1,000 from a customer for a bulk order of designer clothes. The company recorded the deposit in its accounting records on the same day, increasing its cash balance by $1,000.
However, due to the timing of the deposit (it was late in the day) and the bank’s processing times, the check didn’t clear and wasn’t reflected in the company’s bank account until August 2, 2023.
When Elegant Fashions Store received its bank statement dated July 31, 2023, the $1,000 deposit was not included. The bank statement balance was therefore $1,000 less than the cash balance in the company’s records.
In this case, the $1,000 is an outstanding deposit, also known as a deposit in transit. When the company performs its bank reconciliation, it will need to add the $1,000 outstanding deposit to the balance per bank statement to reconcile it with the company’s cash account.
Once the bank processes the check and it clears on August 2, 2023, the deposit is no longer considered outstanding. The bank statement balance and the company’s book balance should then align, assuming there are no other discrepancies.