In a bank reconciliation, deposits in transit should be:
a. Deducted from the balance per books
b. Deducted from the balance per bank statement
c. Added to the balance per ledger
d. Added to the balance per bank statement
e. Disregarded in the bank reconciliation
The Correct Answer and Explanation is :
The correct answer is d. Added to the balance per bank statement.
Explanation:
In a bank reconciliation, the goal is to reconcile the differences between the bank statement balance and the balance in the company’s books (or general ledger). One of the common differences arises from deposits in transit.
A deposit in transit refers to money that has been deposited by the company but has not yet been recorded by the bank. This typically happens when a company deposits money at the end of the bank’s business day, and the bank hasn’t yet processed it for that statement period. Therefore, it will not appear on the bank statement until the next period.
Since the bank has not yet recorded the deposit, the bank statement will show a lower balance than the company’s books. In the bank reconciliation process, you add the amount of these deposits in transit to the bank statement balance to reflect the actual available funds.
This adjustment ensures that both the bank statement and the books reflect the same total amount, once all timing differences are accounted for. This step is essential because it reconciles any deposits made by the company but not yet acknowledged by the bank.
Why not the other options?
- a. Deducted from the balance per books: Deposits in transit are not subtracted from the balance per books since they have already been recorded in the company’s ledger. The purpose is to adjust the bank’s balance to match the books.
- b. Deducted from the balance per bank statement: Deposits in transit should be added to, not subtracted from, the bank statement balance.
- c. Added to the balance per ledger: This is incorrect because the deposit is already included in the books, so it should be adjusted on the bank statement.
- e. Disregarded in the bank reconciliation: Ignoring deposits in transit would prevent the bank reconciliation from accurately reflecting the correct available balance.
Thus, adding deposits in transit to the bank statement balance is necessary to reconcile the two balances.