In a bank reconciliation, what defines outstanding checks and deposits in transit?

• A. Outstanding checks are checks issued but not yet cleared; deposits in transit are cash receipts sent to the bank but not yet recorded by the bank.
• B. Deposits in transit are cash receipts recorded by the bank but not yet recorded by the company.
• C. Outstanding checks are deposits recorded by the company but not yet cleared by the bank.
• D. Deposits in transit are checks in the mail.

Answer: (C)

In a bank reconciliation, timing differences explain why the company’s records and the bank’s records don’t always match. Outstanding checks are checks you have issued and recorded as cash payments, but the bank has not yet debited your account, so those checks don’t appear on the bank statement yet. Deposits in transit are cash receipts you’ve recorded as deposits, but the bank hasn’t processed them yet, so they don’t show up on the bank statement either.

This definition matches the idea that outstanding checks are issued but not cleared by the bank, and deposits in transit are company-recorded deposits not yet recorded by the bank. The other options mix up who records the item or what the item is, or treat deposits in transit as something like “checks in the mail,” which isn’t correct.