In bank reconciliations, which of the following best describes a deposit in transit?

• A. Deposits in transit are cash receipts sent to the bank but not yet recorded by the bank.
• B. Outstanding checks are cash receipts recorded by the bank but not yet deducted.
• C. Deposits in transit are the bank's errors in processing deposits.
• D. Outstanding checks are deposits recorded by the bank.

Answer: (A)

Bank reconciliations resolve timing differences between what the company has recorded and what the bank has recorded. A deposit in transit is cash receipts that the company has already recorded and sent to the bank, but the bank has not yet recorded them. Because the bank’s balance doesn’t reflect these receipts yet, the bank balance appears lower temporarily. In the reconciliation, you treat deposits in transit as additions to the bank balance to bring it in line with the company’s cash balance, until the bank posts the deposit.

The other descriptions don’t fit because outstanding checks are checks written by the company that haven’t cleared the bank yet—these decrease the bank balance but are not deposits. Deposits in transit are not the bank’s errors; they’re timing differences. And outstanding checks aren’t deposits recorded by the bank.