To keep your small business’s finances on track, reconcile your books and bank account statement. Sometimes, transactions are only recorded in one financial record when you reconcile the balances. If your books and bank account balances don’t match, you might have an outstanding deposit.
What is an outstanding deposit?
An outstanding deposit is a receipt shown in your accounting books but not on your bank statement. Receipts include money you’ve received, such as cash and checks.
Sometimes, you record a receipt in your books before it appears on your bank statement. The outstanding deposit is the line item in your books. An outstanding deposit is also called a deposit in transit.
How to determine outstanding checks
Checks outstanding are a type of outstanding deposit. When you receive a check and do not cash it right away, the check is outstanding.
So how do outstanding checks usually come about? Think about when a customer hands you a check. You don’t run to the bank to deposit it immediately. Instead, you wait until you’ve collected several checks or when you have time.
You do record the income in your books when you receive checks. Your books will show the check amount while your bank statement will not. The check remains outstanding until you deposit it.
Bank statement reconciliation
Outstanding deposits are a critical part of bank statement reconciliation. Usually, you reconcile your bank statement with your books at the end of each month. Check that the balances of your books and your bank statement are equal.
Sometimes, items are recorded on one financial record but not the other. For example, you record an outstanding deposit in your books before it’s on the bank statement. In that case, you must adjust your books to match the bank statement balance.
To adjust your records for outstanding deposits, subtract the outstanding deposit from your books.
Example of bank statement reconciliation with outstanding deposits
On Jan. 31, you receive a check from your customer for $500. You record $500 of income in your books. You wait until Feb. 3 to deposit the money into your bank account. When you reconcile your January books, the $500 is not on your January bank statement.
Adjust your records by subtracting the outstanding deposit from your small business ledger.
Why you need to know outstanding deposits
As a small business owner, you are in charge of making sure you close your books correctly. Knowing your outstanding deposits allows you to maintain correct financial records. Reconciling your bank account helps you avoid accounting issues.
There’s always potential to make an error while doing your bookkeeping. Use a small business accounting checklist to avoid forgetting important monthly tasks. Bank statement reconciliation lets you double-check that your bank statement and books add up. If you don’t reconcile your accounts, you’ll spend more time and money fixing mistakes.
You can also use bank statement reconciliation to track your business’s progress. Using your outstanding deposits to balance the accounts, you can measure profitability and project cash flow.
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This article has been updated from its original publication date of January 5, 2017.
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