Question

A deposit in transit on last month's bank reconciliation is shown as a deposit on the bank statement this month. As a result, in preparing this period's reconciliation, the amount of this deposit should:

a)be added to the book balance of cash.
b)be deducted from the book balance of cash.
c)be added to the bank balance of cash.
d)not be included as a reconciling item.

Answer 1

A deposit in transit from the previous month shown on this month's bank statement should not be included as a reconciling item because it is already reflected in both the book balance and the bank balance.

Step-by-step explanation:

When preparing this period's bank reconciliation, a deposit in transit from last month that is shown as a deposit on this month's bank statement should be treated differently. Since the deposit has now cleared the bank, it should not be included as a reconciling item in the current reconciliation. The reason is that the deposit in transit was already reflected in the company's cash book (book balance) last month but had not yet appeared on the bank statement. Now that it appears on the current month's bank statement, the bank balance reflects that deposit, and no further adjustments are necessary regarding this deposit in preparing the reconciliation.