Final answer:
Deposits in transit have 1) been recorded by the company but not yet by the bank, making option 1 the correct answer. This reflects the time lag in processing transactions between the company and its bank.
Step-by-step explanation:
Deposits in transit are amounts that have been recorded by the company but not yet by the bank. This typically happens when a company sends or transfers a deposit to its bank account, but the bank has not processed and recorded the transaction by the time the company is reconciling its books. The correct answer is 1) been recorded by the company but not yet by the bank.
When considering Singleton Bank's position, the $10 million in deposits it holds are seen as liabilities on its balance sheet because it owes this money to its customers, and it must return the funds upon their demand. Conversely, when customers deposit their money, Singleton Bank may use these funds to issue loans. Although the bank in the given hypothetical scenario doesn't earn interest, in reality, loans would be considered assets for a bank because they generate interest income.
Lastly, the money listed under assets on a bank balance sheet may not actually be physically in the bank because banks typically use deposited funds to create loans and other investments, keeping only a fraction of deposits as reserves.