What is Cash-In-Transit?
Cash-in-transit (CIT) is a phrase used to describe circumstances when actual cash money is being transferred from one status to another.
Similarly to cash valuables in transit (CVIT), cash-in-transit may entail the physical cash being transported from one location to another, such as cash being withdrawn from a bank vault and given to a business customer in an armored vehicle.
Increasingly, this phrase is used to characterize the status of deposits or money transfers when they are moved from one account to another.
Understanding Deposits In Transit
A transit item is any cheque or draft issued by a financial institution other than the bank at which it will be deposited. Items in transit are isolated from internal bank transactions involving cheques made by the bank’s own clients. Transit goods are presented to the drawee’s bank either directly or through a local clearing house.
Federal Reserve Regulation CC permits the majority of banks to impose a hold on transit checks deposited. Regulation CC permits banks to impose a nine-day hold on products in transit.
The majority of banks will keep a transit item until it clears the account from which it was drawn. This can take a few days since the item is drawn on an account at a different bank from the one where it was placed.
As a matter of policy, however, many banks make monies from placed transit goods available the following business day or two business days later. This is achievable because electronic check conversion and other kinds of electronic bank draft conversion allow for the speedier clearance of transit items.
The transit item will not clear if the account from which it was taken has insufficient cash. If this occurs, the cash will not be deposited as anticipated. In some instances, a bank may agree to cash a transit item before it has cleared. However, if the item does not clear, the bank will debit the depositor’s account to cover the difference.
Companies whose clients transfer payments directly to their bank are not affected by this timing issue, as they are notified of deposits when they are deposited to their bank account.
In order to provide accurate financial accounts for organizations that collect their own payments, accountants must frequently reconcile timing inconsistencies caused by variables such as deposits in transit.
Example of Cash in Transit
As an example of cash in transit, assume you run a parking lot with parking meters. At the conclusion of each day, a staff member unlocks the meters and takes the cash from within.
After the accounting team has counted and recorded the cash in the income statement, the cash is bagged and loaded onto a van. The cash is transported to the bank, where it is put into the business bank account. During the thirty-minute travel, the cash is in transit.
The next morning, the bank will process the deposit. Therefore, commercial deposits will not display on the bank statement until the following business day.
When reconciling your bank statements, the transaction dates of your cash receipt and bank deposit will differ. Your cash was in transit for far longer than 30 minutes, from the moment you entered it into your accounts until it appeared on your bank statement.
What Is a Deposit in Transit?
A deposit in transit is an instance of the same concept. It refers to money you’ve received from clients in the form of cash or cheques and entered on the financial ledger – which you should do the same day you get the money – but has not yet been reflected on the company’s bank statement.
Here’s one instance: On December 30 you get a cheque for $10,000 from a customer. The cheque is recorded in your accounts book and deposited the same day.
However, it takes a few days to process the check. It does not display until January 2 on your bank statement. Before the check is deposited, you do not have access to the funds. This mismatch in scheduling results in a deposit in transit.
How Deposit in Transit Works?
The movement of money is the heart of our company. Our secure transport vans gather and transfer cash and valuables daily to retailers, banks, safe deposit boxes, and automated teller machines.
We recognize the importance of having the proper quantity of cash accessible at the right time and location, which is why we utilize specialized technology to optimize our routes.
How Do You Account for Cash in Transit?
Generally speaking, it does not matter if the bank takes two days to process your deposit. If you deposit cash or a check on, say, June 5 or September 22, the deposit will appear on your bank statement in plenty of time to be reconciled at the end of the month.
What happens, though, if the time delay pushes you into a new accounting period? If you record the invoice as paid in December, your December bank statement will not reconcile; but, if you record it in January, your December reporting will not show the invoice payment, and your accounts receivable amount will be understated. What to do?
In accounting, these issues are overcome by the use of a “cash in transit” or “deposit in transit” account entry. All you need to do is create a holding account, similar to a “fake” bank account, where you’ll record all the money moving between two places.
This account can be called whatever you choose, such as “money in transit” or “check to clear.”
Now, when you get the $10,000 client check on December 30, you would credit an account receivable and debit the cash in transit account for the same amount.
When the check clears, a transfer from cash in transit to the bank account is recorded. This will render the cash-in-transit transaction null and void.
Why Do Businesses Use Cash in Transit Account?
Nothing creates greater stress than a bank reconciliation that is out of balance, especially if the error is not immediately apparent.
By ensuring that all cash and deposits in transit are documented in a separate ledger, you may prevent a number of issues, as you will always have an exact record of how much money you have received vs how much money is available for usage.
Now, when you perform the year-end bank reconciliation, you will have a clear account of the $10,000 that will not appear on the bank statement on December 31 because the bank had not accounted for the check by that date, despite the fact that the business had recorded the deposit in its cash book on the date of deposit.
Why do deposits take time to clear?
Banks will hold new deposits to ensure that the sender’s account has sufficient cash or that the cheque or ACH payment is valid. During this period, the deposit is considered to be “in transit,” and it may take several business days to clear.
What does “in transit” mean?
Transit describes payments made between parties using separate banks. The payment is thereafter in route from the payor’s bank to the payee’s. Because the bank of the receiver cannot view the financial accounts of the bank of the sender, the deposit will be held until it clears and is reconciled.
Are there any regulations regarding deposits in transit?
Regulation CC is a federal legislation in the United States that mandates that deposits not be kept for too long, and that the length of time clients may expect to receive their monies be fully reported.
The Check Clearing for the 21st Century Act (Check 21), which is part of Regulation CC, aims to use technical improvements like as digital check pictures, mobile deposits, and OCR text recognition to expedite deposits in transit.
Does it Make a Difference if You Use a Bank Lockbox for Customer Receipts?
If you employ a bank-operated lockbox system, clients’ invoice payments will be sent straight to a specific postal address kept by the bank, rather than to the firm. Consequently, there are no checks to deposit.
The bank obtains and processes incoming checks before depositing the monies straight into the company’ bank account. The system subsequently uploads a remittance document to a protected website that the accounting department may use to amend the company’s accounts receivable.
When a lockbox is utilized, there is no money in transit. This is due to the fact that the bank updates its records simultaneously with or just before to issuing your remittance advise. If your accounting department is a bit sluggish in registering accounts receivable, there may be reverse cash in transit, in which the bank changes its records before the firm.
A “deposit in transit” is an accounting phrase that refers to checks or other non-cash payments that a firm received and documented in its accounting system, but have not yet been cleared by its bank.
Despite the fact that bank accounts often show deposits instantly, monies may not be accessible for several business days until the clearing process is completed.
Marking these payments as “deposits in transit” accounts for scheduling variations that may develop as a result of this procedure.
Deposits in transit are a significant component of bank reconciliations, in which an accountant compares the cash amount on the company’s balance sheet to the bank balance displayed on the bank statement on a monthly basis.