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Glossary/Audit procedures

Deposits in transit and outstanding checks

Deposits in transit are receipts recorded in the books but not yet credited by the bank, and outstanding checks are recorded payments not yet cleared; both are standard bank reconciliation items.

CORAA TeamUpdated November 5, 2026

Definition

A deposit in transit is cash or checks the entity has recorded as received but that the bank has not yet processed by the statement date. An outstanding check is a payment the entity has recorded and issued but that has not yet cleared the bank. To reconcile, deposits in transit are added to the bank balance and outstanding checks are subtracted from it to arrive at the adjusted bank balance, which should equal the book balance.

Why it matters in an audit or review

These items are used to inflate or hide cash. Deposits that never clear can cover theft, and checks written but held to a later date can window-dress the year-end cash and payables balances. The auditor tests deposits in transit against the next bank statement and examines the first weeks of clearings for outstanding checks. A cutoff bank statement obtained directly from the bank supports this test.

Example

Illustrative: the bank statement shows $90,000. A deposit in transit of $8,000 is added and outstanding checks of $12,500 are subtracted, giving an adjusted bank balance of $85,500, which agrees to the ledger. If the $8,000 deposit clears early in January, it is supported. A long delay needs investigation.

Common mistakes

  • Not testing check numbers for gaps.

Sources

  • AICPA, AU-C Section 505, External Confirmations (bank confirmation requests)
  • AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

AU-C 505AU-C 330

Related terms

  • Bank reconciliation review
    A bank reconciliation review tests the client's year-end reconciliation by agreeing balances to the bank confirmation and the ledger, and testing deposits in transit, outstanding checks and other reconciling items.
  • Cutoff bank statement
    A cutoff bank statement is a bank statement covering a short period after year end, sent directly to the auditor, used to test reconciling items such as deposits in transit and outstanding checks.
  • Proof of cash
    A proof of cash reconciles bank and book cash for beginning balance, receipts, disbursements and ending balance across a period, to detect unrecorded items, timing games and misappropriation.
  • Subsequent disbursements testing
    Subsequent disbursements testing examines payments made after year end to see whether they relate to liabilities that existed at the balance sheet date but were not recorded.

Go deeper

All glossary terms →

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