In bank reconciliation, how are receipts in transit treated relative to the bank balance and the company's book balance?

• A. They are subtracted from the bank balance to reconcile to the book balance; outstanding deposits are added.
• B. They are ignored in the reconciliation process.
• C. They are added to the bank balance to reconcile to the company’s book balance; outstanding checks are subtracted.
• D. They are only recorded after cash is received.

Answer: (C)

Receipts in transit are deposits the company has recorded but the bank has not yet recorded. Because the bank balance is understated relative to the company’s books, you add these deposits in transit to the bank balance to bring it in line with the company’s records. Outstanding checks, on the other hand, have been written and recorded by the company but not yet cleared by the bank, so they make the bank balance appear higher. Subtracting those outstanding checks from the bank balance aligns it with the company’s book balance. So, receipts in transit are added to the bank balance, and outstanding checks are subtracted.