Deposits outstanding

Deposits outstanding are deposits that the company has received that have yet to be recorded by the bank!

Scenario: On April 31st, 2022, your lemonade stand has a Cash balance of $800. Over the course of the month, they wrote $10,000 in checks, but $200 of those checks haven’t been processed by your local bank. In addition, $170 out of their $20,000 in cash receipts still needs to be deposited in the local bank.

However, on their bank statement, it shows a Cash Balance of $850 and includes the following items not yet recorded by the company: a note receivable collected by the bank for $200, interest earned on that note of $20, and a bank service fee of $50. In addition, the bank accidentally charged your lemonade stand $50 for a service fee that was meant to be on another customer’s account. Lastly, one of your lemonade stand's customer’s checks for $100 returned back with non-sufficient funds.

Prepare the bank reconciliation to correct the ending Cash Balance on April 31st, 2022.

The blue underlined text signals...

  • We're dealing with cash receipts [that] still need to be deposited in the local bank... ➡️ These need to be recognized from the bank's POV (Bank's Cash Balance) as Deposits outstanding.

Deposits outstanding = $170

PRO TIP: Ignore the "$20,000 in cash receipts"... we're only focused on cash receipts that haven't been processed yet.

Bank's Cash Balance Items

Reconciling ItemDescriptionAdd or Subtract to Cash Balance?
Deposits outstandingDeposits made by the company, not recorded by the bank yet.Add
Checks outstandingChecks written by the company, not recorded by the bank yet.Subtract
Bank errorBank accidentally charges (or forgets to charge) the company.Add / Subtract (it depends)

Bank's Cash Balance

Per Bank Statement$850
Deposits outstanding$170
Bank Balance per Reconciliation???

Company's Cash Balance

Per General Ledger$800
Company Balance per Reconciliation???
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