A deposit in transit is cash and checks that have been received and recorded by an entity, but which have not yet been recorded in the records of the bank where the funds are deposited. If this occurs at month-end, the deposit will not appear in the bank statement issued by the bank, and so becomes a reconciling item in the bank reconciliation prepared by the entity.
A deposit in transit occurs when a deposit arrives at the bank too late for it to be recorded that day, or if the entity mails the deposit to the bank (in which case a mail float of several days can cause an additional delay), or the entity has not yet sent the deposit to the bank at all.
For example, on April 30, ABC Corporation receives a check from a customer in the amount of $25,000. It records the check as a cash receipt on the same day, and deposits the check at its bank at the end of the day. The bank does not record the check in its books until the following day, May 1. Thus, when ABC's controller completes the month-end bank reconciliation, she should add $25,000 to the cash balance shown on the bank statement in order to have it match the cash balance shown in ABC's accounting records.
When a company uses a bank lockbox, payments go from customers straight to the bank, at which point the bank records the deposits and then notifies the company of the receipts. In this case, there is no deposit in transit, since the bank's records are updated in advance of the records maintained by the company. If the company is dilatory in recording these deposits, there could even be a reverse deposit in transit, where the bank records the information well before the company.