Any time there’s a gap between receiving a payment, and the payment actually making its way into your bank account (for instance, when you deposit a check on Friday, and it doesn’t post until Monday) the payment should be accounted for as Money in Transit.
As with anything accounting-related, the more accurately something is recorded, the better!
Let’s say a client pays you by check on the last day of March. By the time the check clears and posts to your bank statement it will be April, leaving you with a bit of a conundrum: If you use the April transaction date to mark the transaction as paid, then your March reporting will not reflect the invoice payment, leaving your Accounts Receivable balance inaccurate. But if you record the invoice as paid in March, then your March bank statement will not reconcile.
This is where Money in Transit comes in: when the check arrives, you record it in a Money in Transit holding account – a sort of ‘pretend’ bank account. And when the check clears, you record a transfer from Money in Transit, to your Bank account.
How to add a Money in Transit account:
- Go to Accounting > Chart of Accounts and click Add a New Account. Add an Asset account with a name like Check Clearing, or simply Money in Transit.
How to Record Money in Transit:
- When you receive the check, apply the payment directly to the invoice in the Invoices page, and select your Money in Transit account as the payment account.
- When the cleared deposit transaction imports from your bank, create a Transfer between Money in Transit and your bank account.
Read the full article for illustrated step-by-step instructions!