What impact do deposits in transit have on the bank's cash balance?

Deposits in transit refer to amounts that have been received and recorded by a company but have not yet been processed and recorded by the bank. This means that while the business has recognized the cash in its accounting records, the bank has not yet updated its records to reflect the deposit.

The impact of deposits in transit on the bank's cash balance is that they ultimately lead to an increase in the bank’s cash balance once the bank processes these deposits. Although the bank's cash balance does not show these deposits until it receives and processes them, these funds are considered assets for the company that made the deposit. Once the transaction is completed, the bank's cash balance will indeed increase by the amount of the deposit.

Thus, the correct understanding aligns with the idea that deposits in transit will eventually increase the bank's cash balance once they are processed, reflecting the total cash available for the institution.