Question

The "Cash" account on Dec 31, 2017 balance sheet show balance of $40,000. Then an accounting...

The "Cash" account on Dec 31, 2017 balance sheet show balance of $40,000. Then an accounting error was found - January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of $39,900, on which a cash discount of 2% was taken. What does "January 2018 cash disbursements entered as of December 2017" mean? does it mean January 2018 cash disbursement was incorrectly included in the Dec 2017 balance sheet, and therefore to adjust the cash account, the 38,200 has to be ADDED back? Thanks

Homework Answers

Answer #1

Your understanding is almost right.

January 2018 cash disbursements entered as of December 2017 means the cash disbursements which would have been made in January is wrongly taken into December 2017 i.e. the transaction is wrongly recorded in December 2017.

Whether it should be adjusted with the cash account or not will depend on the treatment or adjustment required by the company. In the question above ithe requirement is not clear. It should be taken into consideration in case the borrowing was happened in December if there would not be sufficient balance of cash otherwise it is counted as error.

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