FARleft wrote: Here is the reasoning behind the deduction of the overdraft. The checks were recorded on June 29 for $30,000 which immediately created an over draft of ($10,000). However the checks were actually mailed on July 9. So at June 30, the checks should be added back because they were not a part of payments made in June. The overdraft is deducted because the payments were not made until July (which would have caused the overdraft in July). When the the $30,000 is added back, it is as if the overdraft never occurred at June 30. They are making thing right by reversing the transaction (Checks) and the overdraft that was caused by the checks on June 29, should also be reversed. Focus on what should "have been" if the checks were not deducted in June. Hope this helps.

I'm still trying to process your explanation here....???

Let me show you what is in my thought process. I'm going to plug some numbers/create a scenario. 

Let's say you have:
Cash in Bank:  .....................................$20.00
Amt spent/deducted from bank balance:  <$30.00>
= Overdraft amount: ........................... <$10.00>

So that now if we REVERSE the $30.00 "amount spent" altogether [to correct the recording error]....that puts our "Cash in Bank" back where it originally was (=$20.00).  We don't have to worry with an overdraft balance...because once we REVERSED the $30.00...an overdraft no longer exist.

Unfortunately...I'm still a little lost as to why you subract the overdraft amount in calculating year end current assets. :-(

FARLeft,

Thanks a lot for the explanation(s)!!  I think I'm finally comprehending this problem!!  I especially liked the Becker example you provided.  Makes a lot of sense to me now!!!!!! :-) Thanks again!