Joined: 13 Jul 2010 Location: United States
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Posted: 05 Feb 2011 at 19:44 | IP Logged
Hi,
Can someone pls. help me answering ths question...While calculating cash nd cash equivalents, do we deduct overdraft balances?
I've been studying from becker, but the MCQ show that we dont deduct the overdraft...while going through some other examples online, the overdraft was deducted. pls help
Joined: 08 Mar 2007 Location: United States
Online Status: Offline Posts: 89
Posted: 05 Feb 2011 at 23:27 | IP Logged
Hi you can deduct the overdraft from cash and show the net amount if the positive and negative accounts are in the same bank, if banks are different, you show the overdraft as a liability
Good luck !
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Joined: 03 Jun 2010
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Posted: 06 Feb 2011 at 01:51 | IP Logged
There is a question in the Becker F4 multiple choice that
shows this. 2 different banks.
Question CPA-05933
Smith Co. has a checking account at Small Bank and an
interest-bearing savings account at Big Bank. On
December 31, Year 1, the bank reconciliations for Smith
are as follows:
Big Bank
Bank balance$150,000
Deposit in transit $ 5,000
Book balance $155,000
Small Bank
Bank balance$1,500
Outstanding checks(8,500)
Book balance(7,000)
What amount should be classified as cash on Smith's
balance sheet at December 31, Year 1?
a.$148,000
b.$151,000
c.$155,000
d.$156,000
Explanation
Choice "c" is correct. The amount that should be
classified as cash on Smith's balance sheet is the
$155,000 book balance in the Big Bank account, which can
be reconciled to the bank balance as follows:
$155,000 (book balance) = $150,000 + $5,000 (adjusted
bank balance)
The $7,000 negative balance (overdraft) in the Small Bank
account should be reported on the balance sheet as a
current liability. Note that the Small Bank balance is
reconciled as follows:
($7,000) (book balance) = $1,500 - $8,500 (adjusted bank
balance)
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Topic: Cash nd cash equivalents
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