[SoCalCPA]

I reviewed this question several times but I cannot understand it, thanks in advance for your help!

Q) Which of the following cash transfers results in misstatement of cash at 12/31/20X7?

A) Disbursement recorded in books – 1/5/X8 , Deposit received in books 12/31/X7

Paid by bank – 12/31/X7 , Recorded and received by bank 1/4/X8

Becker explanation: This transfer results in a misstatement of cash, because the payment was not recorded in the period of deposit.

The following is a valid transfer (I don’t understand why this is valid either, sadly)

Disbursement recorded in books – 1/1/X8 , Deposit received in books 1/1/X8

Paid by bank – 12/31/X7 , Recorded and received by bank 12/31/X7

Thanks again!

B - (4/2012)
A - (5/2012)
R - (1/2012) Done!
F - (10/2011) Done!

[tumbler]

I also had trouble with this the first couple times I saw it. The trick with these transfer problems is to ignore the “per bank” items. Just look at when the cash outflow/inflow was recorded “per books” and identify the choice with the outflow and inflow recorded in different periods. Since the “books” are what ultimately flow to the financials, that's all you care about.

An understatement of cash will occur when the outflow was recorded in the current year, but the inflow wasn't recorded until the following year. An overstatement of cash will occur when the inflow was recorded in the current year, but the outflow wasn't recorded until the following year (so they are double counting the same cash in 2 different accounts).

I hope this helps!

[SoCalCPA]

I think that clears it up. Thanks tumbler!

B - (4/2012)
A - (5/2012)
R - (1/2012) Done!
F - (10/2011) Done!

[Author]

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