[wjxhahaha]

CPA-00053

The following information pertains to Grey Co. at December 31, Year 1:

Checkbook balance

$12,000

Bank statement balance

16,000

Check drawn on Grey’s account, payable to a vendor, dated and recorded

12/31/Year 1 but not mailed until 1/10/Year 2

1,800

On Grey’s December 31, Year 1, balance sheet, what amount should be reported as cash?

a.

$14,200

b.

$13,800

c.

$16,000

d.

$12,000

Choice “b” is correct. Since the check is not disbursed as of December 31, Year 1, it should be added back to the checkbook balance in determining the 12/31/Year 1 cash balance. Thus, the correct cash balance = $12,000 + $1,800 = $13,800.

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beak line

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What I don’t get is that I thought company should reconcile its cash and cash equivalent account at period end. Isn’t a check made to someone else already someone else’s money? Why do we add it back to the company’s book? And since this is a check outstanding. In reconciliation aren’t we supposed to subtract it from bank balance to get the correct adjusted amount?

Can anyone help on this question? Thank you very much.

[Biff-1955-Tannen]

We need to add the check to our book balance because it wasn't mailed until next year. Normally we would not add it to our book balance, but the fact that it wasn't mailed till next year means that it isnt an “outstanding check”. Once it's mailed it is outstanding.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[marqzho]

Isn't a check made to someone else already someone else's money?

No. I can make a check payable to you for 1 million. It is still “my money”, if the check sits in my house.

REG 90
FAR 95
AUD 98
BEC 84

[Missy]

If the check had been mailed 12/31 you would be right. But if the check is still in posession of the company you treat it as if it hadn't been written at year end. Think of it this way, fraud could be committed by writing bunches of checks on 12/31 but not mailing them then voiding them in january to get the cash balance back up. Printing a check doesn't constitute disbursement, relinquishing custody of the check does.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[wjxhahaha]

Oh I see! Thank you guys! Really appreciate it!

[Author]

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