[Anonymous]

“In the Bank Transfer Schedule below, which of the following cash transfers results in a misstatement of cash at December 31, 20X1?”

Disbursement date per books – 1/4/12.
Disbursement date per bank – 1/5/12.
Receipt date per books – 12/31/11.
Receipt date per bank – 1/4/12

“Since the disbursement was not recorded until January 20X2 while the receipt was recorded in December 20X1, cash will be overstated at December 31, 20X1”

Could someone please explain what exactly happens at each of these dates? Which then leads to the misstatment. The question becker asks is not clear to me – is cash being exchanged? Is cash being transferred one way? Which way? Not clear. I think that’s the greatest issue.

Thanks

[Anonymous]

I think I figured it out. It is a scenario to detect kiting; a cash transfer of funds between accounts held by a company. When a bank reconciliation is done – it will always reconcile out to the “true” cash amount once checks in transit, etc, etc are reversed out. In sum, the “true” cash balance of a company moving its funds between its bank accounts never changes. You neither create nor destroy cash.

You can change the change amount of cash per books however if the date funds received from one bank does not equal the date funds were disbursed from another. If funds come in early (receipt comes before disbursed) on a mismatched day, we'll have an overstatement. If disbursed in the books before received, there will be an understatement of cash instead.

In the end, all that is important in this scenario is to look at the book receipt and disbursement dates and see if they are not the same date (with 12/31 in between).

[Missy]

Also important to look at the difference between book disbursement and receipt dates. Never going to have a situation where the funds are received in one account five full days before they're disbursed from the other. At the very least per the books the dates should be the same or the disbursement precede the receipt. Basically the company is showing the transferred amount in both accounts at year end, when in reality it was only in one or the other.

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

[Author]

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