Question:
McIntyre Company adheres to a policy of depositing all cash receipts in a bank account and
making all payments by check. The cash account as of December 31 has a credit balance of
$1,850, and there is no undeposited cash on hand.
(a)Assuming no errors occurred during journalizing or posting, what caused this unusual
balance?
(b)Is the $1,850 credit balance in the cash account an asset, a liability, owner’s equity, a revenue,
or an expense?
Answer:
a. Assuming no errors have occurred, the credit balance in the cash account resulted from
drawing checks for $1,850 in excess of the amount of cash on deposit.
b. The $1,850 credit balance in the cash account as of December 31 is a liability owed to the
bank. It is usually referred to as an “overdraft” and should be classified on the balance
sheet as a liability.
McIntyre Company adheres to a policy of depositing all cash receipts in a bank account and
making all payments by check. The cash account as of December 31 has a credit balance of
$1,850, and there is no undeposited cash on hand.
(a)Assuming no errors occurred during journalizing or posting, what caused this unusual
balance?
(b)Is the $1,850 credit balance in the cash account an asset, a liability, owner’s equity, a revenue,
or an expense?
Answer:
a. Assuming no errors have occurred, the credit balance in the cash account resulted from
drawing checks for $1,850 in excess of the amount of cash on deposit.
b. The $1,850 credit balance in the cash account as of December 31 is a liability owed to the
bank. It is usually referred to as an “overdraft” and should be classified on the balance
sheet as a liability.
