Question

Requirement 1:

ABC 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 that 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?

Requirement 2:

Assume that DEF Company erroneously recorded the payment of $7,500 of owner withdrawals as a debit to Salary Expense. (a) How would this error affect the equality of the trial balance? (b) How would this error affect the income statement, statement of owner's equity, and balance sheet?

Answer 1

Answer to requirement 1

You must have overdrafted your account

It would be a liability

Answer to requirement 2

Effect on the trial balance

An error is a mistake committed in the process of book keeping or in accounting. In some cases, errors may occur but, they will not effect the totals of the trial balance. Such an error can be found while preparing the trial balance or would be indicated by the unusual account balance. This error should be corrected by by passing correct journal entry.

Original entry :

Dr. Salary Account	$ 7500
Cr. Cash Account		$ 7500

Rectified Entry

Dr. Withdrawal or Drawings	$ 7500
Cr. Salary Account		$ 7500
(Being entry passed to rectify the error)

But it will have an effect on the income statement, because of passing wrong entry in salary account the income woul have understated.