CCD Co. has a petty cash account which was established at the amount of $100 and...
CCD Co. has a petty cash account which was established at the amount of $100 and prepares a balance sheet. Before preparing the balance sheet, Joe, the accountant, looks in the petty cash box and sees only $10 in currency. He added the ten dollars to the General Ledger balance for Cash to get his appropriate number for Cash on the Balance Sheet.
Joe has followed GAAP
None of the above
Joe has broken two GAAP rules here but they counteract each other so the ultimate effect is that cash on the balance sheet is correctly stated.
We need more information to decide whether there has been a GAAP violation.
Joe has violated GAAP
Homework Answers
The Answer is Joe has followed GAAP.
Joe has not violated GAAP as an adjusting entry would be required for the additional $10 which will have a double effect and results in correct statement of the Cash balance. Joe should also investigate the reason for shortage by inspection of the books of accounts and pass adjusting entries if the situation required an adjustment.
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CCD Co. has a petty cash account which was established at the
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