Question

Chapter 2: QuickBooks Chart of Accounts and Chapter 3: QuickBooks Transactions

Additionally, please refer to Chapter 2 in your Cengage Accounting eText, accessible from the eText link in the Course Navigation Panel to the left of your screen.

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?

Responses to Classmates:

Please share how you learned the rules of debit and credit with your classmates. Also, please provide one example of a journal entry, in good form.

Response to Instructor:

Please check your thread for questions or comments from me and be sure to provide a comprehensive response, as requested.

Writing:

Please make sure that your initial post contains a properly cited reference. Please use APA style. Information for your posts should come from your Cengage Accounting eText and from your QuickBooks eText. Additionally, check your spelling and proofread your post before you hit the submit button.

Answer 1

Answer

Requirement 1: (a) Such negative Cash Balance may be as a result of issuing checks more than it has in its checking account.

Requirement 1: (b) The $ 1850 shall be shown as "Liability" reason being that the cheques may be issued for making payments towards accounts payable, because of non availability of balance in the checking account the liability towards accounts payable still exists it is mere reduction of balance in account payable balance.

Requirement 2:

Note: The wrong recording of owners withdrawal as a debit to salary expense recorded as:

Wrong Posting:  Debit : Salary Account & Credit : Cash Account - both for $ 7500

The Correct posting ought to be : Debit: Drawings Account ( Owners's Capital) & Credit: Cash Account - both for $ 7500

Requirement 2 : (a) This error would not affect the equality of trial balance since there is silmutaneous debit and credit entries for the transaction posted wrongly.

Requirement 2: (b) Effect on:

Income Statement: Since the Expense Account is wrongly debited by $ 7500, it will reduce income in the income statement by the said amount.

Statement of Owner's Equity : Due to understated income by $ 7500 because of the reason stated above (effect on Income Statement) the retained earning will be understated in the Statemnt of Owner's Equity & since the Owner's Capital is not correctly reduced for Owner's withdrawal the Owner's Capital would be overstated by $ 7500.

Balance Sheet : In Balance Sheet under the head "Equity and Liabilities", Sub Head "Equity" the effect of wrong posting would be as specified above(effect on Statement of Owner's Equity), there would not be any other effect in the Balance Sheet because of such wrong posting.