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ACCA Applied Knowledge · Financial Accounting · Bank reconciliations

Brandt Co's cash book shows a credit balance of $3,000 (overdrawn) before adjustment. The bank statement reveals a direct debit of $400 for insurance not in the cash book, and a customer's direct credit transfer of $1,100 not in the cash book. What is the corrected cash book balance, and how is it presented in the statement of financial position?

The corrected balance is $2,300 overdrawn, presented as a current liability. Starting from a $3,000 overdraft, the $400 direct debit increases it and the $1,100 receipt reduces it, giving $2,300 credit balance.

  1. A$1,700 overdrawn, shown as a current liabilityCorrect
  2. B$1,700 positive, shown as a current asset
  3. C$2,300 overdrawn, shown as a current liability
  4. D$3,700 overdrawn, shown as a current liability

Explanation

Start at -$3,000 (overdrawn). Direct debit: -$400 gives -$3,400. Direct credit: +$1,100 gives -$2,300. Correct figure is therefore $2,300 overdrawn, so check: -3,000 -400 +1,100 = -2,300. The overdraft is a current liability.

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