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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

On 31 December, Karim Ltd's cash book showed a credit balance of $2,400 (overdrawn). The business then discovered that a cheque for $350 received from a customer had been entered in the cash book on the credit side instead of the debit side. No other errors exist. What is the correct cash book balance after correcting this error?

The correct balance is $1,700 credit. A receipt wrongly posted to the credit side must be reversed and then entered on the debit side, a swing of twice $350, or $700. This reduces the $2,400 overdraft to $1,700 credit.

  1. A$1,700 creditCorrect
  2. B$2,750 credit
  3. C$2,050 credit
  4. D$1,700 debit

Explanation

A receipt entered on the credit side instead of the debit side understates the balance by twice the amount: 2 x $350 = $700. Starting from a credit balance of $2,400, the correction reduces the overdraft to $2,400 - $700 = $1,700 credit. The option of $2,050 credit corrects only once ($350), which is the key mistake. The option of $2,750 credit moves the adjustment in the wrong direction.

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