ExpertMedium1 markMultiple Choice
CPA · Question 11 · Area I: Financial Reporting
While reviewing the draft balance sheet, the controller discovers that a check for $10,000 issued to a vendor on December 30, Year 1, was recorded as a reduction of cash and accounts payable on that date. However, the check was not mailed until January 4, Year 2. What adjustment is required at December 31, Year 1?
While reviewing the draft balance sheet, the controller discovers that a check for $10,000 issued to a vendor on December 30, Year 1, was recorded as a reduction of cash and accounts payable on that date. However, the check was not mailed until January 4, Year 2. What adjustment is required at December 31, Year 1?
Answer options:
A.
No adjustment is necessary.
B.
Debit Accounts Payable $10,000; Credit Cash $10,000.
C.
Debit Cash $10,000; Credit Expenses $10,000.
D.
Debit Cash $10,000; Credit Accounts Payable $10,000.
How to approach this question
Determine when payment is effective. Payment is effective when control of the instrument passes (mailing). Since it wasn't mailed, the cash is still the company's and the debt is still owed.
Full Answer
D.Debit Cash $10,000; Credit Accounts Payable $10,000.✓ Correct
Checks drawn but not mailed by the balance sheet date should be added back to cash and the liability reinstated. The company still has control over the funds.
Common mistakes
Assuming writing the check is sufficient for recording payment.
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