Question 1

Zeta Corp.'s book balance for cash at October 31 is $25,000. The following data is available for the bank reconciliation:
- Outstanding checks: $4,000
- Deposits in transit: $3,000
- Bank service charges recorded by bank but not company: $100
- NSF check returned by bank, not recorded by company: $500
- Check for $200 paid to vendor recorded by company as $2,000 error.

What is the adjusted cash balance to be reported on the balance sheet?

Accepted Answer

Start with Book Balance. Adjust for items the company doesn't know about or recorded wrong: - Service Charges, - NSF Checks, +/- Errors. (Bank side items like outstanding checks/deposits in transit are used to reconcile to Bank Balance, but we start with Book here).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adjusting book balance for bank-side items (outstanding checks); correcting the error in the wrong direction.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 4

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