Flemco has made a series of transfers between bank accounts near year-end, some through inter-bank wired transfers and some through checks. You have audited the wired transfers and agree that they have been properly stated and now have the following schedule of transfers between cash accounts made using checks. You may assume that dates per bank are correct, and that dates per books are the dates the transactions were recorded in the books. Bank accounts Datedisbursedper:Datedepositedper:ChecknumberFromToAmount?BooksBankBooksBank40401st Nat.Suburban$112,000 12/311/51/31/33270ValleyMidburg62,500 12/311/312/3112/3140411st Nat.Capital121,000 1/21/412/311/33271ValleySuburban16,500 1/31/51/312/300700MidburgSuburban15,800 12/301/512/301/3 Analyze each of the above transfers and

Question

determine whether you believe each causes total cash to most likely be correct, overstated, or understated as of year-end.Question #Check numberAs a result of the transfer, total cash at December 31 appears to be14040?23270?34041?43271?5700?

What will be an ideal response?

Answer 1

1. Understated. The entry is recorded as having been disbursed on December 31, yet it is not recorded as a deposit on the books until January 3. Accordingly, the cash is recorded in neither account as of year-end.

2. Correct. An example here is a check written in the Valley account on December 31, and deposited on that same day in the Midburg bank account. Valley bank will not record it as a disbursement until it is presented for payment several days later.

3. Overstated. Because the entry is recorded as deposited on the books on 12/31, but not recorded as a cash disbursement in the books until January 2, at December 31 the cash is recorded on the books in both accounts.

4. Overstated. The cash is recorded as a deposit per the bank on 12/30, but the receipt and disbursement is not recorded until January 3 on the books. In essence, this type of treatment may be used to hide a shortage in cash (perhaps due to embezzlement of cash).

5. Correct. An example here is recording a transfer, and processing this transfer through the mail-accordingly, both banks receive the information later.