[Anonymous]

Hi , A4 is giving me bumps on my head .

Anyways just faced this question and have no idea what to do .

In the Bank Transfer Schedule below, which of the following cash transfers results in a misstatement of cash at December 31, 20X1?

Disbursement dateper books Disbursement date per bank Receipt date per books Receipt date per bank

a. 01/04/X2 01/11/X2 01/04/X2 01/04/X2

b.01/04/X2 01/05/X2 12/31/X1 01/04/X2

c.12/31/X1 01/04/X2 12/31/X1 12/31/X1

d.12/31/X1 01/05/X2 12/31/X1 01/04/X2

Answer is B .

I will be glad if some one could explain

[ShmeePA]

So this question deals with Check Kiting, which essentially means overstating the cash on your books at year end. The way check kiting occurs is when someone let's say transfers $100 from their savings account to their checking account. They will record the receipt into their checking but won't record the disbursement simultaneously, this overstating their bank accounts.

In this example, B is a pretty obvious choice as the disbursements per the bank and the books occur AFTER year end. The receipt per the books occuring AT year end is classic check kiting.

For an effective check kiting scheme to work, it only need to work for one day! (Year end)

BEC-84
FAR-86
AUD-87
REG-79

[Anonymous]

Thank you for your comments .

I understood the concept with kitting clearly now . What is confusing me is disbursement per books/bank and receipt per books/bank .

Could you please relate the checking and saving accounts to the above dates ? May be that could clear my doubt .

[Missy]

These are transfers from one bank account to another. (the company has multiple bank accounts). If you are simply transferring from one account to another, the disbursement date per books from bank a should be the same as the receipt date per books for bank b. The journal entry should be to credit bank a and debit bank b, all on the same date. The bank dates don't necessarily have to agree because it may take a day for bank b to receive the funds but the bank date shouldn't precede the date per books or be an unreasonable amount of time afterward.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Anonymous]

After reading both comments i finally understand .

So the second and the fourth column are not really relevant for this question. We have to consider disbursement date and receipt date per books .

Like ShmeePA said , it clearly states the record date is early and the disbursement date is next year .

Thank you .

[Author]

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