[Hammer]

How to you guys combat garbage questions? More specifically, BOOK WORLD questions. I’m sure I’m not the only one who works in public accounting and after getting a multiple choice question wrong loses there mind because it is NEVER done that way in the real world. Example:

“ABC Co. has two bank accounts details below blah blah blah…..what is amount should ABC report as cash in its year end balance sheet?” Bank 1 has positive cash and Bank 2 has an overdraft (net is positive).

I guess the correct answer is show the overdraft as a liability but I would never issue a financial statement with “Checks Written in Excess of Cash” on the liability section and positive “Cash” on the assets section. I’d net them and call it cash.

This is just one example of what I call a GARBAGE question. I don’t know how to get out of real world thinking.

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[Anonymous]

That's not a “garbage” question. If a client has two bank accounts at the same bank, and one is overdrawn, then you would net the two together because banks have the right of offset. Meaning they can take money from one account to cover an overdraft in another.

If the client has two bank accounts at different banks and one is overdrawn, then you have to journal the negative cash balance to an accounts payable and then reverse it the next month.

Make sense?

[retro1312]

I have to agree with MCHammer on this one. At our firm, we would net the two together and show it under cash. Never heard of making a journal entry to A/P for negative cash.

FAR: 81
REG: 77
AUD: 74,74,74 88 finally!
BEC: 77

[Anonymous]

@retro – If the bank accounts are not at the same financial institution then you cannot net them. I'm on my Kindle about to go to sleep but I will post the standard tomorrow.

[Anonymous]

Check this article out.

https://accountingexplained.com/financial/cash-and-equiv/bank-overdraft

[fuzyfro89]

Depending on materiality, you could probably get away with netting and showing it as cash.

Oh materiality. Thou art a very annoying b*tch.

Technically, you have to reclass it to AP or some liability account, but depending on the amount the controller may just say f-this, leave it and let the auditors gripe about it. 🙂

[Anonymous]

Any question that had a consulated anwser or took longer than 3 min to solve was ignored during my review. On the exam the questions are tricky but not poorly worded. If you practice crazy hard questions you may end up over thinking on exam day.

Just my opinion

[Anonymous]

I'm afraid I'm not making my point with this question. What you do at work everyday is immaterial on the exam. The examiners want you to tell them the right answer according to them. Since they make the rules and the exam, I think it's in everyone's best interest to give them the answer they want.

This question could be tested on FAR or AUD.

You may see a theory question like this one:

XYZ Company has the following bank accounts and corresponding balances at 12/31/XX

First Bank Acct #123 $50.000

First Bank Acct #456 ($15,000)

Second Bank Acct #789 ($15,000)

The cash balance at First Bank should be reported on the Balance Sheet as $ ______ because First Bank has ______.

A. $35,000; Right of Offset

B. $50,000; No Rights

C. $35,000; Right of Subjugation

D. $50,000; Right of Offset

Or you could see a SIM using the same information:

What Journal Entry is necessary at 12/31/XX to correctly state cash on the Balance Sheet:

Dr Second Bank Acct #789 $15,000

Cr Cash Overdraft $15,000

Remember, there are going to be more blocks available, than you actually need.

I'm not trying to be a jerk or beat a dead issue, I just don't want anyone to miss an easy point on the exam.

[jstay]

Kricket–whats the answer?

[Anonymous]

Sometimes it's easier to see it than to explain it. So here goes… Go to the tab labeled “Cash Overdrafts”.

https://docs.google.com/spreadsheets/d/100HES2K3znfffl6giXtZ9pdk6a6R-DNg5CoP2lZVSG0/edit?usp=sharing

[Vlakmir]

I think it's garbage too.

The only reason being the mitigating factors that would really prevent most clients from ever going so negative as an overdraft in an account that it would actually be material to the amount of cash on hand.

What bank is going to let you overdraft any amount of money over like, $100 that isn't lined out in a line of credit?

If it was material, I'd probably want to post it as a liability not because some standard told me so, but rather that it's crazy and should be considered a liability because wtf it's a payable if nothing else. Maybe that's a good way to remember it.

That being said, these kind of questions get a flash card for themselves and knowing it for the exam is important.

REG - 92
AUD - 90
BEC - 82
FAR - 82
BISK Review Materials
DONE! /Happydance

[Author]

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