Weir Company adheres to a policy of depositing all cash receipts in a bank account and making all payments by check

Accounting Jan 22, 2021

Weir Company adheres to a policy of depositing all cash receipts in a bank account and making all payments by check. The cash account as of December 31 has a credit balance of $3,190, and there is no undeposited cash on hand.
(a) Assuming no errors occurred during journalizing or posting, what caused this unusual balance?
(b) Is the $3,190 credit balance in the cash account an asset, a liability, stockholders’ equity, a revenue, or an expense?

Expert Solution

a)Assuming no errors have occurred, the credit balance in the cash account resulted from drawing checks for $3,190 in excess of the amount of cash on deposit.

b)The $3,190 credit balance in the cash account as of December 31 is a liability owed to the bank. It is usually referred to as an “overdraft” and should be classified on the balance sheet as a liability.

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