While performing its monthly bank reconciliation,the bookkeeper for Grace Corporation noted that a deposit of $990 (received from a customer on account)was recorded in the company books as $900.Which of the following shows the effect of the correcting entry on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

While performing its monthly bank reconciliation,the bookkeeper for Grace Corporation noted that a deposit of $990 (received from a customer on account) was recorded in the company books as $900.Which of the following shows the effect of the correcting entry on the financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Here,cash was understated by $90,which is the difference between the actual amount of the receipt of $990 and the amount recorded of $900,and accounts receivable was overstated by the same amount.The entry to correct this error will increase assets (cash)and decrease assets (accounts receivable);total assets do not change.The $90 increase to cash is reported as a cash inflow for operating activities.

While Performing Its Monthly Bank Reconciliation,the Bookkeeper for Grace Corporation