A check drawn by a company for $270 in payment of a liability was recorded in the journal as $720. What entry is required in the company's accounts?

Question

Quizplus · Accepted Answer

The error in recording the check as $720 instead of $270 results in an overstatement of the payment. Therefore, the correct entry to rectify the error is to debit Accounts Payable for $450 (720 – 270) and credit Cash for $720. This will decrease the Accounts Payable balance by the correct amount and record the correct payment amount in the Cash account. Option A is not correct because it suggests debiting Accounts Payable and crediting Cash, which would further overstate the payment. Option B is incorrect because it suggests a transaction between Cash and Accounts Receivable, which is not relevant to this situation. Option D is also incorrect as it suggests a transaction between Accounts Receivable and Cash, which is not relevant to the situation.

A Check Drawn by a Company for $270 in Payment