Listed below are four interbank cash transfers, indicated by the letters a, b, c and d, of a client for late december 20x1, and early january 20x2. your answer choice for the next two questions should be selected from this list.

bank account one

disbursing date

(month/day) bank account two

receiving date

(month/day)

per bank per books per bank per books

a. 1/02 12/30 12/31 12/30

b. 1/04 12/31 1/02 12/31

c. 1/03 12/31 1/02 1/02

d. 1/02 1/02 12/31 1/02

for each of transfers a through d indicate whether cash is understated, unaffected, or overstated by the transfer and provide a brief example of what could cause the situation in which cash is either understated or overstated.

A. Unaffected

B. Unaffected

C. Understated

D. Overstated

Explanation:

C. Understated.

Understated balance is one that is reported as having a lesser balance than it actually does. example of what could cause the situation in which cash is understated is that when check is written on the disbursing bank on the last day of December with a credit to cash, and an associated debit to some expense account so as to decrease reported profits and taxes be it (direct or indirect tjaxes) for the year.

Another example is when a utility bill that is suppose to be paid by the last day of the month but failed to record the expenses, under the accrual basis of accounting, the company should recognize the expenses now even though the bill is not yet due. Until the bill is recorded, the utilities payable is understated

d. Overstated.

An overstated balance is an account balance that is reported as having a greater balance than it actually does, example of such situation is that in which an employee has misappropriated funds during the year, and draw a check transferring funds to the account with the shortage so as to cover the shortage. As of December 31, the shortage is replaced, with no reduction as yet recorded in the account on which it is drawn.

In second example of understated, expense account is understated and because of this net income is overstated.