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Jakob Littel

Feb 20, 2025

Accounting study guide question?? Wouldn’t it offset the current assets?

Which statement regarding negative cash balances is true? A) The amount is shown as a current liability because a company cannot have a cash balance below zero. B) The company must obtain a loan to bring the cash balance to zero before financial statements are prepared. C) The negative cash balance is included as a current asset and discussed in a footnote to the financial statements. D) The amount is offset against other current assets because users need to know net current assets.
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Hermina Ferry

Feb 20, 2025

A.A negative cash balance must be recorded as a current liability.Here is confirming information from accountingcoach.comA negative cash balance appears on the balance sheet when the cash account in the general ledger has a credit balance. The credit or negative balance in the general ledger cash account is usually caused by a company or organization writing checks for more than the amount in the general ledger cash account.When preparing the balance sheet, the negative balance in the cash account should appear as a current liability (Checks Written in Excess of Cash Balance) instead of reporting the negative cash as an current asset.A negative cash balance in the general ledger (on the balance sheet) does not mean that the company’s bank account is overdrawn. For example, if a company writes checks for $100,000 and mails them at the end of the day to suppliers in another state, those checks might not clear the bank account for four days. The general ledger account might show a negative $40,000 but the bank’s checking account might be reporting a positive balance of $60,000. If the company deposits more than $40,000 tomorrow morning, the bank balance will not show an overdraft because the bank balance will be large enough to pay the $100,000 of checks when they clear the company’s checking account in a few days.... Show More
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