21. A company has $100 in Bank A, overdrafts in a separate account with Bank B by ($50), and has $75 in petty cash. How should cash be reported on the balance sheet?
Answer: D
The cash should be reported as $125 on the balance sheet.
To determine the total cash reported on the balance sheet, we need to consider the cash in Bank A, the petty cash, and the overdraft situation. The total cash is calculated by adding the cash in Bank A ($100) and the petty cash ($75), resulting in a total of $175. However, since the overdraft in Bank B represents a liability, it is subtracted from the total cash available, leading to a final cash balance of $125.
A) $50
This option incorrectly suggests that the total cash available is only $50. It fails to account for the cash in Bank A and petty cash. The overdraft is a liability but does not reduce the available cash in Bank A.
B) $75
This option considers only the petty cash amount and ignores the cash in Bank A. While the petty cash is part of the company's cash resources, it does not reflect the total cash on the balance sheet when combined with the cash in Bank A.
C) $100
This option represents only the cash in Bank A and disregards the petty cash. Although Bank A has $100, it does not provide a complete picture of the company's total cash resources, which includes both Bank A's cash and petty cash.
D) $125
This option accurately accounts for the total cash available to the company. By adding the cash in Bank A ($100) and the petty cash ($75), we obtain $175. The overdraft of ($50) is then deducted, resulting in a net cash balance of $125.
Conclusion
The total cash reported on the balance sheet should be $125, which correctly combines the available resources from Bank A and petty cash while accounting for the overdraft liability. Options A, B, and C fail to consider the full scope of the company’s cash resources, leading to incorrect conclusions. Thus, option D is the only choice that accurately reflects the cash situation.