Florida Building Contractor Business/Finance Practice Exam

What adjustment is needed if a company recorded its check as $98, but the check was actually written for $89?

1. Adjust by adding $9

2. Adjust by subtracting $9

3. No adjustment needed

4. Adjust by adding $5

The correct answer is: Adjust by adding $9

When a company records a check for an amount greater than the actual amount paid, it results in an overstatement of expenses and a corresponding understatement of cash balance. In this scenario, the company recorded a check for $98, but the correct amount was only $89. To reconcile this discrepancy, it is necessary to adjust the recorded amount down to reflect the actual expenditure. The difference between the recorded amount and the actual amount is $9 ($98 - $89). Therefore, to correct this, an adjustment needs to be made by adding back $9 to the company's cash balance and decreasing the recorded expenses by the same amount. This ensures that the financial records accurately reflect the cash outflow and expenses incurred. Making this adjustment corrects the financial statements and aligns them with the actual cash movement, providing a true picture of the company's financial status.