Multiple Choice
Which of the following is the correct journal entry for Fantastic Tea receiving \$3,000 cash from Don Smith in exchange for common stock on December 1?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following is the correct journal entry, if any, to record an adjusting entry for outstanding checks at the end of an accounting period?
A
No journal entry is required for outstanding checks.
B
Debit Cash; Credit Accounts Payable
C
Debit Outstanding Checks; Credit Cash
D
Debit Bank Service Charges Expense; Credit Cash
Verified step by step guidance1
Understand the concept of outstanding checks: Outstanding checks are checks issued by a company that have not yet been cleared or processed by the bank. These checks are already recorded in the company's books but are not yet reflected in the bank statement.
Recognize that outstanding checks are part of the bank reconciliation process: They are used to reconcile the difference between the company's cash balance and the bank statement balance. No adjusting journal entry is required because the checks have already been recorded in the company's accounting system.
Review the options provided: The options suggest recording a journal entry, but none of them are appropriate for outstanding checks. Outstanding checks do not require a journal entry because they are not an error or a new transaction; they are simply timing differences.
Understand why no journal entry is required: Adjusting entries are typically made to correct errors, record accrued expenses, or recognize revenue. Outstanding checks do not fall into these categories, as they are already accounted for in the company's books.
Conclude that the correct answer is 'No journal entry is required for outstanding checks': This is because outstanding checks are part of the reconciliation process and do not impact the company's financial statements directly.
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