Problem
ABC Company adheres to a policy of depositing all cash receipts in a bank account and making all payments by check. The cash account as of December 31 has a credit balance of $1,850, and there is no undeposited cash on hand.
I. Assuming that no errors occurred during journalizing or posting, what caused this unusual balance?
II. Is the $1,850 credit balance in the cash account an asset, a liability, owner's equity, a revenue, or an expense?
Assume that DEF Company erroneously recorded the payment of $7,500 of owner withdrawals as a debit to Salary Expense.
III. How would this error affect the equality of the trial balance?
IV. How would this error affect the income statement, statement of owner's equity, and balance sheet?