Question

Lawrence Company has cash in bank of $25,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of

a. $23,000.
b. $25,000.
c. $28,000.
d. $29,000.

Answer 1

Lawrence should report cash of $23,000. Option A is answer.

Step-by-step explanation:

In financial reporting, accurately determining available cash is crucial for presenting a company's financial health. Lawrence's cash position involves navigating through distinct accounts, considering restrictions, and aligning with reporting norms. By carefully evaluating these factors, Lawrence arrives at a reported cash value of $23,000, adhering to accounting principles and providing a comprehensive snapshot of its liquidity.

Separate Accounts:

Cash in bank: $25,000

Restricted cash: $4,000 (not readily available for general use)

Bank overdraft: $2,000 (negative balance)

Reporting Requirements:

Cash includes readily available money, not restricted funds.

Bank overdrafts are shown as liabilities, not offset against cash.

Calculating Cash:

Total cash = Cash in bank - Bank overdraft = $25,000 - $2,000 = $23,000

Therefore, Lawrence should report $23,000 as cash on its financial statements.

Option A is answer.