To determine the correct balance in Adama's cash accounts, we need to analyze the information provided step-by-step.
Given Information:
- Overdraft on 31st March: N600
- Payment made on 29th March: N1,080 (not yet credited)
Understanding Overdraft:
An overdraft occurs when withdrawals from a bank account exceed the available balance, resulting in a negative balance. In this case, Adama's account shows an overdraft of N600, which means that the account is N600 in the negative.
Analyzing the Payment:
The payment of N1,080 made on 29th March has not been credited to Adama's account by 31st March. This means that although Adama deposited this amount, the bank has not yet processed it, and thus it is not reflected in the account balance.
Calculating the Actual Balance:
- Starting Point: The overdraft indicates that the account balance is -N600.
- Adding the Uncredited Payment: Since the N1,080 payment has not been credited, we need to add this amount to the overdraft to find the actual cash balance.
[
\text{Actual Balance} = \text{Overdraft} + \text{Uncredited Payment}
]
[
\text{Actual Balance} = (-N600) + N1,080
]
[
\text{Actual Balance} = N1,080 - N600 = N480
]
Final Balance:
The final balance in Adama's cash accounts is N480. Since the balance is positive, it is represented as a credit (Cr). Therefore, the correct answer is:
D. N480 Cr
Explanation of Other Options:
-
A. N1,680 Dr: This option suggests a debit balance of N1,680, which is incorrect. The calculation does not support this figure, as we have established that the actual balance is N480 Cr.
-
B. N1,080 Cr: This option implies that the balance is simply the amount of the uncredited payment. However, it does not account for the overdraft that existed prior to the payment being processed. Thus, it is not the correct balance.
-
C. N600 Dr: This option suggests that the balance remains at the overdraft level of N600. However, this does not consider the uncredited payment that would improve the balance. Therefore, it is also incorrect.
Common Pitfalls:
- Ignoring Uncredited Transactions: Students often overlook transactions that have not yet been processed by the bank, which can lead to incorrect balance calculations.
- Misunderstanding Overdrafts: It’s crucial to remember that an overdraft is a negative balance, and any positive transactions must be added to this negative figure to find the actual balance.
Revision Summary:
- An overdraft indicates a negative balance in a bank account.
- Uncredited payments must be added to the overdraft to determine the actual cash balance.
- The correct balance in Adama's account after considering the uncredited payment is N480 Cr.
- Always account for all transactions, whether credited or not, when calculating account balances.