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A payment of $1,200 had been entered in the cash account as $2,100, my understanding is that the cash account was over cast by $900 and for the correction to be effected it should be credited back in the cash account to reduce the amount. Since a credit to an asset account reduces the value of the account. But in one of your examples in bank recon it was debited, please assist to clarify.
A payment is a credit in the cash account.
Since they have credited 2,100 by mistake (it should have been only 1,200) they need to debit with 900 (the difference) to correct it.
(Incidentally, it is not an overcast. An overcast is when we had added up wrongly and got too high a total – casting is another word for adding. Here it is not the adding that is wrong – they have simply entered the wrong figure. They have entered the numbers in the wrong order – a common mistake – and this is called a transposition error. For example, entering 19 as 91.)
Hi John, thanks for this explanation, it is clearer now, I was taking the payment as an inflow (say receivable), the payment here was an outflow!. Thank you so much.
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