07 Cash and cash equivalents

Question 1

List the items included in cash.

Answer 1

Coin and currency
Petty cash
Cash in bank
Negotiable instruments, such as ordinary checks, cashier’s checks, certified checks, and money orders

Question 2

List the items that are not included in cash.

Answer 2

COD
Legally restricted compensating balances
Restricted cash funds
Postdated checks received
Checks written but not sent
Advances to employees
Postage stamps

Question 3

Describe bank overdraft rules.

Answer 3

Overdrafts can be offset against cash in the same bank, but if the bank has insufficient cash at the same bank, the overdrafts are reported as a current liability.

Question 4

What are cash equivalents?

Answer 4

Short-term investments that are convertible into a known and fixed amount of cash and have an original maturity to the purchaser of three months or less

Question 5

What are outstanding checks?

Answer 5

Checks written and mailed by the company that have not cleared the bank by the bank statement date

Question 6

List the adjustments needed to the ‘Balance Per Bank’ to arrive at true cash.

Answer 6

Deposits in transit
Outstanding checks
Bank errors

Question 7

What does an NSF check represent?

Answer 7

“Nonsufficient funds” checks received from customers

Question 8

List the adjustments made to book balance to arrive at the true cash balance.

Answer 8

Interest earned
Deposits not yet recorded
Withdrawals not yet recorded
Service charges
Nonsufficient funds (NSF) checks
Errors in company’s records

Question 9

What is a deposit in transit?

Answer 9

Deposits made by a company that have not cleared the bank as of the bank statement date

Question 10

Define “compensating balance.”

Answer 10

A minimum balance that must be maintained by the firm in relation to a borrowing. It is classified as current or noncurrent based on the related loan classification.