7. Cash And Cash Equivalent

Question 1

Cash balance per books:
+ interest paid by bank
+ deposits not yet recorded in books
- bank charges
- returned checks eg. for insufficient funds
- withdrawals not yet recorded in books
+/- recording errors

Bank statement balance
+ deposits in transit
- checks outstanding
+/- bank errors.

Question 2

Compensating balance (legally restricted) - reported as current asset (besides cash) or long-term asset, depending on the length of time of the borrowing agreement. Disclosed yes.

Compensating balance (informally restricted) report as cash. Disclose yes.

Restricted cash- report as current asset (besides cash) or long-term asset, depending on the use of which it’s restricted. Disclosed yes.

Cash restricted to withdrawals or use must be disclosed separately.

Question 3

Account in same bank? No —) positive balance is current asset, negative balance is current liability
Yes —) is net positive —)
- no - net is current liability
- Yes - Net is current asset (cash)

Question 4

Negative bank balance can be netted with positive only if the bank accounts are at the same bank.

Question 5

The restricted cash account is an noncurrent asset since its restricted use for a bond sinking fund.

A bond sinking fund is a pool of money that a company sets aside to help repay a bond issue. The company makes regular contributions to the fund, which is then used to buy back bonds on the open market.
Here are some benefits of a bond sinking fund:
Financial stability
A sinking fund helps a company maintain financial stability by gradually repaying the funds it borrowed through the bond issue.
Lower risk
Bonds with sinking funds are considered lower risk for bondholders because they are backed by the fund’s collateral.
Interest savings
Paying off debt early through a sinking fund can save a company interest expense.
Early repayment
A company can use a sinking fund to call back callable bonds early, which removes future interest payments for the investor.
A sinking fund is a noncurrent asset for the corporation, and the money in it cannot be used to pay short-term liabilities. An independent trustee typically manages the sinking fund.

Question 6

Restricted cash is classified as either a current or noncurrent asset/liability depending on its intended use and balance.

Question 7

Marketable debt and marketable equity are not highly liquid and are not cash equivalent .
Cash equivalent - certificate of deposit, treasury bills, money market funds.
Cash includes - currency, checks, money orders, checking account, depository account, and other current asset.

Question 8

A bond sinking fund is a pool of money that a company sets aside to help repay a bond issue. The company makes regular contributions to the fund, which is then used to buy back bonds on the open market.

Cash in bond sinking fund account because it is designed for long-term use, a bond sinking fund is treated as a noncurrent asset.

Not included in cash and cash equivalent.

Question 9

Post dated check is treated as receivable, not liquid, so no cash.
Postdated check from customer dated one month from balance sheet date.

Question 10

Bank statement error in company A favor, this was deducted from the bank statement but nothing was don’t on company books.

Question 11

Checks drawn on AP to vendor and dated before bs date, but not mailed, only check are mailed or transmitted electronically to another person can be removed from books. !!
Add check written but not mailed.

Question 12

Check payable returned as NSF, subtract from books.

Question 13

CD due Feb 1 Year 2, purchased September 1 Year 1, wasn’t included in cash balance for December 31.
The maturity date counts from the original purchase date, so not included in cash.

Question 14

Credit erroneously recorded by bank 3/12 needs to subtracted from the Balance per bank statement 3/31.
It doesn’t say it was corrected, it says it was erroneously recorded.

Question 15

When you are given
Data per bank for the month of April follow:
Deposit $58,400
Disbursement $49,700
And the balance per books as March 31.
You take the balance per books as of 3/31 $44,200
Deposit per bank $58,400
Less deposit in transit ($10,300)

You have to back out the deposit in transit from the Deposit per bank amount. Same will be for Checks cleared per bank and Outstanding checks.

Question 16

Disbursement per the bank for April $29,200
- March checks outstanding $6,300
+ April outstanding checks $3,200
Disbursements per the books for April $21,700
*** add April outstanding checks!!!
We subtract normally

Question 17

Balance per books 3-31 $44,200

Deposit per bank, April $58,400
- deposit in transit, 3/31 -$10,300
= deposits made by firm in April $48,100
Checks clearing bank in April $49,700
- outstanding checks 3/31 -$12,600
+ outstanding checks 4/30 $7,000
= checks written by firm in April -$44,100
Balance per books 4/30 $48,200