Cash

Question 1

What are financial assets?

Answer 1

Financial assets are either:
• cash, or
• a contractual right to receive a determinable amount of cash from another entity or person (accounts and notes receivable, loans, derivatives, many investments)

Question 2

What is cash?

Answer 2

Cash is defined as cash and cash equivalents. Short-term (90 days or less), highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (equity investments are excluded from cash
equivalents)

• examples: treasury bills, guaranteed investment certificates (GIC’s), commercial paper (short term notes receivable from other companies)

Question 3

What is a bank overdraft?

Answer 3

The overdraft allows the account holder to continue withdrawing money even when the account has no funds in it or has insufficient funds to cover the amount of the withdrawal. Bank overdrafts should be presented with current liabilities.

Question 4

Can you offset a bank overdraft with a positive cash account?

Answer 4

Yes, offsetting against positive cash accounts can be done only if the accounts at the same financial institution and the bank has the legal right to offset one balance against the other.

Question 5

What are Petty Cash and Cash Floats?

Answer 5

A petty cash fund or cash float is created, a cheque is drawn in the amount required, cashed and placed in the appropriate place (locked box, drawer…)
• when the petty cash is replenished, the sum total of all receipts is replaced with cash by writing a cheque to the petty cash custodian
• at the end of the business day, the difference between the cash in the cash drawer and the float amount should equal the cash sales for the day and is deposited

Question 6

What is a Bank Reconciliation?

Answer 6

The purpose of a Bank Reconciliation ensures that transactions in both the company’s cash account and the bank’s cash account have been accurately recorded
• the bank statement will usually include transactions that have yet to be recorded in the accounts, i.e. interest and bank charges, returned cheques, etc…
– these are recorded by way of journal entries

Question 7

How is the Bank Reconciliation reconciled?

Answer 7

Balance per bank
- Outstanding cheques
\+ Deposits in transit
± Bank errors
= Balance per books