Cash and Cash Equivalents Flashcards
What is cash and cash equivalents?
cash includes both currency and demand deposits with banks and/or other financial institutions
cash equivalents include short-term, highly liquid investments that are both readily convertible to cash and so near their maturity when acquired by the entity (90 days or less from date of purchase) that they present insignificant risk of changes in value
Restricted or unrestricted cash
cash can be classified as either; restricted cash has been set aside for a specific use or purpose while unrestricted cash is used for all current operations; the nature, amount, and timing of restrictions should be disclosed in the footnotes
Types of bank reconciliations
there are two general forms of bank recs: one form is called a simple rec while the other is entitled rec of cash receipts and disbursements
for a simple rec, differences between the cash balance reported by the bank and the cash balance per the depositor’s records are explain through the preparation of the bank rec; several factors bring about this differential: PIT, outstanding checks, service charges, bank collections, errors, NSF, and interest income
the reconciliation of cash receipts and disbursements, commonly referred to as the four-column rec, or proof of cash, serves as a proof of the proper recording of cash transactions; additional information is required in preparing the four-column rec; the bank rec info for the present month and prior month must be obtained
T/F: the cash balances for accounts in the same bank can be netted together
True; but balance totals for different banks must be accounted for separately on the BS when one of them has a negative balance (it must be accounted for as a liability)
