Chapter 6 - Quick Assets

Question 1

What are the 2 types of “Quick Assets”? (CT)

Answer 1

1. Cash & Cash Equivalents

2. Trade Receivables

Question 2

What are 4 types of “Cash” and deposit? (CDCB)

Answer 2

1. Currency
2. Demand deposit
3. Checking account (deposit)
4. Bank reconciliation

Question 3

What are the 3 types of “Checking Account (Deposit)”? (DOB)

Answer 3

1. Deposit-in-Transit
2. Outstanding Check
3. Bank Overdrafts

Question 4

Bank overdrafts occur when a company writes a check for ________ in its _______.

Companies should record bank overdrafts as ________, and add to the amount in ________

Answer 4

More than the amount; Checking account

Current liabilities; Accounts payable

Question 5

“Bank reconciliation” is a ______ explaining any differences between the bank’s and the company’s _________

Answer 5

Schedule; Records of cash

Question 6

Reconciliation consists of what 2 sections? (BB)

Answer 6

1. Balance per bank statement

2. Balance per book

Question 7

Cash equivalents are _______, ________ financial instruments that are both:

1. Readily ______ to known amounts of cash
2. So near their _____that they present ______ changes in _______

Answer 7

Short-term; Highly liquid

1. Convertible
2. Maturity; Insignificant; Interest rates

Question 8

(Cash equivalents) Generally, only financial instruments with original maturities of _________ qualify.

Answer 8

90 days or less

Question 9

(Cash equivalents) What are some examples of “cash equivalents”? (TCM)

Answer 9

1. Treasury bill
2. Commercial paper
3. Money market funds

Question 10

What are the 2 types of “Restricted Cash”? (CF)

Answer 10

1. Compensating balance (minimum balance in savings accounts required by banks)
2. Funds (cash set aside for particular purpose, such as dividend fund)

Question 11

What are the 3 types of “Cash & Cash Equivalents”? (CD-CR)

Answer 11

1. Cash & Deposit
2. Cash Equivalents
3. Restricted Cash

Question 12

Companies may sub-classify ______ into ______ receivable and ______ receivable.

Answer 12

Trade receivables; Accounts; Notes

Question 13

What are the 2 methods to record “Bad Debt Expenses”? (DA)

Answer 13

1. Direct Write-off Method

2. Allowance Method

Question 14

(Bad Debt Expenses) Under “Direct Write-Off Method,” when a company determines a particular account to be _____, it charges the loss to ________ (NON-GAAP).

Answer 14

Uncollectible; Bad debt expense a/c

Question 15

(Bad Debt Expenses) Under “Allowance Method,” what are the 2 types of approaches? (BI)

Answer 15

1. Balance sheet approach

2. Income sheet approach

Question 16

(Allowance Method) the “Balance Sheet Approach” estimates uncollectible accounts at the ________.

To estimate uncollectible accounts, companies may set up an ______ of accounts receivable.

Answer 16

End of each period; Aging schedule

Question 17

(Bad Debt Expenses) “Income statement approach” is also known as ________

Answer 17

Percentage-of-sales approach

Question 18

What are the 3 factors of “Receivables Financing”? (PAF)

Answer 18

1. Pledge
2. Assignment
3. Factoring (transfer of receivables)

Question 19

(Receivables Financing) What are the 2 methods for “Factoring (transfer of receivables”? (WR)

Answer 19

1. Without recourse - Transfer is final and the factor assumes the risk of any losses on collections
2. With recourse - Factor has an option to re-sell any uncollectible receivable back to the transferor

Question 20

(Receivables Financing) What are the 3 exceptions (___________) to factoring (transfer of receivables)? (ICP)

Answer 20

(Surrender of control);

1. Assets have been ISOLATED from the transferor
2. Transferor does not maintain CONTROL over transferred assets
3. Transferee has the right to PLEDGE or exchange the assets

Question 21

(Bank Reconciliation) What two accounts go under “Bank Balance”? (DO(

Answer 21

1. Deposit in Transit (+)

2. Outstanding Check (-)

Question 22

(Bank Reconciliation) What 4 accounts go under “Book Balance”? (BANA)

Answer 22

1. Bank Collection (+)
   Accrued Interest Revenue
2. NSF (Non-Sufficient Fund) Check (-)
   Accrued Bank Charges

Question 23

(Restricted Cash) What are some examples of “Funds”? (DPR)

Answer 23

1. Dividend fund
2. Plant expansion fund
3. Retirement of long-term debt fund

Question 24

In a Balance Sheet, R/E is reported as either _____ or _______

Answer 24

1. Reserves for… (MERE declaration)

2. Unappropriated R/E

Question 25

(Bad Debt Expense) For “Direct Write-Off Method,” A/R must be calculated (written-off) based on ________.

Answer 25

Subsidiary ledger (by counterparty & inventory)

Question 26

(Bad Debt Expense) It is WRONG to use ______

Answer 26

Direct Write-Off Method