F3 - M1 - Cash and Cash Equivalents

Question 1

What are some examples of cash and cash equivalents?

Answer 1

Coin and currency on hand (including petty cash)

Checking and savings accounts

Money market funds

Compensating balance - this is money that is lent against a borrowing institution that are not legally restricted. If legally restricted than it is not cash and cash equivalents.

Negotiable paper - Bank checks, money orders, traveler’s check, bank drafts, and cashier’s checks.

Commercial paper, treasury bills, CD’s with maturities of less than 90 days.

Question 2

What is the difference between restricted and unrestricted cash?

Answer 2

Restricted cash - Cash that has been set aside for a specific purpose.

Now if the restricted cash is associated with a current asset or current liability, classify as a current asset but separate from unrestricted cash.

If it is associated with a non current asset or liability, classify as a non current asset but separate from investments or other asset section.

Unrestricted - Any cash that isn’t restricted.

Question 3

What is the purpose of a cash reconciliation?

Answer 3

It explains the difference between the cash at a bank, and the cash that is shown on the books.

Question 4

What are the book adjustments?

Answer 4

It’s an anonym called BINS.

B - Bank Collections, these we have to add to the books. The bank added it, and now we have to add it to the books.

I - Interest Income, already added by the bank, now we have to add it to the books.

N - Non-sufficient funds, this is when a check bounces, a bank already deducted this, so now we have to deduct from our books.

S - Service Charges - Already deducted by the bank, and now we have to deduct from the books.

Question 5

What are the bank adjustments?

Answer 5

The DO acronym

D - We add the deposits in transit

O - We subtract the outstanding checks.