F3/M1 Cash and Cash Equivalents

Question 1

What is Cash and Cash Equivalents?

Answer 1

90 days or less ORIGINAL maturity

• compensating balances NOT legally restricted
• CD’s w/ original maturity > 90 days
• Post dated checks ARE NOT cash if dated after balance sheet date

Question 2

Restricted and unrestricted cash

Answer 2

Restricted = set aside to purchase something (PPE)
- If restriction is for current asset, the restricted cash is a current asset

Unrestricted = available for operations

Question 3

(T/F): A check that has been mailed should be taken out from the cash account. It doesn’t matter when the check is dated.

Answer 3

True, look for when the check is mailed

Question 4

Items that cause discrepancies in bank balance

Answer 4

Outstanding checks (Deduct from bank)

Deposits in transit (Add to bank)

Question 5

Items that cause discrepancies in cash balance

Answer 5

Bank collections (Add to book)
Interest Income (Add to book)
Service  charges (Deduct from book)
Insufficient funds (Deduct from book)

Question 6

Simple bank reconciliation steps (True balances)

Answer 6

1. Book balance is adjusted
2. Bank balance is adjusted

Both should be EQUAL

Question 7

(T/F): You can have negative cash

Answer 7

False; negative cash is reported as a current liability and does not subtract from cash and cash equivalents