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Question 1

If the restriction of cash is associated with a current asset or liability, classify as a current asset but separate from unrestricted cash.

Answer 1

a current asset but separate from unrestricted cash.

Question 2

If the restriction is associated with a non-current asset or liability, classify as a non-current asset but separate from either the investments or other assets section

Answer 2

a non-current asset but separate from either the investments or other assets section

Question 3

if a check payable to a supplier is dated and recorded before year end, but not mailed until after. how does that affect the cash balance?

Answer 3

it should be included in the year end cash balance

Question 4

if a check was deposited before year end, but turned out be returned for non-sufficient funds (NSF) and your bank returned the funds to the sender. but then a new good check wasnt deposited till after year end, how does that impact cash balance?

Answer 4

The value of the check should be subtracted from your year end cash balance.

Question 5

Deposits in transit

Answer 5

Funds have been sent by the depositor and the bank has not recorded the funds. Or the deposit is made after the bank cutoff date. In both cashes the balance per the depositors records will be higher than those of the bank.

Question 7

Outstanding Checks

Answer 7

Checks written for payment by the depositor that have not been presented to the bank will result in a higher balance per bank records than per depositor records. Because the funds will have been taken from the depositors bank account.

Question 8

Service Charges

Answer 8

are deducted by the bank, but depositor does not deduct this amount until its made aware of the charge which is typically the following month. Balance per the depositors books is overstated until the amount is subtracted

Question 9

Bank collections

Answer 9

bank may make collections for the depositor which increases their balances. If the depositor is not aware of the collection, the balance per the depositors records will be understated.

Question 10

errors

Answer 10

made by either bank or depositor can cause a difference

Question 11

Non-sufficient funds (NSF)

Answer 11

the bank may have put a check into the depositors account that is dishonored and the check could potentially not be redeposited until next month. This would overstate the depositors book balance as of the balance sheet date.

Question 12

Interest income

Answer 12

depositor typically adds the interest income amount to its records once they’ve been made aware of the revenue. Balance per books is understated until they add the interest income.

Question 13

Tip for the reconciliation

Answer 13

When adjusting book balance, think about charges the individual would not see or know about for awhile like service charges, interest income, nsf check. When adjusting the bank balance think about charges that are time pending like outstanding checks or deposits in transit that take other peoples actions to make things happen.

Question 14

Reconciliation of cash receipts and disbursements aka four-column reconciliation or proof of cash

Answer 14

Separates balance per depositors books and balance per bank records into two separate blocks of rows. Then has a column for each the balance as of Prior month end, December receipts, December payments, and balance as of current month end.

For the balance per bank records there are rows for recordings for deposits in transit for the prior month end and the current month end and the same for outstanding checks. This is to show it was a difference as of prior month end but then in the December the receipt or payment happened.

Question 15

For a treasury bond, how do you know if its a cash equivalent?

Answer 15

it must mature in 90 days or less at the date of purchase.

Question 16

how are post dated checks treated?

Answer 16

they are not included in cash and cash equivalents because its dated after the balance sheet date

Question 17

what is “cash in bond sinking fund account”

Answer 17

its restricted cash. it is not considered cash or cash equivalents

Question 18

What are marketable equity securities and marketable debt securities considered?

Answer 18

Investments and would be included in the investment lines. Not considered cash or cash equivalent.

Question 19

Can bank balances be netted?

Answer 19

They can be netted if they are with the same bank or have a positive balance. If a bank account at a bank has a negative balance and there are no other accounts at that bank to offset it, it must be reported as a liability.

Question 20

How is a check that is held in a depositors safe that was written to them dated December 1, accounted for when reconciling the bank balance?

Answer 20

Added to the balance per books even though it is held and not yet deposited.

it is a “cash item on hand”

Question 21

If a check is drawn on your account and payable to a vendor and dated and recorded before year end but not mailed till after, how do you account for it?

Answer 21

The balance of the check should be included in the depositors book balance because the cash is technically still in hand.

Question 22

why do we add deposits in transit to the bank balance?

Answer 22

we add because the company has deposited the check and has the check on hand, but the bank records do not reflect the check being added to the account yet.

Question 23

why do we subtract outstanding checks from the bank balance

Answer 23

We subtract them because the company has written the check and sent them so the cash is no longer on hand or valued in their book balance. But the bank has not deducted the balance yet.