FAR 2 - Cash & Cash Equivalents & Balance Sheet

Question 1

Cash Equivalent

Answer 1

Is a security that is easily converted into cash with an original maturity of 90 days or less

Question 2

Cash & Cash Equivalent Examples

Answer 2

Coin & currency on hand (petty cash)

Money market accounts

Unmailed checks

Savings accounts

CDs with matury of 3 months or less

Bank checks, travelers checks, money orders

Question 3

What are some items excluded from cash? (5)

Answer 3

1. Compensating Balances

• Restricted deposits:
  
  • Legally restricted = NOT part of cash
  • NOT Legally restricted = part of cash

2. Postdated cheks or NSF

3. Overdraft protection

• If in same bank, balances of accounts are netted
• If in different banks, show balances separately as as an asset if positive balance & a liability if negative balance

4. Restricted cash

5. Postage stamps

• Supplies not cash

Question 4

Bank Reconcilitiaon

(Balance on Bank Statement - “Bank to Book”)

Answer 4

Balance on Bank Statement

+ Deposits in transit

• Outstanding Checks

+/- Errors made by bank

= Corrected balance

Question 5

Bank Reconciliation

(Checkbook Balance - “Book to Bank”)

Answer 5

Checkbook Balance

+ Amounts collected by bank

• Unrecorded bank charges

+/- Errors made in recording transactions

= Corrected Balance

Question 6

Statement of Earnings & Comprehensive Income

Income Statement

ON-TIDE-N-OC

Answer 6

Operating Income

Non-Operating Income

Tax

= Income from Continuing Operations

Discontinued Component Unit

Extraordinary Loss

= Net Income

Other Comprehensive Income (DENT)

= Comprehensive Income

Question 7

“Bank statement error in (client’s) favor”

Bank Reconciliation (Bank to Book)

Answer 7

“Bank statement error in (client’s) favor” - means that the bank mistakenly added funds to the clients account and need to be taken subtracted out as a reconciliation item.

Question 8

Under IFRS, how are financial assets & financial liabilities measured?

Answer 8

Financial Assets:

1. Amortized Cost if TWO conditions are met
   a. ) Asset is held to collect scheduled cash flows (interest)
   b. Terms of the instrument calls for cash flows that are exclusively payments of principal & interest.
2. All other are measured at Fair Value

Financial Liabilities:

1. Measured at Amortized Cost
2. At Fair Value, when it will result in more relevant information

Question 9

How are Bonds reported in the Balance Sheet?

Answer 9

Amortized Cost

Bond NET OF Discount/Premium

Question 10

Current Assets on BS (6)

Answer 10

1. Cash & Cash Equivalents
2. Trading Securities
3. Receivables (NRV)
4. Inventories (LCM)
5. Prepaid Expenses
6. Current Deferred Taxes