FAR 2.01 Balance Sheet

Question 1

2.01 Balance Sheet (Statement of Financial Position)

Answer 1

• Reports the effect of transactions at a point in time
• Consists of Assets, Liabilities and Stockholder’s equity
• Items are broken down into current & non current

Question 2

2.01 Current Assets

Answer 2

• assets that will be used up or converted into cash within one year or the operating cycle, whichever is longer
• cash, temporary trading securities, A/R, N/R, inventories, and prepaid expenses

Question 3

2.01 Liabilities

Answer 3

• liabilities that will be settled within one year or the operating cycle, whichever is longer
• A/P, accrued expenses, dividends payable, income taxes payable, current portions of L/T debt

Question 4

2.01 Cash

Answer 4

-is the most liquid asset of an enterprise, thus it is usually the first item presented in the current assets section of the balance sheet

Question 5

2.01 Cash Equivalent

Answer 5

• a security that is easily converted to cash with an original maturity date of 90 days or less.

Question 6

2.01 A Cash Equivalent is a financial instrument that is both:

Answer 6

• Easily convertible into a known amount of cash (highly liquid) and
• Original maturity of 3 months or less from the date of purchase. Since it is so close to maturity, this presents very little risk of change in value, due to changes in interest rates (e.g. treasury bills, commercial paper & money market funds)

Question 7

2.01 Examples of Cash equivalents

Answer 7

• Coin and currency on hand (petty cash)
• Money market accounts
• Unmailed checks
• Savings accounts
• CDs with an original maturity of 3 months or less.
• Negotiable paper (bank checks, travelers’ checks, money orders)

Question 8

2.01 Items excluded from cash :

Compensating balances

Answer 8

-legally restricted deposits that are either a current asset or a non-current part of cash, if funds are NOT legally restricted, present them along with cash.

Question 9

2.01 Items excluded from cash

Post-dated checks or NSF

Answer 9

(non-sufficient funds) are receivables

Question 10

2.01 Items excluded from cash

Overdraft protection

Answer 10

• If in same bank, net them, if positive then show it as cash, if negative, show it as a current liability
• if in different banks, show the positive as an asset, and the negative as a current liability

Question 11

2.01 Items excluded from cash

Restricted Cash

Answer 11

-Current - restricted for a current asset or liability (segregated from cash)

Question 12

2.01 Items excluded from cash

Postage stamps

Answer 12

are considered supplies (prepaid expense)

Question 13

2.01 Bank Reconciliation

Answer 13

• used to reconcile differences between cash balances per bank and per book to arrive at a corrected balance between the two.
• deposits in transit, outstanding checks, errors or bank service charges are factors that cause a difference between bank and book cash balances.

Question 14

2.01 Bank Reconciliation

Balance on bank statement

Answer 14

Balance on Bank Statement
\+ Deposits in transit
- Outstanding checks
(+/-) Errors made by bank
-----------------------------------
= Corrected balance

Question 15

2.01 Bank Reconciliation

Checkbook balance

Answer 15

Checkbook balance
\+ Amounts collected by bank
- Unrecorded bank charges
(+/-) Errors made in recording transactions
-------------------------------
= Corrected balance

Question 16

Review GAAP Balance Sheet

Answer 16

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