FAR-F3-M1-Cash and Cash Equivalents Flashcards
Is the following statement true or false? Cash and cash equivalents must mature within 90 days or less AT THE DATE OF PURCHASE.
True. Cash and cash equivalents must mature within 90 days or less AT THE DATE OF PURCHASE.
What is the formula to reconcile bank balance to book balance?
Bank balance:
ADD Deposits in transit
SUBTRACT outstanding checks
ADD or SUBTRACT Bank errors
ADD or SUBTRACT Errors on Ledgers
= Book Balance
Is the following statement true or false? Although balances in various accounts within the same bank CAN be netted against each other, balance totals for different bank accounts must be accounted for separately on the balance sheet when one has a negative balance
True. For example, a company has bank accounts in 2 separate banks. In California Bank, there are 4 bank accounts “Operating-summit = ($400,000), Operating-bakersfield = $300,000, Operating-Smithsville = $50,000 and savings = $500,000”. Sedona Bank has 1 checking account with ($375,000).
Because the checking account is negative AND its from a separate bank, it must recorded separately as a liability. The company would record CASH for $450,000 (net) and a liability for $375,000
Can cash that is restricted for use, such as for a bond sinking fund, be included under CASH on the balance sheet?
No. Cash and cash equivalents are assets that are readily available and unrestricted.
What are examples of cash equivalents?
U.S. treasury bills, commercial paper and money market funds.
Is a certificate of deposit with a maturity more than 3 months from the date of purchase a cash equivalent?
No, a certificate of deposit with a maturity MORE than 3 months from the DATE OF PURCHASE is not a cash equivalent.
What is a money market fund?
A money market fund is a mutual fund that invests in highly liquid near term instruments. These investments include cash and cash equivalent securities.
Can checks received by the bank AFTER the balance sheet date, be recorded as cash in the company books?
No, checks received by the bank AFTER the balance sheet date ARE NOT INCLUDED as cash in the company books (cash was not received as of 12/31).
Can checks disbursed by a bank AFTER the balance sheet date be excluded from the company books?
No. Checks disbursed by the bank (cash is paid) AFTER the balance sheet date must be ADDED BACK in the company books (cash was not paid until after 12/31 therefore it must be added back into the balance).
Are marketable debt and equity securities considered cash equivalents?
No, marketable debt and equity securities are NOT cash equivalents.
