FAR - Financial Statement Acct - Cash/Equiv

Question 1

true/false

The effective rate of interest on a 1-year, 5%, $5,000 loan requiring a $300 compensating balance to be maintained is 5.3%.

The cash account typically includes all cash owned by the firm

Overdrafts can be offset against cash in the same bank, but if the bank has insufficient cash at the same bank, it is reported as a current liability.

cash = cash equivalents

The bank service charge and insufficient funds are already reflected in the bank balance.

Answer 1

True

False

True

False

True

Question 2

Not included in cash

Included in cash

Cash Equivalents

Answer 2

COD; (maturity more than 90 days)
Legally restricted compensating balances;
Restricted cash funds;
Post-dated checks received;
Checks written but not sent;
Advances to employees;
Postage stamps.

Coin and currency, 
petty cash, 
cash in bank, 
checks: cashier's, certified, ordinary,
money orders

Treasury obligations (bills, notes, and bonds),
commercial paper (very short-term corporate notes),
money market funds.

Question 3

Compensating balance

IFRS difference - overdraft rules

separation of duties purpose

monetary assets

Answer 3

minimum balance maintained by firm at a bank for borrowing

subtract balance rather reporting as a liability

safeguard cash acct/difficult for fraud to occur

fixed nominal value assets

Question 4

True/False

Only amounts adjusting the balance per books require an adjusting entry because only those amounts explain why the firm’s recorded cash balance is not the same as the true cash balance. Common adjustments of this type include bank service charges, notes collected, and interest. The firm cannot alter the bank balance.

Answer 4

True

Question 5

Book to Bank Balance Adj

Bank to Book Balance Adj

Answer 5

\+ Interest Earned;
\+ Note Collected;
- Service Charges;
- NSF Checks;
\+/- Errors in company's records

+ Deposits in Transit;
+ Cash on Hand (deposited cash receipts, not petty cash);
- Outstanding Checks.
+/- Bank Errors.

Question 6

Deposit in transit

NSF check

3 types of bank rec

cash on hand

O/S checks

Answer 6

deposit made, but not cleared by bank

non-sufficient funds check rec’d by customers

1) bank to book
2) book to bank
3) book/bank to true balance (b/s balance of cash)

1) petty cash and 2) undeposited cash

written/mailed out checks, not cleared