Section 2 - Cash and Cash Equivalents & Balance Sheet

Question 1

What does the Balance Sheet consist of?

Answer 1

• Statement of Financial Position
• consist of
  1) assets
  2) liabilities
  3) stockholders’ equity
• divided into “current” and “noncurrent”
• Assets = Liability + Stockholders’ Equity

Question 2

What are Current Assets?

Answer 2

Assets that will be used up or converted into cash w/in ONE YEAR or the operating cycle, whichever is longer

• cash
• temporary trading
• A/R
• N/R
• inventories
• prepaid expenses

Question 3

What are Current Liabilities?

Answer 3

Liabilities to be settled w/in ONE YEAR or the operating cycle, whichever is longer

• A/P
• accrued expenses
• dividends payable
• income taxes payable
• current portion of LT debt

Question 4

What is the most liquid asset?

Answer 4

CASH!

-usually the first item on “current assets” of b/s

Question 5

What are Cash Equivalents?

Answer 5

• security easily converted into cash w/in 90 days or less than 3 months
• highly liquid
• treasury bills
• commercial paper
• money market funds

Question 6

What are examples of Cash and Cash Equivalents?

Answer 6

• coin and currency on hand (petty cash)
• money market accounts
• unmailed checks
• savings accounts
• CDs w/ an original maturity of 3 months or less
• negotiable paper (bank checks, travelers checks, money order)

Question 7

What items are excluded from Cash?

Answer 7

• compensating balance - “legally restricted deposits”, if illegal report in cash
• postdated or NSF checks –> receivables
• overdraft protection
  
  • ->same bank, net them, positive–> cash, negative –> current liability
  • ->different banks, positive –> asset, negative –> current liability
• restricted cash
  
  • ->current, separate from cash
  • ->non-current, other assets or investment

-postage stamps - prepaid expenses under supplies

Question 8

What are the steps in Bank Reconciliation?

Answer 8

Balance on bank statement
\+deposits in transit
-outstanding checks
\+-errors by bank
=corrected balance

Checkbook balance
\+amounts collected by bank
-unrecorded bank charges
\+-errors made in recording transaction
=corrected balance

Question 9

What does GAAP Income Statement consist of?

Answer 9

• Statement of Earnings and Comprehensive Income
• State of Profit and Loss

ON-TIDE-N-OC

• Operating income
• other income (Non-operating)
• provision for income Tax
• Income from continuing operations
• gain/loss from operations Discontinued component unit
• Extraordinary loss
• Net income
• Other comprehensive income
• Comprehensive income

Question 10

How is IFRS “Statement of Financial Position” (Balance Sheet) reported?

Answer 10

-assets/liabilities reported as current and noncurrent
or
-if liquidity is more relevant and reliable, b/s items maybe reported based on liquidity w/o separating current/noncurrent