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CPA Review: Financial Accounting & Reporting (FAR) > Study 6.1 - Cash and Investments > Flashcards

Study 6.1 - Cash and Investments Flashcards

1
Q

What is Cash

A

Cash is money.

Cash is also the most liquid of Assets

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2
Q

What is Cash Equivalents?

A

Cash Equivalents are SHORT-TERM highly liquid Investments.

Cash Equivalents is a special category of assets that is so close to conversion to cash that they are classified with cash on the balance sheet.

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3
Q

This asset is the customary MEDIUM OF EXHANGE. It also provides the STANDARD OF VALUE (the unit of value) of the transactions that are reported in the financial statements

A

This asset is Cash.

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4
Q

What is the Standard of Value?

A

The Standard of Value is the Monetary unit of measurement.

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5
Q

What does the Nominal Units of Money provide?

A

The Nominal Units of Money provide the measurement scale.

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6
Q

True or False? Changes in the purchasing power of money ARE recognized in standard financial statements.

A

False:

Changes in the purchasing power of money are NOT recognized in standard financial statements.

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7
Q

What is the standard medium of exchange?

A

Cash is the standard medium of Exchange.

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8
Q

When the entity has Adequate Liquidity, what does that mean?

A

When a company has adequate equity, it means that the Economic entity holds sufficient cash to pay its bills and execute transactions.

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9
Q

True or False: Cash is a CURRENT ASSET that is used in the near term for such purposes as payment to sinking funds.

A

True

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10
Q

To be classified as Cash, what must an asset be?

A

An asset must be READILY AVAILABLE FOR USE to be classified as Cash.

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11
Q

What 3 things should the Cash Account on the balance sheet consist of?

A

The cash account on the balance sheet should consist of:

1) Coin and Currency on Hand, including Petty Cash

2) Demand Deposits (Checking Accounts)
3) Time Deposits (Savings Accounts)

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12
Q

What 4 things does near cash assets include?

A

Near Cash Assets include:

1) They included many negotiable instruments such as:
- money orders,
- bank drafts
- certified checks,
- cashiers checks and
- personal checks,

2) They are usually in process of being deposit (deposits in transit)
3) They must be deposit-able. They exclude unsigned or post dated checks
4) Checks written to creditors but not mailed or delivered at the balance sheet date should be included in the payer’s cash account (not considered cash payments at year end)

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13
Q

What is Restricted Cash? List a 3 Examples of Restricted Cash?

A

Restricted Cash is Cash set aside for a particular purpose.

Examples of Restricted Cash are:

  • Bond Sinking Funds
  • New Building Funds
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14
Q

True or False? Restricted Cash is not actually set aside in the special accounts. However, it is designated for special uses and should be separately presented and disclosed in the notes.

A

True

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15
Q

What tells you whether restricted cash is Current or Non-Current?

A

The NATURE OF THE USE, tells you whether Restricted Cash is Current or Non-Current.

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16
Q

How should Restricted Cashes in Foreign Banks be reported?

A

Restricted Cash in foreign banks should be reported as:

  • Receivables (Current or Non-Current)
17
Q

What are Compensating Balances?

A

Banks and other lending institutions often require customers to whom they lend money to maintain a minimum cash balances in checking or savings accounts. These minimum balances are called Compensating Balances.

18
Q

To ensure that investors are not misled about the amount of cash available to meet recurring obligations, the SEC recommends that legally restricted deposits held as COMPENSATING BALANCES against SHORT-TERM borrowing arrangements be reported How?

A

Legally restricted deposits held as COMPENSATING BALANCES against SHORT-TERM borrowing arrangements should be separately classified as Cash & Cash Equivalent Items in CURRENT ASSETS

19
Q

To ensure that investors are not misled about the amount of cash available to meet recurring obligations, the SEC recommends that legally restricted deposits held as COMPENSATING BALANCES against LONG-TERM borrowing arrangements be reported How?

A

Legally restricted deposits held as COMPENSATING BALANCES against LONG-TERM borrowing arrangements should be separately classified as NON-CURRENT ASSETS and reported in INVESTMENTS or OTHER ASSETS

20
Q

If the Use of the COMPENSATING BALANCE is not restricted, then is Full Disclosure is Required? And What about Classification?

A

If the use of the compensating balance is not restricted then:

  • FULL DISCLOSURE is Required.
  • SEPARATE CLASSIFICATION is NOT Required.
21
Q

What are Common Examples of Cash Equivalents?

A

Common Examples of Cash Equivalents are:

1) Treasury Bills
2) Money Market Funds and
3) Commercial Paper

22
Q

Name 2 Key Elements of Cash Equivalents?

A

Cash Equivalent are:

1) Readily Available
2) So near maturity that interest rate risk is insignificant

22
Q

Only Investments with an original maturity to the holder of 3 months or less qualify as:

A

CASH EQUIVALENTS

23
Q

What does NSF stand for?

A

Non-Sufficient Funds

24
Q

How should post-dated checks and I.O.Us be treated?

A

post-date checks and I.O.Us should be treated as:

  • Receivables - if expected to be paid by employees

or as

  • Prepaid Expenses
24
Q

What is the an Overdraft?

A

An overdraft is a current liability unless the entity has sufficient funds in another account at the same bank to cover it.

25
Q

Only Investments with an original maturity to the holder of 3 months or less qualify as:

A

CASH EQUIVALENTS

26
Q

What does NSF stand for?

A

Non-Sufficient Funds

27
Q

How should post-dated checks and I.O.Us be treated?

A

post-date checks and I.O.Us should be treated as:

  • Receivables - if expected to be paid by employees

or as

  • Prepaid Expenses
28
Q

What is the an Overdraft?

A

An overdraft is a current liability unless the entity has sufficient funds in another account at the same bank to cover it.

CPA Review: Financial Accounting & Reporting (FAR) (11 decks)

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