Lecture 2: Cash and Cash Equivalents & Balance Sheet

Question 1

Current asset or liability

Answer 1

settled within one year or the operating cycle, whichever is longer

Question 2

Cash Equivalent

Answer 2

security that is easily converted into cash, maturity date of 90 days or less from the date of purchase. (coin or currency on hand, petty cash, money market, unmailed checks, savings accounts, CDs, Negotiable paper (bank checks, travelers checks, money orders0

Question 3

Items excluded from Cash?

Answer 3

1. Compensating Balances: legally restricted deposits
2. postdated checks or NSF: they are Receivables
3. Overdraft protection: If in same bank, net them and if (+) show cash, if (-) it is a liability/ if in different banks, show (+) as an asset and (-) as a current liability
4. Restricted cash: restricted for a current liability or asset
5. Postage stamps

Question 4

Bank to Book or Balance on bank statement formula to arrive at corrected balance:

Answer 4

Bank Statement Balance
\+deposits in transit
- outstanding checks
\+/- errors made by bank
= corrected balance

Question 5

Book to Bank or Checkbook balance formula to arrive at corrected balance:

Answer 5

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