Flashcards in Cash Deck (12):
What is a cash equivalent?
A security with a fixed maturity amount and an original maturity to the purchaser of three months or less
What is the main reporting issue with cash?
What to include in this category of assets
What is included in "Cash" account?
1.) Coin and currency
2.) Petty cash
3.) Cash in bank
4.) Negotiable instruments such as ordinary checks, cashier's checks, certified checks and money orders
Can a bank overdraft offset the cash accounts on the balance sheet?
It can offset cash accounts within the same bank, but not against accounts at other banks. In the latter case, the overdraft is listed as a current liability
What items are excluded from cash?
1.) Certificates of deposti
2.)Legally restricted compensating balances
3.) Restricted cash funds (sinking bond fund)
Amounts are either
1.)Not available for immediate payment of debts
2.) Managements intent to use these resources for specific purposes. Cash excludes post-dated checks received from customers, advances to employees and postage stamps
What are some examples of cash equivalents?
1.) U.S. treasury obligations (bills, notes and bonds)
2.) Commercial paper (very short term corporate notes)
3.) money market funds
Usually combined with cash for F/S purposes because they are so near cash
What is a compensating balance?
Minimum balance that must be maintained by the firm in relation to a borrowing. This increases the effective rate of interest on the borrowing and reduces the risk to the lender. If related to a short-term, it is a current asset and same for long term
What is a monetary asset?
Asset with a fixed nominal (stated) value. The nominal value of a monetary asset does not change with inflation. Cash is the most monetary of all assets.
What are the most popular internal controls related to cash?
1.) Separation of duties
2.) Bank reconciliations
What is the purpose of Separation of Duties Internal control in relation to cash?
Makes it more difficult for employees to perpetrate fraud and gain access to the firm's cash.
What is the purpose of the Bank Reconciliation Internal control in relation to cash?
Provide a check mechanism for both the company and the financial institution. In most cases, errors detected in a bank reconciliation are the result of honest mistakes on the part of the company's employees or on the part of the bank's employees