Flashcards in Cash and Cash Equivalents Deck (15):
What is cash?
The current asset, represents unrestricted cash. This is cash that is available to meet current operating expenses and obligations as they arise.
What items are included in cash?
The components of cash include coin and currency, petty cash, cash in bank, and negotiable instruments such as ordinary checks, cashier's checks, certified checks, and money orders.
How is a bank overdraft accounted for?
Treated as a current Liability in the US. Intl Standards subtract it from cash
What items are not included in cash?
Cash does not include certificates of deposit, legally restricted compensating balances, or restricted cash funds (such as a bond sinking fund).
Which items can be considered a cash equivalent?
Cash equivalents include: U.S. Treasury obligations (bills, notes, and bonds), commercial paper (very short-term corporate notes), and money market funds.
What is a compensating balance?
This is a minimum balance that must be maintained by the firm in relation to a borrowing. . Such a balance increases the effective rate of interest on the borrowing and reduces the risk to the lender
What is a separation of duties?
Separation of Duties, in effect, forces employees to collude if they attempt to fraudulently remove any of the company's cash resources. At a minimum, the duties related to cash that should be separated are:
a. custody of cash;
b. recording of cash;
c. reconciliation of bank accounts.
What are the three types of bank reconciliations?
Bank to book, book to bank and bank and book to true balance
Explain the bank and boko to true balance reconciliation
Balance Per Bank, November 30, 20x7 XX
+Deposits in Transit +X
+Cash on Hand +X
-Outstanding Checks -X
+ or - Errors made by Bank + or - X
True Cash XX
Balance Per Book, November 30, 20x7 XX
+ Interest Earned +X
+Note Collected +X
-Service Charges -X
-NSF Check -X
+ or - Errors in Firm's Records +or- X
True Cash XX
What is a deposit in transit?
These deposits have been made by the company but have not cleared the bank as
What is cash on hand?
This amount reflects petty cash and undeposited cash
What are outstanding checks?
This amount represents checks written and mailed by the company
In reference to bank reconciliations, what is interest earned?
This amount represents interest earned on the checking account
In reference to bank reconciliations, what is note collected?
This amount represents principle and interest added to the company's checking balance by the bank upon collection of a note receivable.