Cash And Cash Equivalents Quiz

NSF stands for non-sufficient funds in accounting. This term is used to indicate that there are not enough funds in a bank account to cover a payment or transaction. When a payment is made with insufficient funds, the transaction is usually declined, and the account holder may be charged an overdraft fee.

Cash must be safeguarded because it is the most susceptible asset. This statement is true because cash is a tangible and liquid asset that can easily be stolen or misplaced. Unlike other assets, such as property or investments, cash can be easily accessed and used by anyone who comes into contact with it. Therefore, it is essential to have proper security measures in place to protect cash from theft or loss.

Cash and cash equivalents that are reported as part of cash and cash equivalents must be unrestricted in use for current operations. This means that the cash and cash equivalents can be freely used to support the day-to-day operations of the business, such as paying expenses, purchasing inventory, or funding working capital needs. Cash and cash equivalents that are restricted or earmarked for specific purposes, such as the purchase of property, plant and equipment or the liquidation of long-term debt, would not be considered as part of cash and cash equivalents. Additionally, the fact that the cash and cash equivalents are deposited by a bank is not a requirement for them to be reported as part of cash and cash equivalents.

A compensating balance is the minimum cash balance that a bank requires its customers to maintain in their accounts. This balance is necessary to offset the costs associated with providing banking services. It serves as a form of collateral for the bank and helps ensure that customers have sufficient funds to cover any potential liabilities. Therefore, the correct answer is "Compensating balance".

A three-year treasury note maturing on October 30, 2011 purchased by the entity on June 30, 2011 is not considered as a cash equivalent because it has a maturity period of more than three months. Cash equivalents are highly liquid investments that can be easily converted into cash within three months or less from the date of purchase. Since the treasury note has a maturity period of three years, it does not meet the criteria of being a cash equivalent.

The past promissory note issued in favor of the entity by its President should not be included in the cash account in the current year-end statement of financial position because it represents a promise to pay in the future, rather than actual cash on hand. The cash account should only include actual cash in the entity's possession, such as the cash in the current account and the check payable to the entity. The undelivered check payable to a supplier should also not be included as it has not been issued or delivered yet.

Cash equivalents are highly liquid assets that can be easily converted into cash. They also have high credit quality, meaning they are considered to be low risk investments. Additionally, cash equivalents are short-term investments that typically have a maturity period of three months or less. Therefore, all of the given statements are correct, as cash equivalents possess all of these characteristics.

A bank reconciliation is a process of comparing the cash balance in a company's accounting records with the balance reported by the bank. It involves adjusting the receipts and disbursements for a certain period to ensure that the company's records match the bank's records. This reconciliation helps identify any discrepancies or errors in the company's cash transactions and ensures that the cash balance is accurate. It is an important financial control mechanism to ensure the integrity of the company's financial statements.

Equity instruments represent ownership in a company and are not considered as cash or cash equivalents. Cash and cash equivalents are highly liquid assets that can be easily converted into cash. Redeemable preference shares, commercial paper, and bank overdrafts are all examples of cash and cash equivalents as they can be readily converted into cash. However, equity instruments do not possess the same level of liquidity and cannot be easily converted into cash, hence they are not classified as cash and cash equivalents.

Unreleased checks are checks that have been written but not yet delivered to the creditors by the end of the reporting period. These checks should be treated as outstanding checks, meaning they are not yet deducted from the cash balance. However, the correct answer suggests that these unreleased checks should be restored to the cash balance. This means that the amount of these checks should be added back to the cash balance, as if they were never deducted in the first place. This adjustment is made to ensure that the cash balance accurately reflects the true amount of available funds.

Cash and cash equivalents are highly liquid assets that can be readily converted into cash. They typically include cash on hand, demand deposits, and short-term investments with maturities of three months or less. In this case, the time deposit that matures in one year should be excluded from cash and cash equivalents. This is because it does not meet the definition of a short-term investment and cannot be readily converted into cash within the current year. Therefore, it should be classified as a non-current asset instead.

The reimbursement of the petty cash fund should be credited to the cash account because when the petty cash fund is used, it is considered an expenditure and needs to be recorded as a decrease in cash. Crediting the cash account reflects this decrease in cash.

The petty cash fund account is debited when the fund is created to record the initial amount of cash put into the fund. Additionally, it is debited when the size of the fund is increased to reflect the additional cash added to the fund. This ensures that the petty cash account accurately reflects the amount of cash available in the fund at any given time.

The correct answer is "Is debited when the petty cash fund proves out short." A cash short or over account is used to record any discrepancies between the actual cash in the petty cash fund and the recorded amount. When the petty cash fund proves out to be short, it means that there is less cash than what should be in the fund. In this case, the cash short or over account is debited to reflect the shortage.

When material deposits are made in foreign banks that are subject to foreign exchange restrictions, they cannot be readily converted into cash within the current operating cycle. Therefore, they should be classified as non-current assets, as they are expected to be held for a period longer than one year. Additionally, appropriate disclosure should be made in the financial statements to provide transparency and inform users about the nature and restrictions of these deposits.