30 Questions
What are the components of cash according to the text?
Coin, currency, available funds on deposit at the bank, negotiable instruments
Why is internal control over cash considered imperative?
Cash is the most vulnerable asset to fraudulent activities
How are money market funds usually classified?
As temporary investments
What types of securities are included in items classified as temporary investments?
Money market savings certificates, certificates of deposit (CDs), similar types of deposits and 'short-term paper'
What are cash equivalents?
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and present insignificant risk of changes in value due to interest rate changes.
Why are petty cash funds and change funds included in current assets as cash?
Used to meet current operating expenses and liquidate current liabilities
What is the purpose of reporting cash equivalents?
Reporting cash equivalents is important as they are highly liquid investments that can be easily converted to cash and play a vital role in the overall cash management strategy of a company.
What provides an opportunity for small investors to earn interest according to the text?
Some negotiable instruments
Why do cash equivalents need to be disclosed separately from cash?
Cash equivalents need to be disclosed separately to provide a clear distinction between highly liquid investments and cash balances in financial statements.
What are some examples of cash equivalents?
Examples of cash equivalents include Treasury bills, commercial paper, and money market funds.
How do cash equivalents differ from other short-term investments?
Cash equivalents are highly liquid investments that are near maturity and present minimal risk of value changes due to interest rate fluctuations.
Why are cash equivalents considered to be low risk investments?
Cash equivalents are considered low risk because they are highly liquid, near maturity, and have minimal risk of changes in value due to interest rate fluctuations.
What was the cash receipts for October per bank?
Birr 27,457
How do companies record a note issued at face value when the market rate and stated rate are the same?
Companies record the note at face value.
What was the balance per books on October 31?
Birr 5,836
What do companies do when the stated rate differs from the market rate for a note?
Companies record the note at present value and amortize any discount or premium over the life of the note.
How much were the deposits in transit on October 31?
Birr 996
What was the interest on a bank loan for the month of October?
Birr 596
How do companies account for a zero-interest-bearing note?
The present value of the zero-interest-bearing note is considered as the cash paid to the issuer.
What is the market rate used for in accounting when dealing with notes?
The market rate is used to approximate the effective-interest rate and to determine the present value of the note.
How much were the proceeds on a note collected by the bank on October 28?
Principal Birr 2,900, Interest 996
What was the total amount of checks marked NSF and returned to Expert with the October bank statement?
Birr 1,335
Why do companies amortize any discount or premium over the life of a note?
To approximate the effective-interest (market) rate.
How does a company compute the interest rate for a zero-interest-bearing note?
By comparing the future amount and present value of the note.
How do companies typically treat interest revenue related to accounts receivable?
Companies ignore interest revenue related to accounts receivable.
How do companies classify receivables on the statement of financial position?
Companies classify receivables as current if intended to be collected within a year or the operating cycle, whichever is longer. All other receivables are classified as non-current.
What is the valuation basis for short-term receivables?
Short-term receivables are valued and reported at cash realizable value, which is the net amount expected to be received in cash.
How do companies account for credit losses on receivables?
Companies record credit losses as debits to Bad Debt Expense (or Uncollectible Accounts Expense).
What are the two methods used in accounting for uncollectible accounts?
The direct write-off method and the allowance method.
Under which method for uncollectible accounts does a company charge the loss to Bad Debt Expense when an account is deemed uncollectible?
Direct Write-Off Method
Test your knowledge on reconciling the bank statement for Expert Company for the month ended October 31, 2017. Evaluate your understanding of bank errors and adjustments made to the cash balance.
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