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Questions and Answers
What are cash equivalents?
What are cash equivalents?
- Investments with high risk and uncertain maturity
- Short-term, highly liquid investments (correct)
- Long-term, illiquid investments
- Investments with significant changes in value due to interest rates
What is the purpose of disclosing cash equivalents in financial statements?
What is the purpose of disclosing cash equivalents in financial statements?
- To complicate the financial reports
- To ensure transparency and accuracy (correct)
- To hide the true cash position of the company
- To mislead stakeholders
Which factor determines if an investment can be classified as a cash equivalent?
Which factor determines if an investment can be classified as a cash equivalent?
- Potential for high returns
- Complexity of the investment
- Long-term growth potential
- Ease of conversion and low risk (correct)
What is the significance of reporting cash equivalents separately from cash?
What is the significance of reporting cash equivalents separately from cash?
When are investments considered too risky to be classified as cash equivalents?
When are investments considered too risky to be classified as cash equivalents?
What would happen if a company misclassified a risky investment as a cash equivalent?
What would happen if a company misclassified a risky investment as a cash equivalent?
What is the purpose of having designated personnel handle cash receipts?
What is the purpose of having designated personnel handle cash receipts?
Which document should be maintained to provide evidence of cash receipt transactions?
Which document should be maintained to provide evidence of cash receipt transactions?
Why are cash registers recommended for executing over-the-counter receipts?
Why are cash registers recommended for executing over-the-counter receipts?
What does a voucher system provide assurance about in terms of payments?
What does a voucher system provide assurance about in terms of payments?
Why are payments usually preferred to be made by cheque/check instead of cash?
Why are payments usually preferred to be made by cheque/check instead of cash?
What is the primary purpose of a bank account in internal control over cash receipts and payments?
What is the primary purpose of a bank account in internal control over cash receipts and payments?
Which aspect involves determining the length of time each receivable will be outstanding?
Which aspect involves determining the length of time each receivable will be outstanding?
How do companies classify receivables intended to be collected within a year or the operating cycle?
How do companies classify receivables intended to be collected within a year or the operating cycle?
What do companies value and report short-term receivables at?
What do companies value and report short-term receivables at?
How do companies record credit losses in relation to bad debt expense?
How do companies record credit losses in relation to bad debt expense?
What is considered a normal and necessary risk of doing business on a credit basis?
What is considered a normal and necessary risk of doing business on a credit basis?
Which method involves charging the loss to Bad Debt Expense when a company determines a particular account to be uncollectible?
Which method involves charging the loss to Bad Debt Expense when a company determines a particular account to be uncollectible?
What is the purpose of companies using trade discounts?
What is the purpose of companies using trade discounts?
How do companies generally record sales and related sales discount transactions?
How do companies generally record sales and related sales discount transactions?
Which method of recording sales discounts involves recognizing discounts only upon receiving payment within the discount period?
Which method of recording sales discounts involves recognizing discounts only upon receiving payment within the discount period?
What happens if a company does not take the available cash discount under the net method of recording?
What happens if a company does not take the available cash discount under the net method of recording?
How should a company ideally measure receivables in relation to the due date of payments?
How should a company ideally measure receivables in relation to the due date of payments?
What is the purpose of offering cash discounts (sales discounts) by companies?
What is the purpose of offering cash discounts (sales discounts) by companies?
Why does a business usually use checks to make all cash payments except for very small amounts?
Why does a business usually use checks to make all cash payments except for very small amounts?
What is the purpose of reconciling the cash balance according to the bank with the per depositor balance?
What is the purpose of reconciling the cash balance according to the bank with the per depositor balance?
What is the primary function of a bank in minimizing the currency kept on hand by a business?
What is the primary function of a bank in minimizing the currency kept on hand by a business?
Why are outstanding checks one of the reasons for disagreements between the balance per bank and balance per books?
Why are outstanding checks one of the reasons for disagreements between the balance per bank and balance per books?
What is one of the common reasons leading to disagreements between the balance per bank and balance per books?
What is one of the common reasons leading to disagreements between the balance per bank and balance per books?
What does a four-column bank reconciliation aim to achieve?
What does a four-column bank reconciliation aim to achieve?
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