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Questions and Answers
What is the format of the Statement of Financial Position?
What is the format of the Statement of Financial Position?
- It is based on the accounting equation (E=A-L)
- It is based on the accounting equation (L=A-E)
- It is based on the accounting equation (A=L+E) (correct)
- It is based on the accounting equation (A+E=L)
What are the two main parts of the Statement of Financial Position?
What are the two main parts of the Statement of Financial Position?
- Debits and Credits
- Assets and Liabilities & Equity (correct)
- Income and Expenses
- Cash and Investments
What is the definition of cash equivalents?
What is the definition of cash equivalents?
- Funds readily available to be spent (correct)
- Money in the bank which can be kept in a savings or checking account
- Cash kept in the company's premises
- Deposits in the bank that earn higher interest
Which of the following is classified as cash equivalents?
Which of the following is classified as cash equivalents?
What is the purpose of disclosing the components of cash equivalents in the accompanying notes to financial statements?
What is the purpose of disclosing the components of cash equivalents in the accompanying notes to financial statements?
Which of the following is considered a cash equivalent?
Which of the following is considered a cash equivalent?
What is the main difference between cash and cash equivalents?
What is the main difference between cash and cash equivalents?
Why are time deposits with a term of up to 90 days classified as cash equivalents?
Why are time deposits with a term of up to 90 days classified as cash equivalents?
What is the primary purpose of disclosing the components of cash equivalents in the accompanying notes to financial statements?
What is the primary purpose of disclosing the components of cash equivalents in the accompanying notes to financial statements?
What does the accounting equation (A=L+E) represent in the context of the Statement of Financial Position?
What does the accounting equation (A=L+E) represent in the context of the Statement of Financial Position?
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Study Notes
Statement of Financial Position Format
- The Statement of Financial Position is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
Two Main Parts of the Statement
- Assets: Resources controlled by a company from which future economic benefits are expected to be generated.
- Liabilities and Equity: Sources of financing for the company’s assets.
Cash Equivalents Definition
- Cash Equivalents: Short-term, highly liquid investments that are readily convertible to cash and have a maturity of three months or less.
Cash Equivalents Examples
- Treasury bills
- Commercial paper
- Money market funds
Purpose of Disclosing Cash Equivalents Components
- To provide transparency and accountability on the company's investments, as well as demonstrate the liquidity and flexibility of the company's financial position.
Cash vs Cash Equivalents
- Cash: Currency on hand or in a bank account.
- Cash equivalents: Short-term, highly liquid investments that are readily convertible to cash.
Time Deposits as Cash Equivalents
- Time deposits with a term of up to 90 days are considered cash equivalents because they are easily convertible to cash and are considered highly liquid.
Accounting Equation and the Statement of Financial Position
- Accounting Equation (A=L+E): The accounting equation represents the balance between a company's assets, liabilities, and equity.
- Assets (A) are financed by a combination of Liabilities (L) and Equity (E).
- This equation provides a framework for understanding and analyzing the financial position of a company.
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