Cash, Current Assets & Balance Sheet Presentation Flashcards
What is a Current Asset?
An asset expected to be used up or converted into cash within one year or one operating cycle, whichever is longer. Examples: Cash, trading securities, Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids
What is a Current Liability?
An obligation expected to be settled within one year or one operating cycle, whichever is longer; OR which will require the use of current assets.
What is a Cash Equivalent?
A security easily converted into cash with an original maturity of 90 days or less. Examples: money market accounts, savings accounts, CDs, unmailed checks, negotiable paper
What are Compensating Balances? Are they current or non-current assets?
Legally restricted deposits not considered part of cash. They can be current assets OR non-current assets depending on the maturity date of the liability that the balance it is tied to.
Are postdated checks or non-sufficient funds included in cash?
No; they are treated as receivables
How are overdrafts handled with more than one account at the same bank?
Net the accounts. If positive, show it as cash. If negative, show as a current liability
How are overdrafts handled with accounts in different banks?
Show the positive accounts as cash (assets) and the negative accounts as a current liability
Is current restricted cash included with cash?
No; it is segregated from cash (still a current asset)
How is non-current restricted cash treated?
As an other asset or investment.
In performing a cash account reconciliation, which beginning balance includes errors made by the bank? Bank statement or Checkbook?
Bank Statement
In performing a cash account reconciliation, which beginning balance includes errors made by the firm? Bank statement or Checkbook?
Checkbook balance
What is a Financial Instrument?
“1) Cash
2) Ownership interests in an entity (such as stock)
3) Derivative contracts that create a right and obligation to transfer other financial instruments (such as stock options)
“C-O-D”
What is a Financial Asset?
1) Cash
2) Ownership interests in an entity (such as stock)
3) Derivative contract that creates a right to receive other financial instruments (such as stock options)
“C-O-D”
Do compensating or restricted balances require disclosure in the notes to the financial statements?
Yes
What are Accrued Expenses?
Expenses which have been incurred, but not yet paid. They are the opposite of prepaid expenses (current asset). They are treated as a liability (usually current). Example is interest on a bank loan.
