Account For Cash And Cash Equivalents
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CPA Financial Accounting and Reporting (FAR) › Account For Cash And Cash Equivalents
A bank reconciliation reveals that a customer's $3,000 check was returned NSF (non-sufficient funds) and the bank charged a $25 NSF fee. Both items appear on the bank statement but have not been recorded by the company. What journal entry should the company record?
Debit Bad Debt Expense $3,025; Credit Cash $3,025.
Debit Accounts Receivable $3,000; Credit Cash $3,000.
Debit Bank Charges $25; Credit Cash $25.
Debit Accounts Receivable $3,025; Credit Cash $3,025.
Explanation
When a customer's check is returned NSF, the company must reverse the original cash receipt and reinstate the receivable. The NSF fee charged by the bank also reduces the company's cash. Total reduction to cash = $3,000 + $25 = $3,025, reinstated as accounts receivable. Answer B is correct. Answer A omits the NSF fee. Answer C debits bad debt expense prematurely - the amount is still owed by the customer and should be a receivable. Answer D records only the fee, omitting the NSF check reversal.
A bank statement shows a balance of $18,600. The following reconciling items are identified: deposits in transit of $4,200, outstanding checks of $6,500, and a bank error in which the bank incorrectly charged the company's account $800 for another customer's check. What is the adjusted bank balance?
$18,600
$16,300
$17,100
$15,500
Explanation
Adjusted bank balance = $18,600 + deposits in transit $4,200 - outstanding checks $6,500 + bank error correction $800 = $17,100. The bank error understated the company's balance, so it is added back. Answer C is correct. Answer A omits the bank error correction ($18,600 + $4,200 - $6,500 = $16,300). Answer B subtracts the bank error rather than adding it ($18,600 + $4,200 - $6,500 - $800 = $15,500). Answer D uses the unadjusted bank balance.
A company's bank reconciliation shows the following book-side adjustments: interest earned on the account of $250, a note collected by the bank of $2,000 (plus $120 interest), and an NSF check of $680. What is the net adjustment to the book cash balance?
Increase of $1,570
Decrease of $430
Increase of $1,690
Increase of $2,370
Explanation
Book adjustments: Add interest earned $250 + note collected $2,000 + note interest $120 = $2,370 increase. Deduct NSF check $680. Net adjustment = $2,370 - $680 = $1,690 increase. Answer B is correct. Answer C counts only the additions without subtracting the NSF check. Answer D considers only the NSF check without the additions.
Which of the following correctly describes the presentation of restricted cash on the balance sheet under ASC 230?
Restricted cash is always classified as a long-term asset regardless of the restriction period.
Restricted cash is presented separately from cash and cash equivalents, classified as current or noncurrent based on the nature and expected term of the restriction.
Restricted cash is netted against the related debt obligation and not presented separately.
Restricted cash is included in cash and cash equivalents with footnote disclosure of the restriction.
Explanation
Under ASC 230, restricted cash is excluded from the cash and cash equivalents line and presented separately on the balance sheet. Its classification as current or noncurrent depends on when the restriction will lapse and how the cash will be used. Answer B is correct. Answer A mandates long-term classification without regard to the restriction period, which is incorrect - classification should follow the expected term of the restriction. Answer C nets restricted cash against the related debt obligation, which violates GAAP rules prohibiting the offsetting of assets and liabilities. Answer D includes restricted cash with unrestricted cash and cash equivalents, which is not permitted under ASC 230.
A company writes a check for $10,000 on December 30 but does not mail it until January 5 of the following year. How should this item be treated at December 31?
The $10,000 should be removed from cash and the liability reduced, since the check was written.
The $10,000 should be reclassified as a deposit in transit on the bank reconciliation.
The item should be disclosed as a subsequent event since it was mailed in January.
The $10,000 should remain in the cash balance; the liability should also remain on the books.
Explanation
When a check is written but not mailed, the company still controls the funds. Since the payee has not received the check and cannot negotiate it, the cash has not constructively left the company. The cash balance should not be reduced, and the liability remains. Answer A is correct. Answer B reduces cash prematurely before the payee has control. Answer C misapplies subsequent event treatment to a routine cash management practice. Answer D confuses unmailed checks with deposits in transit, which are deposits sent to the bank but not yet reflected on the bank statement.
A company's petty cash fund has an imprest balance of $500. At month-end, the fund contains $87 in cash and $418 in receipts. What journal entry should be recorded to replenish the fund?
Debit Various Expenses $413; Credit Cash $413.
Debit Petty Cash $413; Credit Cash $413.
Debit Petty Cash $500; Credit Cash $500.
Debit Various Expenses $418; Credit Cash Over and Short $5; Credit Cash $413.
Explanation
The fund should contain $500 total. Cash on hand is $87 and receipts are $418, totaling $505. The fund is over by $5 ($505 - $500). To replenish, the check written = $500 - $87 = $413. Expenses per receipts = $418. The $5 discrepancy represents a fund overage: more was documented in receipts than cash was disbursed, so Cash Over and Short is credited (a gain). Entry: Debit Expenses $418, Credit Cash Over and Short $5, Credit Cash $413. Answer B is correct. Answer A debits Petty Cash rather than expenses, which would increase the fund balance. Answer C omits the overage and uses the wrong expense amount. Answer D re-establishes the full $500 rather than replenishing only the amount spent.
A company receives a check from a customer dated January 15 of next year. It is currently December 20. How should this postdated check be classified at December 31?
Cash and cash equivalents, since a check has been received.
Accounts receivable, since it cannot yet be deposited or negotiated.
Cash equivalents, since it matures within three months.
Short-term investments, since it will be deposited within one year.
Explanation
A postdated check cannot be deposited or negotiated until the date on the check. At December 31, the check dated January 15 is not yet a valid claim on the bank. It should be classified as a receivable until it can be deposited. Answer D is correct. Answers A and C incorrectly classify it as cash or a cash equivalent - cash must be immediately available. Answer B misclassifies it as a short-term investment; it is a receivable from the customer, not an investment instrument.
During a year-end bank reconciliation, the accountant finds that a $4,500 check received from a customer was recorded by the company as $4,050. How should this transposition error be corrected?
Add $450 to the book balance.
Deduct $450 from the book balance.
Deduct $450 from the bank balance.
Add $4,050 to the book balance.
Explanation
The company recorded the receipt as $4,050 but the correct amount is $4,500. The book balance is understated by $450 ($4,500 - $4,050). The correction is to add $450 to the book balance (Debit Cash $450, Credit Accounts Receivable $450 or the appropriate account). Answer D is correct. Answer A adjusts the bank balance, but this is a book error - the bank correctly recorded $4,500. Answer B adds the full amount rather than the correction amount. Answer C deducts rather than adds.
Which of the following best describes the purpose of an imprest petty cash system?
To eliminate the need for a bank reconciliation for small expenditures.
To provide a revolving credit facility for operational expenses.
To maintain a fixed fund balance by replenishing it to its established amount after documenting all expenditures.
To allow employees to spend cash without requiring receipts.
Explanation
An imprest petty cash system maintains a fixed fund at an established amount. When funds are disbursed, receipts are collected. The fund is periodically replenished to its original balance by exchanging receipts for a check, which records the expenses. Answer C is correct. Answer A is incorrect - bank reconciliations are still required for the main cash account. Answer B is the opposite of the imprest system's control purpose. Answer D describes a credit facility, not a petty cash system.
A company has cash on hand of $5,000, a checking account balance of $48,000, a savings account balance of $12,000, a 2-month Treasury bill of $20,000, and a 6-month certificate of deposit of $15,000. What total amount should be reported as cash and cash equivalents?
$70,000
$85,000
$80,000
$65,000
Explanation
Cash and cash equivalents include: cash on hand $5,000 + checking $48,000 + savings $12,000 + 2-month T-bill $20,000 = $85,000. The 2-month Treasury bill qualifies as a cash equivalent (original maturity of 3 months or less). The 6-month CD does not qualify (original maturity exceeds 3 months). Answer D is correct. Answer A omits the T-bill and savings. Answer B omits the T-bill. Answer C omits the savings account.