5.1 (Ready Cash)

The cash account on the balance sheet should consist of...

1) Coins and currency on hand (including petty cash & change funds)

2) Demand deposits (checking accounts)

3) Time deposits (savings accounts)

4) Near-cash assets

    a) They include many negotiable instruments, such as money orders, bank drafts, certified checks, cashier's checks, and personal checks.

    b) They are usually in the process of being deposited (deposits in transit)

    c) They must be depositable. They EXCLUDE unsigned or postdated checks.

    d) Checks written to creditors but not mailed or delivered at the B/S date should be included in the payor's cash account.

5.1 (Ready Cash)

Near-cash assets consist of...

    a) They include many negotiable instruments, such as money orders, bank drafts, certified checks, cashier's checks, and personal checks.

    b) They are usually in the process of being deposited (deposits in transit)

    c) They must be depositable. They EXCLUDE unsigned or postdated checks.

    d) Checks written to creditors but not mailed or delivered at the B/S date should be included in the payor's cash account.

5.1 (Restricted Cash)

1) Restricted cash should be (A) set aside in special accounts OR (B)   separately presented?

2) The _____________________ determines whether [restricted] cash is current or noncurrent.

3) Restricted cash in foreign banks should be __________________, but unrestricted cash deposits are ____________________.

1) B. Restricted cash is not set aside in special accounts. However, it is designated for special uses and should be separately presented.

2) The NATURE OF THE USE determines whether [restricted] cash is current or noncurrent.

    a) a bond sinking fund to redeem noncurrent bond debt is noncurrent, but a fund   to be used to redeem bonds currently redeemable is a current asset.

3) Restricted cash in foreign banks should be reported as a receivable, but unrestricted cash deposits are classified as cash.

5.1 (Compensating Balances)

DEFINE: Compensating Balance

As part of an agreement regarding either an existing loan or the provision of future credit, a borrower may keep an average or minimum amount on deposit with the lender.

Note: This compensating balance increases the effective rate of interest paid by the borrower. It also creates a disclosure issue because the full amount reported as cash might not be available to meet general obligations.

5.1 (Compensating Balance)

What are the reporting procedures for:

1) A legally restricted compensating balance of a short-term agreement?

2) A legally restricted compensating balance of a long-term agreement?

3) A non restricted compensating balance?

1) It is seperately reported among the cash and cash equivalent items as a current asset.

2) It is be treated as an investment or other asset.

3) Full disclosure but not separate classification is required.

5.1 (Cash Equivalents)

DEFINE: Cash Equivalents

Cash Equivalents are short-term, highly liquitable investements. Common examples are Treasury bills, money market accounts, and commercial paper.

They must be:

1) Readily convertable to known amounts of cash.

2) So near maturity that interest rate is insignificant.

    a) Thus, only investments with an original maturity to the holder of 3 months or less qualify.