From page 4-2 of the VLN, which of the following is considered a Cash Equivalent? A. Shares of stock in Amazon.com B. 90 day supply of paper C. Account receivable to be collected in 30 days D. 3 month Certificate of Deposit

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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From page 4-2 of the VLN, which of the following is considered a Cash Equivalent? A. Shares of stock in Amazon.com B. 90 day supply of paper C. Account receivable to be collected in 30 days D. 3 month Certificate of Deposit
Monitor
Monitor the internal control system to make sure it is adequate
Limitations of Internal Control
Collusion
PART B: Cash
Cash and Cash Equivalents
Cash equivalent-SHORT TERM INVESTMENT WITH ORIGINAL
MATURITY OF THREE MONTHS OR LESS (91 DAYS OR LESS).
It must meet the definition at time of purchase to be a cash equivalent.
If it does not meet the definition at purchase, it will never be
classified as a cash equivalent.
Еxamples
Items classified as Cash Equivalent
Company Money market account
(with original maturity 3 months or less)
Items classified as Cash
Coins and currency
Checks
Customer's payment using credit card US Treasury bills (T-bills)
Customer's payment using debit card Commercial paper
Company balances in banking accounts Certificates of Deposits (CD)
Practice: Is the following Cash, Cash Equivalent or Neither.
If neither, identify the account.
A cashier's check
Customer checks to be deposited
Six-month commercial paper
Sixty-day US Treasury bills
Savings account at the Ft. Myers Savings & Loan
An employee borrows from the company (an IOU)_
Three-month commercial paper
Control over Cash Receipts
1. Record all cash receipts and deposit them as soon as possible.
2. Separate the person who deposits the cash/checks from the
person who receives the cash/checks.
3. A different person should record the receipts in the accounting
records. Verify the deposit with the deposit slip.
4. Accept credit cards/debit cards to reduce the amount of cash
employees' handle.
Transcribed Image Text:Monitor Monitor the internal control system to make sure it is adequate Limitations of Internal Control Collusion PART B: Cash Cash and Cash Equivalents Cash equivalent-SHORT TERM INVESTMENT WITH ORIGINAL MATURITY OF THREE MONTHS OR LESS (91 DAYS OR LESS). It must meet the definition at time of purchase to be a cash equivalent. If it does not meet the definition at purchase, it will never be classified as a cash equivalent. Еxamples Items classified as Cash Equivalent Company Money market account (with original maturity 3 months or less) Items classified as Cash Coins and currency Checks Customer's payment using credit card US Treasury bills (T-bills) Customer's payment using debit card Commercial paper Company balances in banking accounts Certificates of Deposits (CD) Practice: Is the following Cash, Cash Equivalent or Neither. If neither, identify the account. A cashier's check Customer checks to be deposited Six-month commercial paper Sixty-day US Treasury bills Savings account at the Ft. Myers Savings & Loan An employee borrows from the company (an IOU)_ Three-month commercial paper Control over Cash Receipts 1. Record all cash receipts and deposit them as soon as possible. 2. Separate the person who deposits the cash/checks from the person who receives the cash/checks. 3. A different person should record the receipts in the accounting records. Verify the deposit with the deposit slip. 4. Accept credit cards/debit cards to reduce the amount of cash employees' handle.
Expert Solution
Step 1

Cash and cash equivalent means the amount of cash , bank or highly liquid marketable securities which can be readily convertible in to known amount of cash (Generally with in 3 months or less) without any risk of loss of value.

 

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