I would like to record about the key points of the US CPA exam content.
<Create and note the points based on mainly Becker’s workbook>
Cash and Cash Equivalents
- Cash – Physical money such as coins and currency.
- Bank Deposits – Balances in non-restricted checking or savings accounts.
- Treasury Bills – Short-term government securities with maturities of less than three months.
- Commercial Paper – Unsecured, short-term debt instruments issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities. Maturities are typically less than three months.
- Money Market Funds – Investment funds that invest in short-term debt securities and aim to maintain a stable value while offering a return similar to short-term interest rates.
- Certificates of Deposit (CDs) – Time deposits with banks that have specific, short-term maturities.
<Note>
- Not-highly liquid investments should be reclassified to another account for financial investments.
- If any portion of cash and cash equivalents is contractually restricted because of financing arrangements with a credit institution, that portion should be separately reported as restricted cash in the balance sheet. it should be reclassified from cash and cash equivalents to restricted cash
- The post-dated check should not be included in cash and cash equivalents because it is dated after the balance sheet date.
- Cash in a bond sinking fund is restricted cash.
- Although the balances in the various accounts within the same bank can be netted, balance totals for different banks must be accounted for separately on the balance sheet when one has a negative position.
- check payable : “Check payable” refers to a check issued to a specific person or organization, indicating that the amount specified on the check can be paid exclusively to the named recipient. This is detailed by the recipient’s name, the amount, the date issued, and the issuer’s signature on the check. This ensures that only the designated payee can legally cash or deposit it.
- Since the check is not disbursed as of December 31, Year 1, it should be added back to the checkbook balance in determining the 12/31/Year 1 cash balance.
- Because this check is dated January 3, it was correctly excluded from the checkbook balance.
- Check drawn on the company’s account, payable to a vendor, dated and recorded 12/31/Year 1 but not mailed until 1/10/Year 2 => it should be added back to the checkbook balance in determining the 12/31/Year 1 cash balance.
- Significant accounting policies should be disclosed in the first or second note to the financial statements and titled “Summary of Significant Accounting Policies.” The definition of cash and cash equivalents represents the definition of criteria and policy contemplated for inclusion of this note.
a legal right of offset
- a legal right of offset requires a company with different bank accounts within the same bank to offset overdrawn accounts with positive balances in other accounts of the same bank to arrive at cash.
the post-dated check
- The post-dated check should not be included in cash and cash equivalents because it is dated after the balance sheet date.
negative balance(overdraft) in a bank account
- It should be reported on the balance sheet as a current liability(current finance obligation) if there are no offset rule.
Deposit in transit
- Deposits in transit are recorded in the accounting books but have not yet been reflected in the bank records.
Outstanding Checks
- Outstanding checks have been issued but have not yet been cashed by the bank; therefore, it is necessary to deduct the amount of these checks from the current bank balance.
- Company-side Accounting Process: When a company issues a check, it records the amount as an expense in its books at the time of issuance. Therefore, checks issued in March are processed as March expenses.
- Bank-side Processing Delay: There is a time lag between when a check is issued and when it is processed by the bank. Consequently, the bank records these checks as expenses in the month they are actually processed. In this case, checks issued in March were cleared by the bank in April, hence they are included in the bank’s April disbursements.
- Due to this delay, temporary discrepancies arise between the company’s records and the bank’s records. A bank reconciliation statement must be prepared to adjust for these differences.
Not Sufficient Fund
- As of the end of December, it is stamped NSF. So it should be excluded from the company’s balance sheet.
- (DR) Account Receivable 1,000 / (CR) a bank account 1,025
- (DR) Miscellaneous finance cost (bank fees paid) 25 /
Bank-side Reconciling Items
- Deposits in Transit: Deposits made by the company that have not yet been recorded by the bank. These should be added to the bank balance.
- Outstanding Checks: Checks issued by the company and given to recipients but not yet processed by the bank. These should be subtracted from the bank balance.
Company-side Reconciling Items
- Service Charges: Fees charged by the bank that need to be recorded in the company’s books.
- NSF Checks: Checks that were not paid due to insufficient funds. These should be subtracted from the book balance.
- Credit Memos: Customer payments received via electronic transfers. These should be added to the book balance.
- Interest Income: Interest earned from the bank. This should be added to the book balance.
- Errors made by the company: Mistakes in record-keeping by the company. These need to be corrected in the books.
