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UCBUGBA102ATopic04PracticeQuestionsSolns

UCBUGBA102ATopic04PracticeQuestionsSolns - Topic04 Cash...

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Topic04 Cash, Short-Term Investments & Receivables Question 1. In a short sentence, define the following terms: a. Net working capital (sometimes simply referred to as ‘working capital’) is the difference between current assets and current liabilities at a point in time. b. Bank reconciliation is an internal control procedure for verifying the accuracy of both the bank statements and the company’s cash accounts. It also assists in arriving at the true cash balance. c. Gross margin is the difference between net sales and cost of goods sold (sometimes referred to as ‘cost of sales’). It measures the inherent profitability of the core business products or services offered by the company. d. Uncollectible accounts expense (sometimes referred to as ‘bad debt expense’) is the estimated decrease in owners’ equity arising from the inability to collect all accounts receivable. e. Petty cash (sometimes referred to as ‘imprest accounts’) refers to cash made available to employees or administrative units for the purposes of covering daily expenses. Petty cash may be in the form of physical cash or a separate checking account and is subject to frequent scrutiny and set balance limits. UGBA102A Topic04 Practice Questions 1
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Question 2. In a short sentence, explain the difference between the following concepts: a. Cash & Cash Equivalents Usually reported as one line item, cash refers to coins & currency, checks, bank drafts, money orders, checking & savings account deposits whereas cash equivalents refers to short-term investments in demand certificates of deposit (CDs) and treasury bills that mature in 3 months or less. b. Accounts Receivable & Notes Receivable While both accounts receivable and notes receivable represent amounts owed to the company by customers, accounts receivable is
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