ANSWERS TO QUESTIONS
Cash normally consists of coins and currency on hand, bank deposits, and various kinds of
orders for cash such as bank checks, money orders, travelers’ checks, demand bills of
exchange, bank drafts, and cashiers’ checks. Balances on deposit in banks which are
subject to immediate withdrawal are properly included in cash. Money market funds that
provide checking account privileges may be classified as cash. There is some question as
to whether deposits not subject to immediate withdrawal are properly included in cash or
whether they should be set out separately. Savings accounts, time certificates of deposit,
and time deposits fall in this latter category. Unless restrictions on these kinds of deposits
are such that they cannot be converted (withdrawn) within one year or the operating cycle
of the entity, whichever is longer, they are properly classified as current assets. At the
same time, they may well be presented separately from other cash and the restrictions as
to convertibility reported.
(h) Investments, possibly other
(b) Trading securities.
(d) Accounts receivable.
(e) Accounts receivable, a loss if uncollectible.
Other assets if not expendable, cash if ex-
(m) Postage expense, or prepaid
pendable for goods and services in the for-
(n) Receivable from employee if
(g) Receivable if collection expected within one
company is to be reimbursed;
year; otherwise, other asset.
otherwise, prepaid expense.
A compensating balance is that portion of any cash deposit maintained by an enterprise
which constitutes support for existing borrowing arrangements with a lending institution.
A compensating balance representing a legally restricted deposit held against short-term
borrowing arrangements should be stated separately among the cash and cash-equivalent
items. A restricted deposit held as a compensating balance against long-term borrowing
arrangements should be separately classified as a noncurrent asset in either the investments
or other assets section.
Restricted cash for debt redemption would be reported in the long-term asset section,
probably in the investments section. Another alternative is the other assets section. Given
that the debt is long term, the restricted cash should also be reported as long term.
The seller normally uses trade discounts to avoid frequent changes in its catalogs, to quote
different prices for different quantities purchased, and to hide the true invoice price from
competitors. Trade discounts are not recorded in the accounts because the price finally
quoted is generally an accurate statement of the fair market value of the product on that
date. In addition, no subsequent changes can occur to affect this value from an accounting