day 9 cash 2009 spring v3 - CashandEquivalent Dr.JamesGong...

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Cash and Equivalent Dr. James Gong
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Agenda n What’s cash? n Items considered cash n How are cash and related items are reported? n In class practice problem on cash items n Are all cash items liquid? n Why hold cash? n Management and control of cash n Bank account reconciliation n In class practice problem on bank reconciliation n Discussion: Cash levels and firm valuation n Mid-exam introduction
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n Cash must be readily available and be  free of restrictions n Cash consists of coins, currency and  available funds n Deposits (CDs) and short term paper  are classified as  temporary investments n Post dated checks, travel advances, and  stamps on hand are not classified as  cash Items Comprising “Cash”
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5 The reporting of cash depends upon whether it is: n     restricted cash n     a bank overdraft or n     a cash equivalent Reporting of Cash
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Compensating balances:   n are amounts maintained by a corporation with a bank  in support of existing borrowing arrangements. n are identified as current assets separate from cash, if  they relate to short-term loans.  n are identified as non-current assets separate from  cash, if n  they relate to long-term loans. n Only legally restricted compensating balances are  restricted cash Restricted Cash
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Bank Overdrafts n Overdrafts  represent checks written in  excess of cash account. n Overdrafts may be offset against available  cash in another account in the same bank. n Otherwise, such offsetting is not allowed.
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Cash Equivalent n It depends on company accounting policy
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Practice Problem Burr Company had the following account balances at  December 31, 2008:  n Cash in banks  $2,250,000  n Cash on hand  $125,000  n Cash legally restricted for additions to plant   $1,600,000  n (expected to be disbursed in 2009)
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day 9 cash 2009 spring v3 - CashandEquivalent Dr.JamesGong...

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