Cash Equivalents

What is an equation that helps a company to determine its ability to meet its short-term obligations?

A current ratio

If a bookkeeper receives checks but does not deposit until after the balance sheet date, how should the checks be accounted for on the balance sheet date?

As a cash equivalent

Which of the following is true about a cash equivalent?

It might be a short-term, highly liquid investment It might be a money market account. It might be a savings account.

Which of the following included in the term "cash"?

Not only cash in the bank. Other sources of cash including but not limited to bank certificates, government security deposits, and savings accounts

Why is the cash flow statement concerned with cash equivalents?

They are added to cash in the reconciliation process. The statement shows the changes in cash and cash equivalents.

Which of the following are true about the U.S. government securities?

They are generally long-term securities with the highest market ratings.

Which of the following statements is true about cash equivalents as shown on the balance sheet?

They can be shown as cash and cash equivalents.

Which of the following is a use of the cash flow statement?

To manage cash flows

The term cash equivalent refers to __________.

an asset that is owned by a company and that can readily be converted to cash

Although a cash flow statement is a detail of cash movement through a company, it also includes ___________.

cash equivalents

For an investment to be considered a cash equivalent, it must __________.

have a maturity date of less than 3 months be highly liquid be short-term

Any assets of a company's that are readily turned to cash are ______.

included under the classification of "cash" when preparing a cash flow statement

A deposit account offered by a bank, which invests in government is known as a ___________.

money market deposit account

The balance sheet may include cash equivalents in __________.

one account labeled cash and cash equivalents

A receipt issued by a depository institution (such as a bank, credit union, or finance or insurance company) to a depositor for a long-term deposit is known as a(n) ___________.

time deposit

A cash equivalent can be defined as a liquid investment that can be converted into cash ______________.

within 12 months