Question

1. The Cash account on the balance sheet would include all of the following except:

a) Currency.

b) Certificates of deposit.

c) Balances on deposit at a bank.

d) Money orders.

2. A reconciliation shows cash per bank ($22,484), NSF checks($322), notes collected($5,000 plus $106 interest), deposits in transit($1,776), service charges($35), outstanding check($4,717), and a $1,275 disbursement recorded as $1,725.

a) The related journal entry would include a credit to Expense for $35.

b) The related journal entry would include a debit to Accounts Receivable for $322.

c) The related journal entry would include a debit to Checks for $450.

d)The related journal entry would include a debit to Notes Receivable for $5,000.

e) None of these.

Answer 1

ANS:

1. The Cash account on the balance sheet would not include Money Orders.

Cash and Cash Equivalents under the current assets section of a balance sheet represents the amount of money the company has in the bank, whether in the form of cash, savings bonds, certificates of deposit, or money invested in money market funds. It tells you how much money is available to the business immediately.

Money orders are also secure payments. But instead of buying them at a bank, you can get them from the U.S. Postal Service, convenience stores, drug stores, grocery stores, and check-cashing companies. These same places can also cash a money order for you if you’ve received one, or you can deposit a money order into your bank account.

When you purchase a money order, you have to pay for it with cash, a debit card, or traveler’s checks; you generally can’t use a credit card or write a personal check. If you use a credit card, it could be treated as a cash advance. Like cashier’s checks, you’ll pay a fee for a money order, but they’re inexpensive. Depending on where you buy a money order from—and how much it is for—the fee may be less than $1 or go up to $5.

One advantage money orders have over cashier’s checks is that they’re usually easier to replace if they’re lost or stolen. With a cashier’s check, you must request a new check from the bank and, in most cases, purchase an indemnity bond from an insurance company. This bond protects the bank if you lose the cashier’s check a second time. Once you file your request for a new check, it can take anywhere from 30 to 90 days for it to be issued.

Replacing a lost or stolen money order is often as simple as returning with your receipt to the place where it was purchased and ask for a replacement or refund. The money-order issuer may charge you a fee to replace it, but you can get it right away, instead of waiting months for a cashier’s check to be reissued.

So what is the proper amount of cash a company should keep on its balance sheet? Generally speaking, the more cash on hand the better, although excessive amounts are likely to make investors unhappy, as they would rather have the money paid out in the form of a dividend to be reinvested, spent, saved, or given to charity.

2. A reconciliation shows cash per bank ($22,484), NSF checks($322), notes collected($5,000 plus $106 interest), deposits in transit($1,776), service charges($35), outstanding check($4,717), and a $1,275 disbursement recorded as $1,725.

b) e) None of these.