In: Accounting
Specter Co. combines cash and cash equivalents on the balance sheet. Using the following information, determine the amount reported on the year-end balance sheet for cash and cash equivalents.
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Amount of Cash and Cash Equivalents to be reported on the year end date:
Particulars | Amount (in $) | Reason |
Checking Account | 7,000 | Readily realizable |
Bond Investment | Nil | The bond is due in 20 yrs, hence not readily realizable |
U.S. Treasury Bill | 7,000 | Due in 1 month |
Loan to an Employee | Nil | The loan is for a period of more than 3 months |
Currency and Coins | 1,800 | They are cash itself |
Accounts Receivable | Nil | Accounts receivable is not considered as readily realizable |
Total Cash and Cash Equivalents | 15,800 |
Definition of Cash and Cash Equivalents: Money or Monies worth that are readily convertible into cash. Usually, where an instrument is to be realized for a period of over 3 months, it's not considered as readily convertible. Hence:
1. Bond Investment, which matures in 20 years;
2. Loan to an employee, which will be realized in 3 years and
3. Accounts receivable (since it would be prudent to assume that the receivable would be for a period exceeding 3 months)
would not be considered as Cash and Cash Equivalents.