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Financial Accounting and Reporting/Blueprint/2.A

Cash and cash equivalents

Area 2: Select Balance Sheet Accounts (30-40%)

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Topics

  • Cash and cash equivalents balances
  • Bank reconciliations

Lessons

  • Cash and Cash EquivalentsFree

Study Frameworks

Cash and Cash Equivalents — Classification

Cash and Cash Equivalents
Cash
Currency on hand
Demand deposits (checking/savings)
Negotiable instruments (checks, money orders)
Cash Equivalents
Short-term, highly liquid investments
Original maturity ≤ 3 months from purchase
Examples: T-bills, commercial paper, money market funds
NOT Cash or Cash Equivalents
Restricted cash (report separately or disclose)
Certificates of deposit > 3 months
Postdated checks received
Compensating balances (disclose; may be restricted)
Bank overdrafts (reclassify to current liabilities)

CECL Expected Credit Loss Model (ASC 326)

Current Expected Credit Losses
Scope
Trade receivables
Held-to-maturity debt securities
Loan receivables
Net investment in leases
Off-balance-sheet credit exposures
Measurement Inputs
Historical loss experience
Current economic conditions
Reasonable and supportable forecasts
Key Principles
Lifetime losses recognized at origination
Pool assets with similar risk characteristics
Revert to historical loss rates beyond forecast period
Contra-asset (allowance) — not direct write-down

Bank Reconciliation: Book Adjustment or Bank Adjustment?

Is this item already recorded on the company's books?
Yes
Does the item appear on the bank statement but not the bank's records of the company's account?
Yes
Bank error — adjust bank balance
No
No adjustment needed — item is properly recorded on both sides
No
Is this item on the bank statement (e.g., service charges, NSF checks, interest earned, EFT collections)?
Yes
Adjust books — record journal entry for items the bank recorded that the company hasn't yet
No
Adjust bank balance — these are outstanding items (deposits in transit, outstanding checks) the company recorded but bank hasn't processed

Allowance for Credit Losses (CECL — ASC 326)

Allowance = Σ (Amortized Cost of Pool × Expected Loss Rate over Remaining Life)

Current expected credit loss model. Estimate lifetime losses at origination using historical data, current conditions, and reasonable/supportable forecasts. Applies to financial assets at amortized cost.

Practice These Topics(16 questions)