Section 2: 30–40%2A

Cash and Cash Equivalents

Exam insight

Cash and cash equivalents show up on every FAR sitting, usually 2-3 questions. One setup recurs: a 6-month Treasury bill with only 2 months left to maturity does not count as a cash equivalent. What matters is the maturity when you bought it, not how much time is left now. A second thing to watch, legally restricted compensating balances must be shown separately from regular cash. Know the three-month rule cold and these become easy points.

What AICPA wants you to know

1Define cash equivalents and apply the three-month maturity rule
2Prepare a bank reconciliation and identify adjusting entries
3Distinguish restricted cash from unrestricted cash and explain balance sheet presentation
4Explain compensating balance disclosure requirements
5Identify common items excluded from cash and cash equivalents

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Classification CallWhere an item sits is a bright-line rules test: bucket it first, then compute anything.The Receivable EventsEach receivable event has a fixed journal entry, and only the estimate touches income.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.