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. The AICPA's favorite trap: a 6-month Treasury bill with only 2 months remaining to maturity does NOT qualify as a cash equivalent. Original maturity at the date of purchase determines classification, not remaining maturity. A second trap: compensating balances that are legally restricted must be classified separately from unrestricted cash. Know the three-month rule cold and you'll pick up easy points.
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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