When a Company Has Cash Available in Another Account in the Same

question 143

Multiple Choice

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:

• A) offset the overdraft against cash account.
• B) report the same in the notes to financial statement.
• C) report the bank overdraft amount as account payable.
• D) classify the bank overdraft as compensating balance.

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Definitions:

Money Market Securities

are short-term financial instruments, such as treasury bills and commercial paper, that provide liquidity and relatively low risk.

Average Daily Receipts

The average amount of cash received by a business on a daily basis, calculated over a specific period of time.

Collection Delay

The lag between the time when a payment is made by a customer and when the funds are actually available for use by the recipient.

Average Daily Float

The average amount of time it takes for checks or other transactions to clear and be reflected in the available balance of an account.