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 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 trap: legally restricted compensating balances must be shown separately from regular cash. Know the three-month rule cold and these become easy points.
CPA Exam Lab is an independent study resource and is not affiliated with, endorsed by, or sponsored by the AICPA® or NASBA. Practice questions are original content created for study purposes. “CPA” is a registered trademark of the AICPA.
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