Chapter 6 begins with definitions of cash and cash equivalents. This is not always as obvious as it would seem, and presentation of items and amounts in the Cash account on a company’s balance sheet should follow fairly precise guidelines. The initial portion of the chapter also emphasizes the importance of proper cash management and provides insight into tools and opportunities for improved cash management.
A detailed discussion and illustration of the bank reconciliation is presented, along with appropriate accounting adjustments. Another illustration is used to demonstrate the correct methods for managing and accounting for a petty cash fund.
The chapter closes with an examination of trading securities. Trading securities are usually short-term type investments that are made with the objective of generating profits. Oftentimes they are acquired with excess cash funds. Trading securities are measured on a balance sheet at fair value, and fluctuations in value are reported in income as they occur.