Companies often hold cash and cash equivalents to pay short-term debt and hold capital in secure places for future use. A controller conducts a monthly review of a petty cash box that should contain a standard cash balance of $200. He finds that the box contains $45 of cash and $135 of receipts, which totals only $180.
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Oftentimes, financial institutions will allow the CD holder to break their financial product in exchange for a forfeiture of interest (i.e. the last six months of interest is foregone). If a financial institution does not allow this option, the CD should not be treated as a cash equivalent. This is especially true for longer-term products such as five-year CDs that must be held to maturity. Internal tampering could cause a cash short and over...
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