Association for Financial Professionals (AFP) Practice Exam

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What does the ledger cutoff in an availability schedule refer to?

The time by which deposits must be received
The time for checks to be cashed
The time for electronic transactions to be processed
The time for interest to be calculated

The correct answer is: The time by which deposits must be received

The ledger cutoff in an availability schedule refers specifically to the time by which deposits must be received to reflect in the same day's ledger. This is a crucial concept in cash management, as it determines how quickly a business can access the funds it has deposited. Understanding this cutoff helps organizations manage their liquidity more effectively and plan for their cash flow needs. When deposits are made after the ledger cutoff, they will not be available for use until the next banking business day, which can impact a company's operational efficiency and financial planning. Hence, it is essential for companies to be aware of this time frame to ensure that their cash positions are accurately reflected and that they make timely financial decisions. The other options relate to different aspects of banking and transaction timing but do not specify the direct relationship of the ledger cutoff to deposit timing, which is the primary focus of the question.