Final answer:
The statement is true; a cutoff bank statement is indeed used to verify the reconciling items on a bank reconciliation statement. Additionally, items like traveler's checks, currency, and balances in checking accounts are part of M1, while money in money market accounts falls under M2.
Step-by-step explanation:
The statement "A cutoff bank statement is used to verify the propriety of the reconciling items shown on the bank reconciliation" is true. A cutoff bank statement typically provides a snapshot of the account activity for a certain period after the balance sheet date.
This additional information helps in verifying that the outstanding checks, deposits in transit, and other reconciling items listed on the bank reconciliation were properly recognized in the financial records and are legitimate. It is an essential part of the auditing process to ensure the integrity of the financial statements.
As for M1 and M2 money supplies:
- Your $5,000 line of credit on your Bank of America card is considered neither because it represents potential borrowing, not actual money.
- The $50 dollars' worth of traveler's checks you have not used yet falls into M1, as traveler's checks are a component of this money supply measure.
- The $1 in quarters in your pocket is also part of M1 because it is physical currency.
- The $1200 in your checking account is part of M1 as it is part of the liquid assets that can be quickly converted to cash.
- The $2000 you have in a money market account is in M2, as this includes all of M1 plus savings deposits, small-denomination time deposits, and retail money market mutual fund shares.