Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

Which type of accounts are excluded from being classified as an asset for bonding?

1. Accounts receivable less than 30 days

2. Accounts receivable older than 60 days

3. Cash reserves

4. Certificates of deposit

The correct answer is: Accounts receivable older than 60 days

In the context of bonding, accounts receivable older than 60 days are typically excluded from being classified as an asset. This is primarily because bonds are often underwritten based on the reliability and immediacy of an asset's value. Accounts receivable that are more than 60 days old may carry a higher risk of not being collected, thus reducing their reliability as an asset. Aging accounts receivable can indicate potential collection issues; hence, underwriters would consider them less favorable in assessing the financial health of a business. For bonding purposes, it is important to demonstrate assets that can be quickly converted to cash or that have a high likelihood of collection, making older receivables less appealing. In contrast, accounts receivable that are less than 30 days old, cash reserves, and certificates of deposit are seen as more immediate and reliable forms of assets that can be leveraged for bonding purposes. These assets provide certainty regarding their value and availability, meeting the criteria for consideration in a bonding situation.