CASH AND CASH EQUIVALENT

Question 1

If material, deposits in foreign bank which are subject to foreign exchange restriction should be classified

a. Separately as current asset, with appropriate disclosure

b. Separately as a non-current asset with appropriate disclosure

c. Be written off as an extraordinary loss

d. As part of cash and cash equivalents

Answer 1

b. Separately as a non-current asset with appropriate disclosure

Question 2

A compensating balance

a. Must be included in cash and cash equivalent

b. Which is legally restricted and related to a long-term loan is classified as a current asset

c. Which is legally restricted and related to a short-term loan is classified separately as a current asset

d. Which is not legally restricted as to withdrawal is classified separately as current asset

Answer 2

c. Which is legally restricted and related to a short-term loan is classified separately as a current asset

Question 3

Which of the following should not be considered cash for financial reporting purposes?

a. Petty cash funds and change funds

b. Money orders, certified checks and personal checks

c. Coin, currency and available funds

d. Post dated checks and lOUs

Answer 3

d. Post dated checks and lOUs

Question 4

Which item should be excluded from cash and cash equivalent on the current year-end balance sheet of an entity?

a. The minimum cash balance in the entity’s current account which is maintained to avoid service charges

b. A check issued by the entity on December 27 of the current year but dated January 15 of next year

c. Time deposit which matures in one year

d. A customer’s check denominated in a foreign currency

Answer 4

c. Time deposit which matures in one year

Question 5

As of December 31 of the current year, an entity had various checks and papers in its safe. Which item should not be in its cash account in the current year-end balance sheet?

a. US$ 20,000 cash

b. Past due promissory note issued in favor of the entity by its President

c. Another entity’s P150,000 check payable to the entity dated December 15 of the current year

d. The entity’s undelivered check pavable to a supplier dated December 31 of the current year

Answer 5

b. Past due promissory note issued in favor of the entity by its President

Question 6

Which is not considered as a cash equivalent?

a. A three-year treasury note maturing on May 30 of the current year purchased by the entity on April 15 of the current year

b. A three-year treasury note maturing on May 30 of the current year purchased by the entity on January 15 of the current year

c. A 90-day T-bill

d. A 6-day money market placement

Answer 6

b. A three-year treasury note maturing on May 30 of the current year purchased by the entity on January 15 of the current year

Question 7

The following statements relate to cash. Which statement is true?

a. The term cash equivalent refers to demand credit instruments such as money order and bank drafts

b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all normal operating expenses for a period of time

c. Classification of a restricted cash balance as current or noncurrent should parallel the classification of the related
obligation for which cash was restricted

d Compensating balance required by a bank should always be excluded from cash and cash equivalents

Answer 7

c. Classification of a restricted cash balance as current or noncurrent should parallel the classification of the related
obligation for which cash was restricted

Question 8

A proof of cash

a. Is a physical count of currencies on hand on balance sheet date

b. Is a formal statement showing that total cash receipts during the year

c. Is a four-column bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursements of the bank and the depositor during the current month

d. Is a summary of cash receipts and cash payments

Answer 8

c. Is a four-column bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursements of the bank and the depositor during the current month

Question 9

Which statement is true?

a. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank, all other things being equal

b. Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the bank, all other things being equal

c. An error made by the bank by charging an amount to the depositor’s account requires a correcting entry in the depositor’s own records

d. The cash amount shown in the balance sheet must be the balance reported in the bank statement

Answer 9

a. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank, all other things being equal

Question 10

Which will not require an adjusting entry on the depositor’s books?

a. NSF check from customer

b. Check in payment of account payable amounting to P50,000 is recorded by the depositor as P5,000

c. Deposit of another entity credited to the account of the depositor

d. Bank service charge

Answer 10

c. Deposit of another entity credited to the account of the depositor

Question 11

If the cash balance shown on a company’s accounting records is less than the correct cash balance and neither the company nor the bank has made any errors, there must be

a. Deposits credited by the bank but not yet recorded by the company

b. Outstanding checks

c. Deposits in transit

d. Bank charges not yet recorded by the company

Answer 11

a. Deposits credited by the bank but not yet recorded by the company

Question 12

If the balance shown on a company’s bank statement is less than the correct cash balance and neither the company nor the bank has made any errors, there must be

a. Deposits credited by the bank but not yet recorded by the company

b. Outstanding checks

c. Deposits in transit

d. Bank charges not yet recorded by the company

Answer 12

c. Deposits in transit

Question 13

Which of the following must be deducted from the bank statement balance in preparing a bank reconciliation which ends with adjusted cash balance?

a. Deposit in transit

b. Outstanding check

c. Reduction of loan charged to the account of the depositor

d. Certified check

Answer 13

b. Outstanding check

Question 14

Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with the adjusted cash balance?

a. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor

b. NSF customer check

c. Service charge

d. Erroneous bank debit

Answer 14

a. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor

Question 15

A bank reconciliation is

a. A formal financial statement that lists all of the bank account balances of an enterprise

b. A merger of two banks that previously where competitors

c. A statement send by the bank to depositor on a monthly basis

d. A schedule that accounts for the differences between an enterprise’s cash balance as shown on its bank statement and the cash balance shown in its general ledger

Answer 15

d. A schedule that accounts for the differences between an enterprise’s cash balance as shown on its bank statement and the cash balance shown in its general ledger

Question 16

The following statements pertain to the cash short or over account. Which statement is true?

a. It would be impossible to have cash shortage or overage if employees were paid in cash rather than by check

b. The entry to account for daily cash sales for which a small amount of cash shortage existed would include a debit
to cash short or over account

c. If the cash short or over account has a debit balance at the end of the period it must be debited to an expense account

d. A credit balance in a cash short or over account should be considered a liability because the short changed customer will demand return of this amount

Answer 16

b. The entry to account for daily cash sales for which a small amount of cash shortage existed would include a debit
to cash short or over account

Question 17

The following statements pertain to accounting for petty cash fund. Which statement is false?

a. Each disbursement from petty cash should be supported by a petty cash voucher

b. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of the general cash account

c. At any time, the sum of cash in the petty cash fund and the total of petty cash vouchers should equal the amount for which the imprest petty cash fund was established

d. With the establishment of an imprest petty cash fund, one person is given the authority and responsibility for issuing checks to cover minor disbursements

Answer 17

d. With the establishment of an imprest petty cash fund, one person is given the authority and responsibility for issuing checks to cover minor disbursements

Question 18

A cash over and short account

a. Is not generally accepted

b. Is debited when the petty cash fund proves out over

c. Is debited when the petty cash fund proves out short

d. Is a contra account to cash

Answer 18

c. Is debited when the petty cash fund proves out short

Question 19

In reimbursing the petty cash fund, which of the following is true?

a. Cash is debited

b. Petty cash is debited

c. Petty cash is credited

d. Expense accounts are debited

Answer 19

d. Expense accounts are debited

Question 20

The internal control feature that is specific to petty cash is

a. Separation of duties

b. Assignment of responsibility

c. Proper authorization

d. Imprest system

Answer 20

d. Imprest system

Question 21

Unreleased checks

a. Should be treated as outstanding checks

b. Should be restored to the cash balance

c. Should be treated as outstanding checks if the date is shortly after the balance sheet

d Should he treated as outstanding checks if they are ultimately encashed

Answer 21

b. Should be restored to the cash balance

Question 22

Bank overdraft

a. Is a debit balance in a cash in bank account

b. Is offset against demand deposit account in another bank

c. Which cannot be offset is classified as a current liability

d. Which cannot be offset is classified as non-current liability

Answer 22

c. Which cannot be offset is classified as a current liability

Question 23

At December 31 of the current year, an entity had cash accounts at three different banks. One account balance is segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in the December 31 classified balance sheet?

a. The segregated account should be reported as a non-current asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability

b. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability

c. The segregated account should be reported as a non-current asset and the regular account should be reported as a current asset net of the overdraft

d. The segregated and regular accounts should be reported as current assets net of the overdraft

Answer 23

a. The segregated account should be reported as a non-current asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability

Question 24

Which is false concerning measurement of cash and cash equivalents?

a. Cash is measured at face value

b. Cash in foreign currency is measured at the current exchange rate

c. If a bank or financial institution holding the funds of the company is in bankruptcy or financial difficulty, cash should be written down to estimated realizable value

d. Cash equivalents should be measured at maturity value meaning fair value plus interest

Answer 24

d. Cash equivalents should be measured at maturity value meaning fair value plus interest

Question 25

Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash

b. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months or more

c. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months or less

d. Short-term and highly liquid marketable equity securities

Answer 25

c. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months or less

Question 26

To be reported as “cash and cash equivalent”, the cash and cash equivalent must be

a. Unrestricted in use for current operations

b. Available for the purchase of property, plant and equipment

c. Set aside for the liquidation of long-term debt

d. Deposited in bank

Answer 26

a. Unrestricted in use for current operations

Question 27

As contemplated in accounting, cash includes

a. Money only

b. Money and any negotiable instrument

c. Any negotiable instrument

d. Money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit

Answer 27

d. Money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit