Cash and Cash Equivalents Flashcards by Vanessa Mae Malonzo

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

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

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

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidations of long-term debt
d. Deposited in bank

a.Unrestricted in use for current operations

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The amount reported as “Cash” on a company’s balance sheet normally should exclude

a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.

a. postdated checks that are payable to the company.

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Which of the following is usually considered cash?

a. Certificates of deposit
b. Checking accounts
c. Money market savings certificates
d. Postdated checks

b.Checking accounts

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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. Postdated checks and IOUs

d.Postdated checks and IOUs

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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
c. short-term and highly liquid investments that are readily convertible into cash and acquired three months before maturity
d. short-term and highly liquid marketable equity securities

c.short-term and highly liquid investments that are readily convertible into cash and acquired three months before maturity

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If the end of the reporting period is December 31, 2008, which of the following cannot qualify as cash equivalent

a. Three month BSP Treasury bill due March 15, 2009.
b. Six month BSP Treasury note due March 15, 2009
c. Three year BSP Treasury note purchased on December 31, 2008 and due March 15, 2009.
d. One-month money market placement.

b.Six month BSP Treasury note due March 15, 2009

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Which is false concerning valuation of cash and cash equivalents?

a. Cash is valued at face value
b. Cash in foreign currency is valued 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 valued at maturity, meaning face value plus interest

d.Cash equivalents should be valued at maturity, meaning face value plus interest

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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 noncurrent asset with appropriate disclosure
c. be written off as an extraordinary loss
d. as part of cash and cash equivalents

b.separately as noncurrent asset with appropriate disclosure

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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 current liability
d. Which cannot be offset is classified as noncurrent liability

c.Which cannot be offset is classified as current liability

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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 current asset.
c. Which is legally restricted and related to a short-term loan is classified separately as current asset.
d. Which is not legally restricted as to withdrawal is classified separately as current asset

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

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Which means “that the check has been merely drawn and recorded but not given to the payee at the end of the reporting period”?

a. Undelivered check
b. Postdated check delivered
c. Stale check
d. Outstanding check

a.Undelivered check

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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

d. Imprest system

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Petty cash fund is

a. separately classified as current asset.
b. money kept on hand for making minor disbursements of coin and currency rather than by writing checks.
c. set aside for the payment of payroll.
d. restricted cash.

b.money kept on hand for making minor disbursements of coin and currency rather than by writing checks.

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What is the major purpose of an imprest petty cash fund?

a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the petty cashier
d. To effectively control cash disbursements

d.To effectively control cash disbursements

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The petty cash fund account under the imprest fund system is debited

a. only when the fund is created
b. when the fund is created and every time it is replenished
c. when the fund is created and when the size of the fund is increased
d. when the fund is created and when the fund is decreased

c.when the fund is created and when the size of the fund is increased

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What happens when a petty cash is in use?

a. Expenses paid with petty cash are recorded when the fund is replenished.
b. Most small amounts are paid from cash receipts before they are deposited.
c. Petty cash is debited when the fund is replenished.
d. Petty cash is credited when the fund is replenished.

a.Expenses paid with petty cash are recorded when the fund is replenished.

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When a petty cash fund is used, which of the following is true?

a. The balance of the petty cash fund should be reported on the balance sheet as a long-term investment.
b. The petty cashier’s summary of petty cash payments serves as a journal entry that is posted to the appropriate general ledger account.
c. The reimbursement of the petty cash fund should be credited to the cash account.
d. Entries that include a credit to the cash account should be recorded at the time the payments from the patty cash fund are made.

c.The reimbursement of the petty cash fund should be credited to the cash account.

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

a. cash is debited
b. petty cash is credited
c. petty cash is debited
d. expense accounts are debited

d. expense accounts are debited

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If petty cashier pays P200 for a transportation out of an imprest petty cash, the journal entry should include

a. Credit to cash for P200
b. Credit to petty cash for P200
c. Debit to transportation and credit for petty cash for P200
d. No journal entry is made

d.No journal entry is made

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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 the 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 am imprest petty cash fund, one person is given authority and responsibility for issuing checks to cover minor disbursements.

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

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The following pertains to 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.

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.

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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 were competitors.
c. A statement sent by the bank to depositor on a monthly basis.
d. A schedule that accounts for the difference between an enterprise’s cash balance as shown on its bank statement and the cash balance shown in its general ledger.

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

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

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

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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

b. outstanding check

In preparing a bank reconciliation, interest paid by the bank on the account is a. Added to the bank balance b. Subtracted from the bank balance c. Added to the book balance d. Subtracted from the bank balance

c. Added to the book balance

In preparing a monthly bank reconciliation, which of the following items would be added to the balance per bank statement to arrive at the correct cash balance? a. Outstanding checks b. Bank service charge c. Deposits in transit d. A customer’s note collected by the bank on behalf of the depositor

c.Deposits in transit

Which of the following statements is false? a. A certified check is a liability of the bank certifying it. b. A certified check will be accepted by many persons who would not otherwise accept a personal check. c. A certified check is one drawn by a bank upon itself. d. A certified check should not be included in the outstanding checks.

c.A certified check is one drawn by a bank upon itself

Bank statements provide information about all of the following except a. Checks cleared during the period b. NSF checks c. Bank charges for the period d. Errors made by the depositor

d. Errors made by the depositor

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 book b. outstanding checks c. deposit in transit d. bank charges not yet recorded by the company

c.deposit in transit

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 book b. outstanding checks c. deposit in transit d. bank charges not yet recorded by the company

a.deposits credited by the bank but not yet recorded by the book

If the balance shown on a company's bank statement is more 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. bank charges not yet recorded by the company. d. deposits in transit.

b. outstanding checks.

If the cash balance shown in a company's accounting records is more 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. deposits in transit. c. outstanding checks. d. bank charges not yet recorded by the company.

d. bank charges not yet recorded by the company.

What is the adjusting entry for a customer NSF check? a. debit cash and credit accounts receivable b. debit accounts receivable and credit cash c. debit service charge and credit cash d. no adjustment is necessary

b. debit accounts receivable and credit cash

Which will not require an adjusting entry on the depositor’s books? a. Collection from customer deposited in the amount of P100,000 but recorded by the depositor only as P10,000. b. Check in payment of account payable amounting to P50,000 is recorded by the depositor as P5,000. c. Deposit of another company is credited to the account of our enterprise. d. Bank service charge

c.Deposit of another company is credited to the account of our enterprise.

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor’s records and to identify bank errors. Adjustments on the part of the depositor should be recorded for a. Bank errors, outstanding checks and deposits in transit. b. All items except bank errors, outstanding checks and deposits in transit. c. Bank errors, bank errors, outstanding checks and deposits in transit. d. Outstanding checks and deposits in transit.

b.All items except bank errors, outstanding checks and deposits in transit.

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 a 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.

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.

A proof of cash a. Is a physical count of currencies on hand on balance sheet date. b. Is a formal statement showing the total cash receipts during the year. c. Is a four-column 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 disbursements of the bank and the depositor during the current month. d. Is a summary of cash receipts and payments.

c.Is a four-column 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 disbursements of the bank and the depositor during the current month.

A proof of cash would be useful for a. Discovering cash receipts that have not been recorded in the journal. b. Discovering time lag in making deposits. c. Discovering cash receipts that have been recorded but have not been deposited. d. Discovering an inadequate separation of incompatible duties of employees.

c.Discovering cash receipts that have been recorded but have not been deposited.

When preparing a four-column bank reconciliation to correct amounts for the month of November a. deposits in transit at October 31 are added to the October 31 bank balance and to the November 30 bank balance. b. outstanding checks at November 30 are added to the November bank disbursements and deducted from the November bank balance. c. an NSF check is deducted from November book receipts and from the November 30 book balance. d. bank service charge at October 31 are deducted from the October 31 book balance and added to November book disbursements.

b.outstanding checks at November 30 are added to the November bank disbursements and deducted from the November bank balance.

Which of the following is considered cash? a. certificate of deposit (CDs) b. money market checking accounts c. money market savings certificates d. postdated checks

b.money market checking accounts

Travel advances should be reported as a. supplies b. cash equivalents c. investments d. receivables

d. receivables

Certificates of deposit and money market savings certificates are examples of time deposits.

False

Demand deposits would include amounts in checking, savings, and money market depositaccounts.

False

Deposits in foreign banks are always reported as receivables.

False

A cash overdraft should be reported as a current liability.

True

Compensating balance requirements as a result of short-term financing arrangements are reported separately in the investment section of the balance sheet.

True

When an imprest petty cash fund fails to balance, an adjustment is made to a miscellaneous expense or revenue account, often called "Cash Over and Short."

True

A bank reconciliation should be prepared by the individual responsible for cash receipts and disbursements.

False

In a bank reconciliation statement, the amount of a not-sufficient-funds check must be added to the depositor's cash balance in determining the correct cash balance.

False

In a bank reconciliation statement, an outstanding check must be subtracted from the bank statement balance in determining the correct cash balance.

True

The term "internal control" includes only accounting controls.

False

Which of the following is not 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. Postdated checks and I.O.U.'s

d. Postdated checks and I.O.U.'s

Which of the following is considered cash? a. Certificates of deposit (CDs) b. Money market checking accounts c. Money market savings certificates d. Postdated checks

b. Money market checking accounts

Travel advances should be reported as a. supplies. b. cash because they represent the equivalent of money. c. investments. d. none of these.

d. none of these

Which of the following items should not be included in the Cash caption on the balance sheet? a. Coins and currency in the cash register b. Checks from other parties presently in the cash register c. Amounts on deposit in checking account at the bank d. Postage stamps on hand

d. Postage stamps on hand

All of the following may be included under the heading of "cash" except a. currency. b. money market funds. c. checking account balance. d. savings account balance.

b. money market funds.

In which account are post-dated checks received classified? a. Receivables b. Prepaid expenses. c. Cash. d. Payables.

a. Receivables

In which account are postage stamps classified? a. Cash. b. Office supplies. c. Receivables. d. Inventory.

b. Office supplies

What is a compensating balance? a. Savings account balances. b. Margin accounts held with brokers. c. Temporary investments serving as collateral for outstanding loans. d. Minimum deposits required to be maintained in connection with a borrowing arrangement.

d. Minimum deposits required to be maintained in connection with a borrowing arrangement.

Under which section of the balance sheet is "cash restricted for plant expansion" reported? a. Current assets. b. Non-current assets. c. Current liabilities. d. Stockholders' equity.

b. Non-current assets.

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and a. is acceptable as a means to pay current liabilities. b. has a current market value that is greater than its original cost c. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation. d. is so near its maturity that it presents insignificant risk of changes in interest rates.

d. is so near its maturity that it presents insignificant risk of changes in interest rates.

Bank overdrafts, if material, should be a. reported as a deduction from the current asset section. b. reported as a deduction from cash. c. netted against cash and a net cash amount reported. d. reported as a current liability.

d. reported as a current liability

Deposits held as compensating balances a. usually do not earn interest. b. if legally restricted and held against short-term credit may be included as cash. c. if legally restricted and held against long-term credit may be included among current assets. d. none of these.

d.none of this