FAR THEORY - CASH AND CASH EQUIVALENTS

Question 1

Which of the below is not a factor influencing a business’s control environment?

a. proofs and security measurers
b. management’s philosophy and operating style
c. personnel policies
d. organizational structure

Answer 1

a. proofs and security measurers

Question 2

When a firm uses internal auditors, it is adhering to which one of the following internal control elements?
a. separating responsibilities for related operations
b. monitoring
c. risk assessment
d. proofs and security measures

Answer 2

b. monitoring

Question 3

The objectives of internal control are to

a. prevent fraud, and promote the social interest of the company
b. control the internal organization of the accounting department personnel and equipment
c. provide control over “internal-use only” reports and employee internal conduct
d. provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with

Answer 3

d. provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with

Question 4

Which of the below reflects a weak internal control system?

a. all employees must take their vacations
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees are well supervised
d. a single employee is responsible for collecting and recording cash

Answer 4

d. a single employee is responsible for collecting and recording cash

Question 5

Internal control does not consist of policies and procedures that

a. aid management in directing operations toward achieving business goals
b. guarantee the company will not go bankrupt
c. ensure that business information is accurate
d. protect assets from misuse

Answer 5

b. guarantee the company will not go bankrupt

Question 6

A firm’s internal control environment is not influenced by

a. personnel policies
b. organizational structure
c. monitoring policies
d. management’s operating style

Answer 6

c. monitoring policies

Question 7

An element of internal control is

a. risk assessment
b. subsidiary ledgers
c. journals
d. controlling accounts

Answer 7

a. risk assessment

Question 8

A necessary element of internal control is

a. systems design
b. information and communication
c. systems analysis
d. database

Answer 8

b. information and communication

Question 9

In management’s internal control report that is now required of all public companies, which of the
following does not directly affect a company’s internal control system.

a. Board of Director’s audit committee
b. Board of trustees
c. independent accountants
d. internal auditors

Answer 9

b. Board of trustees

Question 10

Which of the following should not be considered cash by an accountant?

a. money orders
b. bank checking accounts
c. postage stamps
d. travelers’ checks

Answer 10

c. postage stamps

Question 11

The cash account in the depositor’s ledger is a(n)
a. an asset with a debit balance c. an asset with a credit balance
b. liability with a credit balance d. liability with a debit balance

Answer 11

a. an asset with a debit balance

Question 12

The notification accompanying a check that indicates the specific invoice being paid is called a

a. credit memorandum
b. remittance advice
c. debit memorandum
d. voucher

Answer 12

b. remittance advice

Question 13

An example of a preventive control is

a. bonding employees who handle cash
b. the use of a bank account
c. separation of the Purchasing Department and Accounting Department personnel
d. accepting payment in currency only

Answer 13

c. separation of the Purchasing Department and Accounting Department personnel

Question 14

Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called

a. detective controls
b. preventive controls
c. cash controls
d. accounting controls

Answer 14

b. preventive controls

Question 15

A special form on which is recorded pertinent data about liability and the particulars of its payment is called a(n)

a. debit memorandum
b. invoice
c. voucher
d. remittance advice

Answer 15

c. voucher

Question 16

EFT

a. means Effective Funds Transfer
b. makes it easier to document purchase and sale transactions
c. means Efficient Funds Transfer
d. can process certain cash transactions at
less cost than by using the mail

Answer 16

d. can process certain cash transactions at less cost than by using the mail

Question 17

A voucher

a. is received from customers to explain the purpose of a payment

b. the system is an internal control procedure to verify that the assets in the ledger are
the ones the company owns

c. is normally prepared in the Accounting Department

d. the system is used to control cash receipts

Answer 17

c. is normally prepared in the Accounting Department

Question 18

A voucher is usually supported by

a. a supplier’s invoice
b. a purchase order
c. a receiving report
d. all of the above

Answer 18

d. all of the above

Question 19

Under the voucher system, every transaction is recorded at the time of

a. requisitioning
b. ordering
c. paying
d. incurring

Answer 19

d. incurring

Question 20

The reconciliation of the cash register tape with the cash in the register is an example of

a. segregation of duties.
b. establishment of responsibility.
c. independent internal verification.
d. other controls.

Answer 20

c. independent internal verification.

Question 21

Which of the following is not an internal control activity for cash?

a. The functions of record keeping and maintaining custody of cash should be
combined.

b. Surprise audits of cash on hand should be made occasionally.

c. All cash receipts should be recorded promptly.

d. The number of persons who have access to cash should be limited.

Answer 21

a. The functions of record keeping and maintaining custody of cash should be
combined.

Question 22

The term cash includes

a. money orders, and money on deposit that is available for unrestricted withdrawal

b. coins, currency (paper money), checks

c. short-term receivables

d. a and b

Answer 22

b. coins, currency (paper money), checks

Question 23

On the bank’s accounting records, customers’ accounts are normally shown as

a. debit balances
b. a liability
c. expenses
d. an asset

Answer 23

b. a liability

Question 24

Credit memorandums from the bank

a. are used to show a bank service charge
b. decrease a bank customer’s account
c. show the bank has collected a note receivable for the customer
d. show that a company has deposited a customer’s NSF check

Answer 24

c. show the bank has collected a note receivable for the customer

Question 25

A bank statement

a. does the depositor’s bank write a credit reference letter?

b. is a bill from the bank for services rendered.

c. lets a depositor know the bank’s financial position as of a certain date.

d. shows the activity that increased or decreased the depositor’s account balance.

Answer 25

d. shows the activity that increased or decreased the depositor’s account balance.

Question 26

Which one of the following would not cause a bank to debit a depositor’s account?

a. Collection of a note receivable
b. Wiring of funds to other locations
c. Checks marked NSF
d. Bank service charge

Answer 26

a. Collection of a note receivable

Question 27

There are three parties to a check. The drawer is

a. a written document signed by the depositor

b. the bank on which the check is drawn

c. the party to whom payment is to be made

d. is the one who signs the check ordering payment by the bank

Answer 27

d. is the one who signs the check ordering payment by the bank

Question 28

A debit or credit memorandum describing entries in the depositor’s bank account may be enclosed with the bank statement. An example of a credit memorandum is

a. notification that the depositor recorded a customer’s check for P375 as P735 on the deposit ticket

b. deposited checks returned for insufficient funds

c. a promissory note left for collection

d. a service charge

Answer 28

c. a promissory note left for collection

Question 29

Following the completion of the bank reconciliation, an adjusting entry was made that debited cash and credited Interest Revenue. Therefore the bank reconciliation must have included an item that was

a. deducted from the balance per depositor’s records

b. added to the balance per bank statement

c. added to the balance per depositor’s records

d. deducted from the balance per bank statement

Answer 29

c. added to the balance per depositor’s records

Question 30

A person authorized to write checks drawn on a checking account at a bank must sign and have on file with the bank a

a. signature card
b. bank card
c. deposit ticket
d. checkbook

Answer 30

a. signature card

Question 31

A check drawn by a depositor for P180 in payment of liability was recorded in the journal as P810. What entry is required in the depositor’s accounts?

a. debit Cash; credit Accounts Receivable
b. debit Accounts Payable; credit Cash
c. debit Accounts Receivable; credit Cash
d. debit Cash; credit Accounts Payable

Answer 31

d. debit Cash; credit Accounts Payable

Question 32

A bank reconciliation should be prepared periodically because

a. the bank has not recorded all of its transactions

b. any differences between the depositor’s records and the bank’s records should be
determined, and any errors made by either party should be discovered and corrected

c. the bank must make sure that its records are correct

d. the depositor’s records and the bank’s records are in agreement

Answer 32

b. any differences between the depositor’s records and the bank’s records should be
determined, and any errors made by either party should be discovered and corrected

Question 33

The bank reconciliation

a. should be prepared by an employee who records cash transactions

b. is sent to the bank for verification

c. is for information purposes only

d. is part of the internal control system

Answer 33

d. is part of the internal control system

Question 34

Journal entries based on the bank reconciliation are required in the depositor’s accounts for

a. book errors
b. deposits in transit
c. outstanding checks
d. bank errors

Answer 34

a. book errors

Question 35

Accompanying the bank statement was a debit memorandum for bank service charges. On the bank reconciliation, the item is

a. an addition to the balance per bank statement

b. a deduction from the balance per bank statement

c. an addition to the balance per depositor’s records

d. a deduction from the balance per depositor’s records

Answer 35

d. a deduction from the balance per depositor’s records

Question 36

Accompanying the bank statement was a debit memorandum for bank service charges. What entry is required in the depositor’s accounts?

a. debit Cash; credit Other Income

b. debit Miscellaneous Administrative Expense; credit Cash

c. debit Accounts Payable; credit Cash

d. debit Cash; credit Accounts Payable

Answer 36

b. debit Miscellaneous Administrative Expense; credit Cas

Question 37

A check drawn by a depositor to pay a voucher for P725 was recorded in the journal as P257. This item would be included in the bank reconciliation as a(n)

a. deduction from the balance per the depositor’s records

b. addition to the balance per the depositor’s record

c. deduction from the balance per the bank statement

d. addition to the balance per the bank statement

Answer 37

a. deduction from the balance per the depositor’s records

Question 38

A check drawn by a depositor to pay a voucher for P725 was recorded in the journal as P257. What entry is required in the depositor’s accounts?

a. debit Cash; credit Accounts Payable
b. debit Cash; credit Accounts Receivable
c. debit Accounts Receivable; credit Cash
d. debit Accounts Payable; credit Cash

Answer 38

d. debit Accounts Payable; credit Cash

Question 39

Receipts from cash sales of P9,500 were recorded incorrectly in the cash receipts journal as P5,900. This item would be included on the bank reconciliation as a(n)

a. addition to the balance per depositor’s records

b. deduction from the balance per depositor’s
records

c. addition to the balance per bank statement

d. deduction from the balance per bank
statement

Answer 39

a. addition to the balance per depositor’s records

Question 40

Receipts from cash sales of P9,500 were recorded incorrectly in the cash receipts journal as P5,900. What entry is required in the depositor’s accounts?

a. debit Cash; credit Accounts Receivable
c. debit Sales; credit Cash
b. debit Accounts Receivable; credit Cash
d. debit Cash; credit Sales

Answer 40

d. debit Cash; credit Sales

Question 41

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor. This item is a(n)

a. addition to the balance per bank statement

b. addition to the balance per depositor’s records

c. deduction from the balance per depositor’s records

d. deduction from the balance per bank statement

Answer 41

b. addition to the balance per depositor’s records

Question 42

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What entry is required in the depositor’s accounts?

a. debit Cash; credit Notes Receivable
b. debit Cash; credit Miscellaneous Income
c. debit Notes Receivable; credit Cash
d. debit Accounts Receivable; credit Cash

Answer 42

a. debit Cash; credit Notes Receivable

Question 43

The amount of deposits in transit is included on the bank statement as a(n)

a. addition to the balance per depositor books

b. deduction from the balance per bank statement

c. deduction from the balance per the depositor’s books

d. addition to the balance per bank statement

Answer 43

d. addition to the balance per bank statement

Question 44

The amount of the outstanding checks are included on the bank reconciliation as a(n)

a. deduction from the balance per bank statement

b. addition to the balance per depositor’s records

c. addition to the balance per bank statement

d. deduction from the balance per depositor’s records

Answer 44

a. deduction from the balance per bank statement

Question 45

Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?

a. bank service charges
b. A check for P520 is recorded in the check register for P250.
c. NSF checks
d. deposits in transit

Answer 45

d. deposits in transit

Question 46

What entry is required in the depositor’s accounts to record outstanding checks?

a. debit Cash; credit Accounts Receivable
b. debit Cash; credit Accounts Payable
c. debit Accounts Receivable; credit Cash
d. none

Answer 46

d. none

Question 47

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)

a. deduction from the balance per bank statement

b. addition to the balance per depositor’s records

c. addition to the balance per bank statement

d. deduction from the balance per depositor’s records

Answer 47

d. deduction from the balance per depositor’s records

Question 48

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. What entry is required in the depositor’s accounts?

a. debit Cash; credit Accounts Receivable
b. debit Cash; credit Other Income
c. debit Accounts Receivable; credit Cash
d. debit Other Income; credit Cash

Answer 48

c. debit Accounts Receivable; credit Cash

Question 49

During the month, a company was informed that a check they had issued was accidentally destroyed. On the bank reconciliation, the company would

a. Add the amount to the balance per the bank statement

b. deduct the amount from the balance per the bank statement

c. Add the amount to the balance per the depositor’s records

d. deduct the amount from the balance per the depositor’s records

Answer 49

c. Add the amount to the balance per the depositor’s records

Question 50

The amount of cash to be reported on the balance sheet on June 30 is the

a. total of the cash column in the cash receipts journal as of June 30

b. adjusted balance appearing in the bank reconciliation for June 30

c. total of the cash column in the cash payments journal as of June 30

d. balance as of June 30 on the bank statement

Answer 50

b. adjusted balance appearing in the bank reconciliation for June 30

Question 51

Which of the following would be deducted from the balance per book on a bank reconciliation?

a. Service charges
b. Deposits in transit
c. Outstanding checks
d. Notes collected by the bank

Answer 51

a. Service charges

Question 52

Which of the following would be added to the balance per book on a bank reconciliation?

a. Outstanding checks
b. Notes collected by the bank
c. Service charges
d. Deposits in transit

Answer 52

b. Notes collected by the bank

Question 53

Which of the following would be subtracted from the balance per bank on a bank reconciliation?

a. Outstanding checks
b. Service charges
c. Deposits in transit
d. Notes collected by the bank

Answer 53

a. Outstanding checks

Question 54

A bank reconciliation should be prepared

a. by the person who is authorized to sign checks.

b. when an employee is suspected of fraud.

c. to explain any difference between the depositor’s balance per book with the
balance per bank.

d. whenever the bank refuses to lend the company money.

Answer 54

c. to explain any difference between the depositor’s balance per book with the
balance per bank.

Question 55

A P100 petty cash fund has cash of P18 and receipts of P80. The journal entry to replenish the account would include a

a. credit to Petty Cash for P84. b. debit to Cash for P80.
c. credit to Cash for P80
d. debit to Cash Over and Short for P2.

Answer 55

d. debit to Cash Over and Short for P2.

Question 56

A P100 petty cash fund has cash of P16 and receipts of P86. The journal entry to replenish the account would include a

a. credit to Cash for P80
b. credit to Cash Over and Short for P2.
c. debit to Cash for P86.
d. credit to Petty Cash for P86.

Answer 56

b. credit to Cash Over and Short for P2.

Question 57

Entries are made to the Petty Cash account when

a. establishing the fund.
b. making payments out of the fund.
c. recording shortages in the fund.
d. replenishing the petty cash fund.

Answer 57

a. establishing the fund.

Question 58

The type of account and normal balance of Petty Cash is a(n)

a. expense, debit
b. revenue, credit
c. asset, debit
d. liability, credit

Answer 58

c. asset, debit

Question 59

The debit recorded in the journal to reimburse the petty cash fund is to

a. Petty Cash
b. Accounts Receivable
c. various accounts for which the petty cash was disbursed
d. Cash

Answer 59

c. various accounts for which the petty cash was disbursed

Question 59

A P100 petty cash fund contains P92 in petty cash receipts and P6.50 in currency and coins. The journal entry to record the replenishment of the fund would include a

a. credit to Petty Cash for P93.50
b. credit to Cash for P92
c. credit to Cash Short and Over for P1.50
d. debit to Cash Short and Over for P1.50

Answer 59

d. debit to Cash Short and Over for P1.50

Question 60

A P100 petty cash fund has cash of P16 and receipts of P80. The journal entry to replenish the account would include a credit to

a. Cash for P84.
b. Cash for P80.
c. Petty Cash for P84..
d. Cash Over and Short for P4.

Answer 60

a. Cash for P84.

Question 61

Cash equivalents include

a. checks
b. stocks and short-term bonds
c. money market accounts and commercial paper
d. coins and currency

Answer 61

c. money market accounts and commercial paper

Question 62

Cash equivalents

a. will be converted to cash within 90 days
b. will be converted to cash within two years
c. are illegal in some states
d. will be converted to cash within 120 days

Answer 62

a. will be converted to cash within 90 days

Question 63

A minimum cash balance required by a bank is called

a. cash in bank
b. cash equivalents
c. EFT
d. compensating balance

Answer 63

d. compensating balance

Question 64

During a bank reconciliation process,

a. Outstanding checks and deposits in transit are
subtracted from the bank statement balance.

b. Outstanding checks are added, and deposits in transit are subtracted from the bank statement balance.

c. Outstanding checks and deposits in transit are added to the bank statement balance.

d. Outstanding checks are subtracted, and deposits in transit are added to the bank
statement balance.

Answer 64

d. Outstanding checks are subtracted, and deposits in transit are added to the bank
statement balance.

Question 65

In a normal business operation, you receive a check from a customer and deposit it into your checking account. With your bank statement, you are advised that this check for P450 is “NSF.” The bank also informs you that due to the amount of activity on your business account, the monthly service charge is P40. During a bank reconciliation:

a. add both values from the balance according to a bank.

b. subtract both values from balance according to books.

c. subtract both values from the balance according to a bank.

d. add both values from balance according to books.

Answer 65

b. subtract both values from balance according to books.

Question 66

Which of the following would not be included with the Cash and Equivalents on the Balance Sheet?

a. Short-Term Receivables
b. Certificates of Deposit
c. Municipal Securities
e. Commercial Paper
d. Money Market Mutual Funds

Answer 66

a. Short-Term Receivables