Theory of Accounts Cash and Cash Equivalents

Test bank in Theory of Accounts – Cash and cash equivalents 1. As contemplated in accounting, cash includes a. b. c. d.

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

2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be a. b. c. d.

Unrestricted in use for current operations Available for the purchase of property, plant and equipment Set aside for the liquidation of long-term debt Deposited in the bank

3. 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 with remaining maturity of three months d. Short-term and highly liquid marketable equity securities 4. 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 face value plus interest 5. If material, deposits in foreign bank which are subject to foreign exchange restriction should be classified a. b. c. d.

Separately Separately Be written As part of

as current asset, with appropriate disclosure as a non-current asset with appropriate disclosure off as an extraordinary loss cash and cash equivalents

6. Bank overdraft a. b. c. d.

Is a debit balance in a cash in bank account Is offset against demand deposit account in another bank Which cannot be offset is classified as a current liability Which cannot be offset is classified as non-current liability

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Test bank in Theory of Accounts – Cash and cash equivalents 7. 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 8. Unreleased checks a. Should be b. Should be c. Should be after the d. Should be encashed

treated as outstanding checks restores to the cash balance treated as outstanding checks if the date is shortly balance sheet treated as outstanding checks if they are ultimately

9. Which of the following should not be considered cash for financial reporting purposes? a. b. c. d.

Petty cash funds and change funds Money orders, certified checks and personal checks Coin, currency and available funds Post-dated checks and IOUs

10. Which of the following is usually considered cash? a. b. c. d.

Certificates of deposit Checking accounts Money market savings certificates Post-dated checks

11. 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 12. The petty cash 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 funds is increased d. When the fund is created and when the size of the funds is decreased

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Test bank in Theory of Accounts – Cash and cash equivalents

13. The internal control feature that is specific to petty cash is a. b. c. d.

Separation of duties Assignment of responsibility Proper authorization Imprest system

14. What is the major purpose of an imprest petty cash fund? a. b. c. d.

To To To To

effectively plan cash inflows and outflows ease the payment of cash to vendors determine the honesty of the petty cashier effectively control cash disbursements

15. 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 16. When a petty cash fund is sued, which of the following is true? a. The balance of 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 s 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 petty cash fund are made 17. In reimbursing the petty cash fund, which of the following is true? a. b. c. d.

Cash is debited Petty cash is debited Petty cash is credited Expense accounts are debited

18. A cash over and short account a. b. c. d.

In Is Is Is

not generally accepted debited when the petty cash fund proves out over debited when the petty cash fund proves out short a contra account to cash

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Test bank in Theory of Accounts – Cash and cash equivalents 19. 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 20. The following statements pertain account. Which statement is true?

to

the

cash

short

or

over

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 21. 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 22. 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

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Test bank in Theory of Accounts – Cash and cash equivalents 23. Which of the following must be deducted from the bank statement balance in preparing a bank reconciliation which ends with adjusted cash balance? a. b. c. d.

Deposit in transit Outstanding check Reduction of loan charged to the account of the depositor Certified check

24. 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. b. c. d.

Deposits credited by the bank but not yet recorded by the company Outstanding checks Deposits in transit Bank charges not yet recorded by the company

25. 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. b. c. d.

Deposits credited by the bank but not yet recorded by the company Outstanding checks Deposits in transit Bank charges not yet recorded by the company

26. Which books?

will

not

require

an

adjusting

entry

on

the

depositor’s

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. C. Deposit of another entity credited to the account of the depositor d. Bank service charge 27. 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

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Test bank in Theory of Accounts – Cash and cash equivalents

28. Which of the following statement is false? a. A certified check is a liability of b. A certified check will be accepted otherwise accept a personal check c. A certified check is one drawn by a d. A certified check should not be checks

the bank certifying it by many persons who would not bank upon itself included in the

outstanding

29. 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 30. 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 31. The following statements relate to cash. Which statements 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 32. Which is not considered as a cash equivalent? a. A three-year purchased by b. A three-year purchased by

treasury note the entity on treasury note the entity on

maturing on May 30 of the current year April 15 of the current year maturing on May 30 of the current year January 15 of the current year

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Test bank in Theory of Accounts – Cash and cash equivalents c. A 90-day T-bill d. A 6-day money market placement 33. 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 payable to a supplier dated December 31 of the current year 34. 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 35. 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 36. Which of the following can qualify as cash equivalents? a. Highly liquid investments that are acquired three months before maturity b. Highly liquid investments that are acquired three months after maturity c. Equity securities d. Redeemable preferred shares

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Test bank in Theory of Accounts – Cash and cash equivalents

37. Preferred shares can qualify as cash equivalent if Statement 1 – It has a specified redemption date Statement 2 – Acquired three months before redemption date a. b. c. d.

Statement 1 only Statement 2 only Both statements Preferred shares do not qualify as cash equivalent

38. Which of the following statements is false? a. Investments in time deposits, money market instruments and treasury bills are classified as cash equivalent if the term is three months or less b. Investments in time deposits, money market instruments and treasury bills are classified as cash equivalent if the term is more than three months but within the year c. Investments in time deposits, money market instruments and treasury bills are classified as long-term investments if the term is more than one year d. Investments in time deposits, money market instruments and treasury bills are classified as short-term investments if the term is more than three months but within the year 39. Which of the following statements is false? a. Undelivered or unreleased checks should be treated as outstanding checks b. Undelivered or unreleased checks should be restored to the cash balance c. Post-dated checks that are delivered should be restored to the cash balance d. Stale checks should be restored to the cash balance 40. Which of the following statements is false? a. Window dressing is a practice of closing the books of accounts at the end of the accounting period for a better financial position and performance b. Lapping consists of misappropriating a collection from one customer and concealing this defalcation when collection is made from another customer c. Kiting is a transfer of cash from one bank to another bank d. The imprest system required that all cash receipts should be deposited intact and all cash payments should be made by means of a check

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Test bank in Theory of Accounts – Cash and cash equivalents

41. Which of the following statements is (are) true regarding the imprest fund system? Statement 1 – Petty cash expenses are immediately recorded Statement 2 – The amount of replenishment is normally equal to the petty cash disbursements a. b. c. d.

Statement 1 only Statement 2 only Both statements None of the statements

42. Which of the following statements is (are) true regarding the fluctuating fund system? Statement 1 – Petty cash expenses are immediately recorded Statement 2 – The amount of replenishment is may be equal to, more or less than the petty cash disbursements a. b. c. d.

Statement 1 only Statement 2 only Both statements None of the statements

43. Which of the following items are not normally taken in the cash balance per ledger to arrive at the adjusted cash balance? a. b. c. d.

Bank error Bank service charge Unrecorded collections made by the bank in behalf of the entity Book error - END -

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