CASH AND CASH EQUIVALENTS

Question 1

Cash and cash equivalents on the balance sheet may include the following items
I. Currency or cash items on hand
II. Deposits in foreign countries which are subject to foreign exchange restrictions
III. Short-term placements of excess cash which can be pre-terminated
IV. Postdated checks
V. Cash set aside for the acquisition or construction of noncurrent assets
a. 1, 2 and 3 only c. 1 and 3 only
b. 2, 3 and 5 only d. Not given

Question 2

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

Question 3

All of the following can be classified as cash and cash equivalents, except
a. Bank drafts
b. Equity investments
c. Loan notes held due for repayment in 90 days
d. Redeemable preference shares acquired and due in 60 days

Question 4

Which of the following items should not be included in “cash”?
a. Coins and currency in the cash register
b. Amounts on deposit in checking account at the bank
c. Checks from other parties presently in the cash register
d. Money market placement

Question 5

Which of the following is not considered cash for financial reporting purposes?
a. Bank charges for the period c. Petty cash funds and change funds
b. Errors made by the company d. Postdated checks and IOUs

Question 6

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

Question 7

If the deposit is legally restricted as to withdrawal, the compensating balance related to a long-term loan is shown as
a. Cash c. Long-term investment
b. Other asset d. Current liability

Question 8

Bank overdraft, 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

Question 9

If a financial institution has cash funds in a company, which is in bankruptcy, and the amount recoverable is estimated to be lower than the face amount, cash should be
a. Eliminated from the balance sheet
b. Written down to its discounted or present value
c. Written down to estimated realizable value
d. Stated at face amount

Question 10

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 non-current should parallel the classification of the related obligation for which the cash was restricted
d. Compensating balances required by a bank should always be excluded from “cash and cash equivalent”

Question 11

Which of the following is not a basic characteristic of a system of cash control?
a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals

Question 12

All cash receipts are deposited intact and all cash disbursements are made by means of check. This internal control is known as
a. Administrative control c. Accounting control
b. Imprest system d. Auditing control

Question 13

Entries to record the replenishment of petty cash fund result in a debit to various expense accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
a. Imprest petty cash system c. Internal control
b. Fluctuating petty cash system d. Administrative control

Question 14

What is the major purpose of an imprest petty cash fund?
a. To effectively plan cash inflows and outflows c. To determine the honesty of the employees
b. To ease the payment of cash to vendors d. To effectively control cash disbursements

Question 15

A cash over or 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

Question 16

Which is true when a petty cash fund is used?
a. The petty cash fund balance should be reported as investment
b. The reimbursement/replenishment of the petty cash fund should be debited to expenses and credited to the cash account
c. The petty cashier’s summary of petty cash payments serves as a journal entry that is posted to the appropriate general ledger account
d. Entries that include a credit to the cash account should be recorded at the time payments from the petty cash fund are made

Question 17

The following statements relate to the petty cash fund. Which statement is true?
a. The amount of coins and currency in the petty cash fund is the same before the fund is reimbursed as it is afterwards
b. Entries to record the replenishment of the imprest petty cash fund result in debit to various expense accounts and a credit to the petty cash funds
c. At any time, the sum of the cash in the petty cash fund and the total petty cash vouchers should equal the amount for which the imprest petty cash fund was established
d. Under the imprest petty cash system, it is not necessary to adjust unreplenished petty cash expenses at end of the year

Question 18

A bank reconciliation is prepared monthly in order for the enterprise to
a. Arrive at the correct cash balance c. Correct book errors
b. Correct bank errors d. Unearth any undetected cash fraud

Question 19

Bank reconciliation
a. Is the process of transferring money in or out of a bank account
b. Requires that every transaction which will result in a cash payment be verified, approved and recorded before a bank check is prepared
c. Is an analysis that reflects the bank transactions made by a depositor
d. Explains the difference between the bank balance and the balance shown in the depositor’s records

Question 20

A bank statement provides information about all of the following, except
a. Bank charges for the period c. Errors made by the company
b. Check cleared during the period d. NSF checks

Question 21

When preparing a bank reconciliation, bank credits are
a. Added to the bank statement balance c. Added to the balance per book
b. Deducted from the bank statement balance d. Deducted from the balance per book

Question 22

For purposes of bank reconciliation, debit memos are
a. Added to the bank balance c. Deducted from the bank balance
b. Added to the book balance d. Deducted from the book balance

Question 23

Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with adjusted balance?
a. Note receivable collected by the bank in favor of the depositor and credited to the account of the depositor
b. NSF customer check
c. Service charge
d. Erroneous bank credit

Question 24

In the process of preparing a bank reconciliation
a. Outstanding checks should be added to the bank balance of cash
b. Outstanding checks should be subtracted from the book balance of cash
c. All of the reconciling items shown on a bank reconciliation must be entered in the accounting records after the reconciliation is completed
d. Items that appear on the reconciliation as corrections to the book balance of cash should be entered in the accounting records

Question 25

The reconciling item in bank reconciliation that will result in an adjusting entry by the depositor is
a. Outstanding checks c. Bank error
b. Deposit in transit d. Bank service charges

Question 26

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

Question 27

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

Question 28

In reconciling the bank balance with the book cash balance, which of the following would not cause the bank balance shown in the bank statement to be lower than the unadjusted book balance?
a. Deposits in transit
b. Cash on hand at the company
c. Interest credited to the account by the bank
d. NSF checks from a customer as reported on the bank statement

Question 29

If the cash balance in 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. Bank charges not yet recorded by the company
d. Deposits in transit

Question 30

If the cash balance in 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

Question 31

A proof of cash
a. Is a physical count of currencies on hand at the end of reporting period
b. Is a formal statement showing the 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 disbursement of the bank and the depositor during the current month
d. Is a summary of cash receipts and cash payments