CASH & CASH EQUIVALENTS

Question 1

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

Answer 1

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

Question 2

Which is false concerning measurement of cash & 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.

Answer 2

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

Question 3

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.

Answer 3

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

Question 4

Which is considered cash?
a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. PDC

Answer 4

b. Checking account

Question 5

Unreleased checks (check drawn before the end of reporting period but held for later
delivery to creditors)
a. Shall be treated as outstanding checks.
b. Shall be restored to the cash balance.
c. Shall be treated as outstanding checks if the date is shortly after the end of reporting
period.
d. Shall be treated as outstanding checks if they are ultimately encashed.

Answer 5

b. Shall be restored to the cash balance.

Question 6

Which item should be excluded from cash and cash equivalents in the current year-end
statement of financial position?
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 dominated in a foreign in a foreign currency.

Answer 6

c. Time deposit which matures in one year.

Question 7

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.

Answer 7

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

Question 8

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.

Answer 8

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

Question 9

Which of the following statements is not true?
a. Adjustment of the petty cash account is made at the end of the period to avoid
understatement of expenses and overstatement of cash.
b. Entries are made to the petty cash account to increase or decrease the size of the
fund or to adjust the balance if not replenished at year-end.
c. The imprest petty cash system in effect adheres to the rule of disbursements by
check.
d. The petty cash account is debited when the fund is replenished.

Answer 9

d. The petty cash account is debited when the fund is replenished.

Question 10

A cash short and over account is
a. A contra account to cash.
b. Debited when the petty cash fund proves out over.
c. Debited when the petty cash fund proves out short.
d. Not generally accepted.

Answer 10

c. Debited when the petty cash fund proves out short.

Question 11

Balance sheet date is December 31, 2019. Which of the following is not a cash
equivalent?
a. 12-month BSP treasury note due February 15, 2020 (date of purchase:
November 30, 2019)
b. 6-month BSP treasury note due January 15, 2020 (date of purchase:
October 1, 2019)
c. 3-month BSP treasury bill due March 15, 2020 (date of purchase: December
31, 2019)
d. 1-month money market placement

Answer 11

b. 6-month BSP treasury note due January 15, 2020 (date of purchase:
October 1, 2019)

Question 12

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.

Answer 12

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

Question 13

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.

Answer 13

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

Question 14

Bank reconciliation 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. All items except bank errors, outstanding checks and deposits in transit.
b. Bank errors, outstanding checks and deposits in transit.
c. Book errors, bank errors, deposits in transit and outstanding checks.
d. Outstanding checks and deposits in transit.

Answer 14

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

Question 15

In preparing a bank reconciliation, interest paid by the bank on the depositor’s account
is
a. added to the bank balance.
b. added to the book balance.
c. subtracted from the bank balance.
d. subtracted from the book balance.

Answer 15

b. added to the book balance.

Question 16

Which of these items would not accompany a monthly bank statement?
a. Depositor’s checks paid by the bank during the month
b. Copies of outstanding checks at the end of the month
c. Copies of bank debit memos issued during the month
d. Copies of bank credit memos issued during the month

Answer 16

b. Copies of outstanding checks at the end of the month

Question 17

Compensating balance
a. If legally restricted is reported as part of the regular cash account
b. If legally restricted is reported as cash held as compensating balance and
classified as current asset if related to a short term loan
c. if legally restricted is reported as cash held as compensating balance and classified as
current asset if related to long-term loan
d. if not legally restricted is reported separately in the current asset section of the
statement of financial position

Answer 17

b. If legally restricted is reported as cash held as compensating balance and
classified as current asset if related to a short term loan

Question 18

n petty cash fund replenishment under imprest system
a. Expense accounts are credited
b. Cash in bank is debited
c. Cash in bank is credited
d. No journal entry

Answer 18

c. Cash in bank is credited

Question 19

Which of the following is false when the petty cash fund proves out short?
a. Cash short and over account is debited
b. Cash short and over account is credited
c. Miscellaneous Expense may be debited to close cash short/over account
d. Receivable from custodian may be debited to close cash/over account

Answer 19

b. Cash short and over account is credited

Question 20

At year end, petty cash fund is adjusted for any unreplenished petty cash
a. In order to avoid understatement of cash and overstatement of expenses
b. In order to avoid overstatement of cash and understatement of expenses
c. In order to determine whether cash shortage or overage exists
d. In order to make the petty cash custodian liable for the shortage

Answer 20

b. In order to avoid overstatement of cash and understatement of expenses

Question 21

Bank statement may provide information about all of the following except
a. Total checks paid by the bank
b. Total deposits acknowledged by the bank
c. Deposit in transit
d. Bank service charge

Answer 21

c. Deposit in transit

Question 22

In preparing monthly bank reconciliation, which of the following items would be
deducted from the bank balance in order to arrive at the correct cash balance for
balance sheet purposes?
a. Bank service charge
b. Deposit in transit
c. Erroneous bank charge
d. Erroneous bank credit

Answer 22

d. Erroneous bank credit

Question 23

If the cash balance shown in the company’s accounting records is more than the correct
cash balance and neither the bank nor the depositor has made any errors, there must
be
a. Bank credit memo not yet recorded by the depositor
b. Outstanding checks not yet recorded by the bank
c. Bank charges not yet recorded by the depositor
d. Deposit in transit not yet recorded by the bank

Answer 23

c. Bank charges not yet recorded by the depositor

Question 24

If the cash balance shown in the bank’s record is less than the correct cash balance and
neither the bank nor the depositor has made any errors, there must be
a. Bank credit memo not yet recorded by the depositor
b. Outstanding checks not yet recorded by the bank
c. Bank charges not yet recorded by the depositor
d. Deposit in transit not yet recorded by the bank

Answer 24

d. Deposit in transit not yet recorded by the bank

Question 25

The following reconciling items are deducted from the book balance of cash in order to
arrive at the unadjusted bank balance of cash
a. Outstanding checks
b. Deposit in transit
c. Proceeds of note collected by the bank
d. Interest on note collected

Answer 25

a. Outstanding checks

Question 26

Checks written by the company and issued to payees but have not been cleared or
presented to the bank for payment

Answer 26

Outstanding check

Question 27

Check that is written for an amount that exceeds the available balance in the bank account

Answer 27

NSF Check

Question 28

NSF

Answer 28

Not sufficient fund

Question 29

DAIF

Answer 29

Drawn against insufficient fund

Question 30

DAUD

Answer 30

Drawn against unclear deposit

Question 31

Report that explains the difference
between the book ( company ) balance of cash and the cash
balance reported in the bank statement

Answer 31

Bank Reconciliation

Question 32

Deposit made near the end of the month and recorded on the depositor’s books
but is not received by the bank in time to be reflected on the bank statement

Answer 32

Debit in Transit (DIT)

Question 33

Charges to the company’s or depositor’s account made directly by the bank such as returned checks ( NSF and technically defective checks ), bank service charge, charge for the cost of check booklets and payment of bank loans

Answer 33

Debit Memo

Question 34

Deposits or credits made directly by the bank to the depositor’s account such as notes collected by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor’s account

Answer 34

Credit Memo

Question 35

Under this method, the book balance and the bank balance are
brought to a correct cash balance that must appear on the balance
sheet

Answer 35

Adjusted Balance Method

Question 36

Under this method, the book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance

Answer 36

Book to Bank Method

Question 37

Under this method, the bank balance is reconciled with the book balance or the bank balance is adjusted to equal the book balance

Answer 37

Bank to Book Method