CHAPTER 1

Question 1

According to ____, financial instrument is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity.

Answer 1

International Accounting Standards 32 Financial Instrument: Presentation

Question 2

It is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity.

Answer 2

Financial Instrument

Question 3

Its value changes in response to change in specified interest rate, it requires no initial net investment or smaller than the required. And it is settled at a future date

Answer 3

Derivatives

Question 4

Financial instrument includes:

Answer 4

1. Cash and cash equivalents
2. Equity instrument of another entity
3. Contractual right to receive from another entity cash or other financial asset
4. Investment in debt instrument of another entity

Question 5

Recognition of financial asset

Answer 5

1. It depends on the attributes of relevance and faithful representation
2. It will provide an inflow of economic benefits.

Question 6

It is one of the most significant because of its ability to settle an obligation, acquire another asset etc.

Answer 6

Cash

Question 7

It is used as a standard medium of exchange and refers to currency and coins

Answer 7

Cash

Question 8

It includes checks, bank drafts, postal money orders, currency demand deposits with banks

Answer 8

Cash

Question 9

It must be unrestricted and immediately available for use in current operations

Answer 9

Cash

Question 10

cash segregated for current use in the ordinary conduct of business

Answer 10

working fund

Question 11

It is highly liquid financial instruments that are so near their maturity and that there is insignificant risk of change in value due to fluctuation of interest rates.

Answer 11

Cash equivalents

Question 12

It qualifies as cash equivalents if it matures within a short period of time; 3 months or less from the__-

Answer 12

date of acquisition

Question 13

They are not included in cash equivalents but classified as either equity investment at fair value through profit or loss or through other comprehensive income.

Answer 13

Temporary investment in equity shares

Question 14

Cash in closed banks or banks in bankruptcy is reported as__

Answer 14

Accounts receivable

Question 15

Customer’s post dated check, NSF and IOUs are classified as

Answer 15

Accounts receivable

Question 16

Postage stamps and expense advances are reported as

Answer 16

prepaid expenses

Question 17

bank overdraft that cannot be offset against another account is reported as ___

Answer 17

liability

Question 18

undelivered or unreleased checks are not___ from cash and should be ___ to the cash balance

Answer 18

not be deducted form cash and should be reverted to the cash balance

Question 19

Company’s post-dated check should be ___

Answer 19

reverted into cash and the corresponding liability shall continue to be recognized.

Question 20

It is a minimum amounts that a company agrees to maintain in a bank checking account as support or collateral for a loan by the depositor.

Answer 20

Compensating balances

Question 21

Compensating balances that are not legally restricted should be reported as ____ and those who are legally restricted should be classified as _____

Answer 21

not legally restricted = cash

legally restricted= current asset or non current asset

Question 22

5 Cash management

Answer 22

1. Segregation of duties for handling cash and recording cash transactions.
2. Imprest system
3. Voucher system
4. Internal audits at irregular intervals
5. Periodic reconciliation of bank statement and cash balance.

Question 23

Journal entry for the establishment of the petty cash fund

Answer 23

Petty cash fund

Cash in Bank

Question 24

Journal entry for the replenishment of the fund

Answer 24

Expenses

Cash in Bank

Question 25

Adjusting entry for petty cash fund ( cash short )

Answer 25

Expenses Cash short or over Petty cash fund

Question 26

Adjusting entry for petty cash fund ( cash over )

Answer 26

Expenses Petty cash fund Cash in Bank Miscellaneous income

Question 27

Reconciliation of bank balance

Answer 27

1. Beginning cash balance 2. Total deposits made by depositor and other bank credit 3. Total checks paid by bank and bank charges 4. Ending cash balance

Question 28

It is a cash receipt that has been added to the company's cash balance but has not been added to the balance reported on bank statement.

Answer 28

Deposit in transit

Question 29

It is a check written by company, issued to the payees and deducted from company's cash but have not been reflected in bank

Answer 29

Outstanding check

Question 30

It is the charges to the depositor's account made directly by the bank and should be deducted from balance per books such as NSF, bank service fees, bank loans, check booklets

Answer 30

debit memos

Question 31

It is the deposits made directly by the bank to the company's account and should be added to the cash balance per books such as notes/drafts collected by the bank

Answer 31

credit memos

Question 32

How to get the outstanding check, ending

Answer 32

outstanding check, beginning add: checks drawn by the company less: checks paid by bank outstanding check, ending

Question 33

How to get deposit in transit, ending

Answer 33

deposit in transit, beginning add: cash receipt reflected in company deduct: deposit during the month reflected in bank deposit in transit, ending

Question 34

Types of bank reconciliation statement

Answer 34

1. Single-date bank reconciliation statement | 2. Four-column reconciliation or proof of cash

Question 35

Forms of bank reconciliation

Answer 35

1. Both bank and book balances are reconciled to a correct balance 2. Bank balance reconciled with book balance 3. Book balance reconciled with bank balance

Question 36

Bank balance with book balance

Answer 36

``` balance per bank add: deposit in transit undeposited check bank charge NSF error total deduct: outstanding check note collected interest collected Balance per book ```

Question 37

Book balance with bank balance

Answer 37

``` balance per book add: outstanding check note collected interest collected total deduct: deposit in transit undeposited check NSF bank charge error balance per bank ```