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 cashiers 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
enterprises 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 companys 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 companys 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

depositors

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
depositors
account
requires
a
correcting
entry
in
the
depositors 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 treasury note
purchased by the entity on
b. A three-year treasury note
purchased by the entity on
c. A 90-day T-bill

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

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 entitys P150,000 check payable to the entity dated
December 15 of the current year
d. The entitys 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 entitys 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 customers 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
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