PHINMA ARAULLO UNIVERSITY

COLLEGE OF MANAGEMENT AND ACCOUNTANCY

FINANCIAL ACCOUNTING AND REPORTING

CASH AND CASH EQUIVALENTS

1. Cash or Cash on Hand and In Banks on the balance sheet may include the following items:
(1) Currency or cash items on hand
(2) Deposits in foreign countries which are subject to foreign exchange restrictions
(3) Short-term placements of excess cash which can be preterminated
(4) Postdated checks
(5) 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

2. Balances representing cash, accounts receivable, and payable denominated in other than the local
currency should be translated for consolidation at the:
(a) historical rate (c) forward rate
(b) spot rate (d) current rate

3. The cash balance reported in the balance sheet normally will not include:
(a) small amounts of cash (petty cash) kept on hand in the office.
(b) checks received from customers and deposited in the bank.
(c) money orders.
(d) temporary investments due in one year.

4. Which of the following is not considered cash for financial reporting purposes?
(a) petty cash funds and change funds (c) coin, currency and available funds
(b) money order and certified checks (d) postdated checks and IOUs

5. Which of the following items in a cash drawer at November 30 is not cash?

(a) money orders (c) a customer check dated December 1
(b) coins and currency (d) a customer check dated November 28

6. 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.

7. If the deposit is legally restricted as to withdrawal, the compensating balance related to a long-term long
is shown as:
(a) cash (c) long-term investment
(b) other asset (d) current liability

8. Each of the following measures strengthens internal control over cash receipts except:
(a) the use of a voucher system.
(b) preparation of a daily listing of all checks received through the mail.
(c) the deposit of cash receipts intact in the bank on a daily basis.
(d) the use of cash registers.

9. 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

10. 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.

11. Expenses paid out of the petty cash is recorded under two systems of accounting for petty cash:
Imprest system Fluctuating system

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 (a) When paid When paid
(b) When replenished When paid
(c) When paid When replenished
(d) When replenished When replenished

12. In reimbursing the petty cash fund, which of the following is true?
(a) cash is debited. (c) petty cash is credited.
(b) petty cash is debited. (d) expense accounts are debited.

13. A cash short or over 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.

14. Bank reconciliations are needed to:

(a) be sure that all cash receipts are being used efficiently.
(b) assist in determining if cash projects have been correct.
(c) be sure products are not being sold below cost.
(d) identify differences between cash balances reported by the company and its bank.

15. 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.

16. 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

17. 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

18. An adjustment to a company’s reported cash balance is needed if:

(a) its bank has incorrectly recorded a check.
(b) a check has been written that has not yet been received by its bank.
(c) a notice of a bank service charge is received with its bank statement.
(d) There was a deposit in transit at the end of the period.

19. On Dream Company’s bank reconciliation at the end of May, the amount of P500 is deducted from the
bank statement balance as a step in determining the adjusted cash in bank balance that should appear
on the balance sheet. A possible explanation for this P500 deduction is:
(a) a check deposited by Dream has been returned by the bank marked NSF.
(b) the bank has collected a note for the account of the company.
(c) a deposit in transit in the amount of P500.
(d) the bank erroneously credited Great Company’s deposit on Dream Company’s bank statement.

20. Which of the following statements is false?

(a) Deposits in transit will cause the balance shown in the depositor’s cash ledger account to be
greater than the balance reported in the bank statement, all other things being equal.
(b) Bank service charges not yet entered in the depositor’s accounting records will cause his balance
of cash to be higher than that reported by the bank, all other things being equal.
(c) Outstanding checks of a depositor will cause the balance of the cash account in his books to be
lower than the balance reported by the bank, all other things being equal.
(d) An error made by the bank in crediting an amount to a depositor’s account requires a correcting
journal entry in the depositor’s own records.

21. Blue Company has the following cash balances at December 31, 2002:
Undeposited coins and currency P 35,000
Unrestricted demand deposits 1,450,000
Company checks written (and deducted from the demand
deposits amount) but not scheduled to be delivered
until January 6, 2003 180,000
Time deposits restricted for use (expected use in 2003) 3,000,000
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 The unrestricted demand deposits included P150,000 compensating balance but not legally restricted
as to withdrawal. How much should Blue report as cash in its December 31, 2002 balance sheet?
(a) P1,665,000 (b) P1,515,000 (c) P1,520,000 (d) P1,335,000

22. The balance sheet of Mall Company as of December 31, 2002 showed the cash amount of P87,300. It
was found to include the following items:
Postal money orders from customers P2,400
Notes receivable in the possession of a collecting agency 3,200
Receipts for expenses advanced for the account of
certain suppliers 1,600
Customer’s postdated checks 1,500
Customer’s checks returned by the bank marked “NSF” 1,800
Currencies and coins on hand 600
Traveler’s check 500
Checks in payment of accounts, still in the safe of the
cashier, awaiting instructions for delivery to payees 6,000
Petty cash fund (P160 in currency and P840 in expense
receipts) 1,000
The correct cash balance for the balance sheet is:
(a) P82,500 (b) P76,500 (c) P81,660 (d) P72,360

23. A cash count on the morning of January 2, 2002 showed the following items in the petty cash box of
Tray Corporation:
Currencies and coins counted P12,560
Envelope containing contributions to employee’s party 90,000
Approved and paid petty cash vouchers 14,500
Employee’s IOUs 180,000
Company check for fund replenishment 92,000
The petty cash fund was established for an amount of P300,000. What is the correct amount of petty
cash on the balance sheet as of December 31, 2002?
(a) P300,000 (b) P12,560 (c) P104,560 (d) P13,500

24. On April 1, 2002, Mighty Company established an imprest petty cash fund for P10,000 by writing a
check drawn against its general checking account. On April 30, the fund contained the following:
Currency and coins P3,000
Receipts for office supplies 4,000
Receipts for postage (still unused) 2,000
Receipts for transportation 600
On April 25, the company wrote a check to replenish the fund. What is the amount of replenishment
under the imprest fund system?
(a) P7,000 (b) P6,600 (c) P10,000 (d) P3,000

25. If a petty cash fund is established in the amount of P250, and contains P150 in cash and P95 in
receipts for disbursements when it is replenished, the journal entry to record replenishment should
include credit(s) to the following account(s):
(a) petty cash, P75 (c) cash, P95; cash short and over, P5
(b) petty cash, P100 (d) cash, P100

26. Bugoy’s checkbook balance at December 31, 2002 was P50,000. In addition, Bugoy had the following
items in its safe on that date:
 Check payable to Bugoy, dated December 31, 2002, in payment of a sale made in December
2002 not included in December 31 checkbook balance, P20,000.
 Check payable to Bugoy, deposited December but returned by bank on December 30 marked
NSF. The deposit and the return were both reflected in the checkbook, P5,000.
 Check drawn on Bugoy’s account, payable to a vendor, dated December 30 but not mailed to
payee as of December 31, 2002. The check of P3,000 is not yet recorded.
The proper amount to be shown as cash on Bugoy’s balance sheet at December 31, 2002 is:
(a) P48,000 (b) P65,000 (c) P68,000 (d) P70,000

27. The cash account of Isle Corporation has a balance of P96,000 on December 31, 2002. Your review of
the cash transactions recorded in December revealed the following:
 Cash receipts included customer’s checks for P4,000 dated January 10, 2003.
 Cash disbursements included:
Check of P10,000 payable to Ace Company. The check, dated December 23,
had not been paid by the bank as of December 31.
Check of P7,000 payable to King Company. The check was dated December
29 but still undelivered as of December 31.
What is the correct cash balance at December 31, 2002?
(a) P75,000 (b) P89,000 (c) P99,000 (d) P109,000

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For items 28 to 32:

The current assets of Multi Company on December 31, 2001 include the following:
Cash on hand P 50,000
Petty cash fund 10,000
Cash in bank 200,000
Accounts receivable 400,000
Inventory 500,000
Marketable equity securities 145,000
Deferred charges 20,000
Total P1,325,000
A. Cash on hand includes:
 Customer’s check of P4,000 returned by bank on December 26, 2001 due to insufficient funds
but subsequently redeposited and cleared by bank on January 5, 2002.
 Customer’s check for P6,000 dated January 15, 2002, received December 22, 2001.
 Postal money orders received from customers, P5,000.
 Cash withheld from wages for income tax of employees, P15,000.

B. The petty cash fund consists of the following items on December 31, 2001:
 Currency and coins, P2,800.
 Employees’ vales, P2,000.
 Currency in envelope marked “collections for birthday party”, P1,000.
 Unreplenished petty cash vouchers, P2,000.
 Check drawn payable to petty cashier, P2,200.
C. Included among the checks in payment of accounts payable drawn by Multi against its current
account and recorded in December 2001 are:
 Check written and dated December 22, 2001 and delivered to payee on January 5, 2002,
P10,000.
 Check written December 26, 2001 and dated January 21, 2002, delivered to payee on
December 26, 2001, P15,000.

28. How much is the adjusted cash on hand at December 31, 2001?
(a) P40,000 (b) P1,328,000 (c) P5,000 (d) P225,000

29. How much is the adjusted petty cash fund balance at December 31, 2001?
(a) P40,000 (b) P1,328,000 (c) P5,000 (d) P225,000

30. How much is the adjusted cash in bank balance at December 31, 2001?
(a) P40,000 (b) P1,328,000 (c) P5,000 (d) P225,000

31. How much is the correct cash balance on December 31, 2001?
(a) P270,000 (b) P265,000 (c) P275,000 (d) P280,000

32. How much is the total current assets at December 31, 2001?
(a) P1,203,000 (b) P1,328,000 (c) P1,355,000 (d) P1,225,000

33. Cure Company’s newly hired assistant prepared the following bank reconciliation on March 31, 2002:
Book balance P1,405,000
Add: March 31 deposit P 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total P4,805,000
Less: Care Company’s deposit to
our account P1,100,000
Bank service charge 45,000 1,145,000
Adjusted book balance P3,660,000
Book balance P5,630,000
Add: Error on check no. 123 45,000
Total P5,675,000
Less: Preauthorized payments for
light and water bills P 205,000
NSF checks 220,000
Outstanding checks 1,650,000 2,075,000
Adjusted bank balance P3,600,000
Check No. 123 was made for the proper amount of P249,000 in payment of account. However, it was
entered in the cash payments journal as P294,000. Cure authorized the bank to automatically pay its
light and water bills as submitted directly to the bank. The correct cash in bank balance is:
(a) P3,660,000 (b) P3,600,000 (c) P3,630,000 (d) P2,880,000

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34. If the month-end bank statement shows a balance of P36,000, outstanding checks are P12,000, a
deposit of P4,000 was in transit at month-end, and a check for P500 was erroneously charged by the
bank against the account, the correct balance in the bank account at month-end is:
(a) P27,500 (b) P28,500 (c) P20,500 (d) P43,500

35. The following pertains to Mine Company on December 31, 2002:

Bank statement balance P5,000,000
Checkbook balance 5,600,000
Deposit in transit 2,000,000
Outstanding checks, including P100,000
certified check 500,000
In Mine’s December 31, 2002 balance sheet, cash should be reported at:
(a) P6,600,000 (b) P6,500,000 (c) P7,100,000 (d) P7,200,000

For items 36 and 37:

Apache Company provides the following information for the purpose of reconciling the cash balance per
book with balance per bank statement on December 31, 2001.
 The bank statement showed a balance of P200,000 on December 31.
 Outstanding checks as of December 31 amounted to P50,000, including a P10,000 certified check.
 Deposit in transit on December 31 was P20,000.
 During December, the bank charged back NSF checks of P15,000, of which P5,000 had been
redeposited and cleared by December 27.
 On December 23, the bank erroneously credited the account of Apache for P30,000 representing
proceeds of loan granted to another company.
 During December, the proceeds from notes collected by the bank for Apache amounted to
P75,000, net of service charge of P2,000.

36. What is the cash balance to be shown on the balance sheet on December 31, 2001?
(a) P140,000 (b) P85,000 (c) P150,000 (d) P180,000

37. What is the cash balance per Apache Company’s ledger on December 31, 2001?
(a) P200,000 (b) P85,000 (c) P150,000 (d) P180,000

For items 38 to 40:

Bored Company is making a four-column reconciliation at June 30 from the following data. The
amounts per bank statement were: Balance - May 31, P6,500; June receipts, P13,000; June
disbursements, P11,000. The amounts per books were: Balance – May 31, P7,635; June receipts,
P11,548; June disbursements, P11,235; Balance – June 30, P7,948.
May 31 June 30
Deposits in transit P1,200 P1,500
Outstanding checks 670 840
The bank overlooked a check for P75 when
recording a deposit on June 10
Note collected by bank, recorded after
receiving the bank statement 1,800
NSF checks recorded after receiving
bank statement 560 480
Service charge, recorded after receiving
the bank statement 45 60
Bored recorded a P374 check received from
a customer in June as P347

38. The corrected balance per bank on June 30 is:

(a) P9,085 (b) P9,160 (c) P9,235 (d) P10,075

39. The corrected June receipts per books is:

(a) P11,575 (b) P13,300 (c) P13,346 (d) P13,375

40. The corrected June disbursements per books is:

(a) P10,830 (b) P11,170 (c) P11,250 (d) P11,300

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