CASH and CASH EQUIVALENTS

Test I. Theory. Multiple choice

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.
2. 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.
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.
4. Which of the following is usually considered cash?
a. Certificate of deposit.
b. Checking account.
c. Money market saving certificate.
d. Postdated check.
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.
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.
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.
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.
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.
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.
11. What is the major purpose of an imprest petty cash fund?
a. To effectively plan cash inflows and outflows.
b. To ease the payment of cash to vendors.
c. To determine the honesty of the petty cashier.
d. To effectively control cash disbursements.
12. 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.
13. If the cash balance shown in the company’s cash records is less than the correct cash
balance and neither the company nor the bank has made any errors, there must be
a. outstanding checks.
b. a no-sufficient fund check returned by the bank.
c. bank charges not yet recorded by the depositor.
d. an interest credited by the bank in the depositor’s account.
14. A bank reconciliation is
a. A formal financial statement that lists all of the bank account balances of an
entity.
b. A merger of two banks that previously were competitors.
c. A statement sent by the bank to depositor on a monthly basis.
d. A schedule that accounts for the difference between an entity’s cash balance as
shown in the bank statement and the cash balance shown in the general ledger.
15. Which of the following items must be added to the cash balance per ledger in preparing
a bank reconciliation which ends with 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.
16. 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.
17. Following are reconciling items in an enterprise’s bank reconciliation statement.
1. Deposits in transit
II. Company check for P32,500 recorded in the books for P23,500
Ill. Note collected by bank in behalf of the company
IV. Deposit of another company erroneously credited by bank to the company’s account
V. No sufficient fund check charged back by bank
VI. Company deposit for P32,500 recorded in the books for P23,500
Which of these adjustments would be shown as addition to the cash balance per books
in order to arrive at the correct cash balance?
a. II, III, and VI
b. II and III
c. II, V and VI
d. III and VI
18. Bank statements provide information about all of the following, except
a. bank changes for the period. C.
b. errors made by the company.
c. checks cleared during the period.
 d. no sufficient funds checks.
19. 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.
20. Debit memos refer to items not representing checks paid by the bank which are charged
or debited by the bank to the account of the depositor but not yet recorded by the
depositor as cash disbursements. The following are examples of debit memos, except
a. NSF or DAUD checks.
b. bank service charges.
c. note collected by bank in favor of the depositor.
d. automatic charge for interest on loan of the depositor.

Test II. Problems

1. If a petty cash fund is established in the amount of P2,500, and contains P2,000 in cash and
P450 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credit to the following accounts
a. Petty Cash, P450.
b. Petty Cash, P500.
c. Cash, P450; Cash Over and Short, P50.
d. Cash, P500.

2. Ferragamo Company established a petty cash fund of P5,000 on July 1, 2020. At the end of
the month, the count of cash on hand indicated that P675.40 remained in the fund. A review of
the petty cash vouchers disclosed the following expenses had been incurred during the month:
Office supplies – P341.61; Postage – P780.00; Representative – P1,000.00; Transportation
– P 1,321.40; and Miscellaneous – P837.60
The above information indicates that there is a
a. Cash shortage of P44.00.
b. Cash overage of P44.00
c. Cash shortage of P1,394.80.
d. Cash overage of P1,394.80.
3. The Petty Cash Fund of CHARITY Company has an imprest balance of P20,000. The
following items are found in its drawer on December 31, 2021:

Currencies and coins 4,700

Vouchers for expenses during the year:
Office supplies 1,500
Postage stamps 500
Transportation 100 2,100
IOU notes of several employees all dated December 2021 2,500
Unused postage stamps 100
Replenishment check drawn by the Co., payable
to the order of petty cash custodian 1,500
 Check received from customers representing sales for the month
of December 1,700
Check received from Polite, an officer, dated December 30,2021 2,000
Envelope containing contributions from employees
for field trip in Star City 5,000
How much is the correct amount of petty cash fund on Dec. 31, 2021?
a. 4,700 c. 8,200
b. 6,200 d. 20,000

4. As of December 31, 2020, the petty cash fund of KAPITPA Company with general
ledger balance of P20,000 comprises the following: Coins and currencies – P3,400; Petty
cash voucher (Gasoline for delivery equipment) – P4,000; Petty cash voucher (Medical
supplies for employees) – P2,720; IOUs (Advances to employees) – P2,960; A sheet of
paper with names of several employees together with contribution to bereaved employees
attached is a currency of P3,200; Check – Check drawn to the order of the petty cash
custodian – P4,000; The petty cash custodian admits to have taken money from the fund
and forgot to replace it.

How much is the net adjustment to Petty cash fund on December 31, 2020?
a. 9,680 b. 12,600 c. 12,880 d. 13,680
5. The balance sheet of Alaska Company as of December 31, 2013 shows Cash of P17,500.
It was found to include the following items:
Postal money orders from customers P 2,400
Notes receivable in the possession of a collection agency 3,200
Receipts for expense advances for the account of credit suppliers 600
Customers’ postdated checks, returned by the bank marked “NSF” 1,800
Traveler’s check 500
Currencies and coins on hand 600
Checks in payment of accounts not yet delivered to payee 6,000
PCF (P160 in currency and P840 in expense receipts) 1,000
What is the correct cash balance?
a. 9,660 b. 11,060 c. 12,860 d. 14,260

6. The cash account of Hanabi Corp. on December 31, 2020 has a balance of P127,600 and it
consists of the following:

Bills and coins on hand P52,780

Petty cash including petty cash vouchers
of P650 1,000
Balance in savings account with a bank
closed by the BSP 36,000
Customer’s check dated January 15, 8,000
2021
Credit memo from suppliers for 6,500
purchases returns
Postage stamps 120
Money order 800
 IOU of an employee 400
Checking account balance in Bank of P.I. 22,000
The correct cash balance on December 31, 2020 of Hanabi Corp. is
a. P76,580 b. P75,130 c. P76,330 d. P75,930

7. The cash account of Spock Company as of December 31, 2020 was provided to you as follows:
Current account in PNB P120,000
Undeposited collections 8,000
Customer’s check returned by bank (marked as NSF) 12,000
Check drawn by the Finance Director of Spock Company dated
January 13, 2021 15,000
Check from Enterprise Company dated December 28, 2020
for goods returned by Spock Company 20,000
Check drawn by Spock Company against its BDO account.
The check was returned by the car dealer since the acquisition
of the delivery equipment did not materialize.
This check was an outstanding check in the BDO
account reconciliation 45,000
Petty cash fund, P6,000 in currency, P3,500 in employee
IOU’s and P2,500 supported by approved petty cash
vouchers for expenses all dated prior to December 31, 2020 12,000

232,000
Less: Overdraft in BDO account (Spock Company does not
have any other account in BDO) (30,000)
P202,000
The amount to be reported as cash and cash equivalents in Spock Company’s December
31, 2012 statement of financial position is
a. 154,000 b. 169,000 c. 184,000 d. 199,000

8. The controller for Goofy Company is attempting to determine the amount of cash to be
reported on the December 31, 2020 balance sheet. The following items are included in the Cash
in Bank items of Goofy Company:
BDO special checking used for payroll payments P500,000
BPI special account used as a bond sinking fund 400,000
MBTC checking account (per ledger), checks of P80,000 are
Outstanding as of December 31, 2020 300,000
DBP, checking account (per bank statement) of P50,000 are
Outstanding as of December 31, 2020 600,000
EWB, includes a P100,000 compensating balance maintained in relation to
A short loan 1,000,000
PNB, includes a P200,000 compensating balance maintained in relation
To a loan arrangement 1,000,000
 Checking account in LBP
CA – 000-111111 P600,000
CA – 000 -111112 (250,000) 350,000
EBC, (bank under liquidation) realizable value was
P0.75 of every P1.00 deposit 200,000
ILM, current account ( 50,000)
1-year treasury note , maturity date January 31, 2021 600,000
1-year treasury note, maturity date on January 31, 2021
(acquired November 28, 2020) 800,000
90-day Central Bank treasury bills 450,000
ABC, US dollar denominated deposit (opened in October 17);
Exchange rate on October 17 was P40; average (October 17 to
December 31) was P50; December 31 was P45
$20,000
The amount to be reported as Cash and Cash Equivalents in Goofy Company’s December 31,
2020 balance sheet is
a. 5,450,000 b. 5,470,000 c. 5,550,000 d. 5,850,000

9. The information that follows is available from the general ledger and the bank
statement of Mickey Company

• Cash in bank, October 31, P939,000

• Deposit in transit, October 31, 35,000; Outstanding checks, October 31, 68,000
• Credit memo, October 60,000; Debit memo, October 20,000
• Included in the October bank receipts was a deposit of Mickey Company for P25,000,
erroneously recorded by the bank to Mc Key Company’s account
• Included in the October bank disbursements was a check issued by Meekly Company for
P10,000, erroneously recorded by the bank in Mickey Company’s account
• Included in the book receipts was a deposit for P45,000 which was recorded as P54,000.
No correction was made yet by Mickey Company
• Included in the book disbursements was a check issued by Mickey Company for P42,000
was recorded as P24,000
The correct cash balance as of October 31, 2012 is
a. 970,000 b. 927,000 c. 952,000 d. 945,000
e.
10. Circo Company prepared the following bank reconciliation on March 31:
Book balance P1,405,000
Add: March 31, deposit 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total 4,805,000
Less: Circa Company’s deposit to our account 1,100,000
 Bank service charge 45,000 1,145,000
Adjusted book balance 3,660,000
Bank balance 5,630,000
Add: Error on Check No. 175 45,000
Total 5,675,000
Less: Preauthorized payments for water bills 205,000
NSF check 220,000
Outstanding check 1,650,000 2,075,000
Adjusted bank balance 3,600,000

Check No. 175 was made for the proper amount of P 249,000 in payment of account.
However, it was entered in the cash payments journal as P 294,000. Circo authorized the
bank to automatically pay its water bills as submitted directly to the bank.
What is the adjusted cash in bank on March 31?
a. 3,660,000 b. 3,600,000 c. 3,630,000 d. 2,880,000

11. Fino Company banks with ABC Bank and prepares reconciliation of the bank and books
balances on a regular monthly basis. The December 31, 2012 reconciliation shows a balance per
bank of P581,050, balance per books of P627,000, outstanding checks of P84,300, deposits in
transit of P120,000, interest earned on the bank balance of P1,250, and service charges of
P400. Included in the bank statement was a cancelled check which the company had failed to
record. The check was in payment of accounts payable.
What is the amount of the unrecorded check issued by the company in payment of
accounts payable?
a. P8,600
b. P11,000
c. P11,100
d. P11,900

12. In preparing its August 31, 2012 bank reconciliation, Christian Company has available the
following information:
Balance per bank statement, August 31, 2012 – P180, 500; Deposit in transit – P32, 500;
Return of customer’s check for insufficient funds – P6,000; Outstanding checks – P27,500;
Bank service charges – P1,000.
What is the unadjusted cash balance per books at August 31, 2012?
a. P192,500
b. P185,500
c. P180,000
d. P173,500

13. Dior Company reported a balance of P43,000 in its cash account at the end of the month.
There were P20,000 deposits in transit and P15,000 of outstanding checks. The bank statement
showed a balance of P50,000, service charges of P6,000 and the proceeds of note collected by
the bank for the company. The note had a face value of P15,000.
How much is the interest on the note collected by the bank?
a. P12,000
b. P9,000
c. P6,000
d. 3,000

14. Esprit Company keeps all its cash in checking account, An examination of the company’s
accounting records and bank statement for the month ended December 31, 2012 revealed the
following information: Cash balance per bank statement – P846, 900; Cash balance per ledger –
P852, 400.

A deposit of P95, 000 placed in bank’s night depository on December 29, 2012 does not
appear on the bank statement. The bank statement shows that on December 26, 2012,
the bank collected a note for Esprit and credited the proceeds of P93, 500 to the
company’s account. The proceeds included P3, 500 interest, all of which Esprit earned
during the current accounting period. Esprit has not yet recorded the collection.

Checks outstanding on December 31, 201 were: No. 032752 – P15, 000; No. 032758 – P4,
800; No. 032767 – P7, 200.

Esprit discovered that check no. 032759 written in December 2012 for P18, 300 in
payment of an account had been recorded in the company’s records as P13, 800. Included
with the December 31, 2012 bank statement was an NSF check for P25, 000 that Esprit
had received from Pitt Company on account on December 20, 2012. Esprit has not yet
recorded the returned check. The bank statement shows a P1, 500 service charge for
December.

The journal entry to adjust the cash balance as of December 31, 2012 is
a. debit to cash of P93, 500.
b. credit to cash of P31, 000.
c. net debit to cash of P62, 500.
d. net credit to cash of P62, 500.

15. The auditor for NETFLIX INC. examined the petty cash fund immediately after the close
of business December 31, 2020, et the end of the company’s business year. The petty cash
custodian presented the following during the count:
Currency P 1,650
Petty cash vouchers:
Postage 420
Office supplies expense 900
Transportation expense 340
 Computer repairs 800
Advances to office staff 1,500
A check drawn by Netflix Inc., payable to the PCF custodian 7,200
Postage stamps 300
An employee’s check, returned by bank, marked NSF 1,000
An envelope containing currency of P1,890 for
A gift for a retiring employee 1,890
The general ledger shows an imprest petty cash fund balance of P16,000. How much is
the petty cash shortage or overage? 2,190 shortage

16. The auditor for NETFLIX INC. examined the petty cash fund immediately after the close
of business December 31, 2020, et the end of the company’s business year. The petty cash
custodian presented the following during the count:
Currency P 1,650
Petty cash vouchers:
Postage 420
Office supplies expense 900
Transportation expense 340
Computer repairs 800
Advances to office staff 1,500
A check drawn by Netflix Inc., payable to the PCF custodian 7,200
Postage stamps 300
An employee’s check, returned by bank, marked NSF 1,000
An envelope containing currency of P1,890 for
A gift for a retiring employee 1,890
The general ledger shows an imprest petty cash fund balance of P16,000. What is the
adjusted balance of the Petty cash fund at December 31, 2020? 8,850

17. DEFYING GRAVITY (DG) Company’s Cash in Bank as of December 31, 2013 included the
following:

Cash in Bank – BDO checking account P 1,500,000

Cash in Bank – BPI checking account 1,200,000
Cash in Bank - MBTC checking account (per bank statement) 1,450,000
Total P 4,150,000

Additional information in relation to the above-mentioned components is as follows:

• The following items were noted in relation to the BDO checking account:
§ Check No.123543 written and dated on December 28, 2013 in the amount of P45,000
remains at hand as of December 31, 2013
§ Check No. 123546 written on December 29, 2013 in the amount of P30,000 dated
January 2, 2014 was picked up at December 31, 2013
 § Check No. 123550 written and dated on December 30, 2013 in the amount of P25,000
was picked up at December 31, 2013 but has remained outstanding until January 4,
2014
• The following information is in relation to DG Company’s BPI checking accounts:
BPI checking account #10001 P 1,450,000
BPI checking account #10002 (250,000)
Total P 1,200,000
§ The overdraft in BPI checking account #10002 was due to a check for P300,000 dated
January 2, 2014 and was claimed by the payee on December 29, 2013.
§ A compensating balance was being maintained in BPI checking account #10001 for
P100,000 in relation to a long-term loan
• The following items were identified in relation to the MBTC checking account, deposit in
transit at December 31, 2013, P75,000; outstanding checks at December 31, 2013,
P60,000; service charge for December, P2,500; interest income for December, P1,000
The correct amount to be reported as Cash in Bank is 4,440,000

18. The Gabbana Company’s ledger showed a balance in its cash account at December 31,
2012 of P682,250, which was determined to consist of

Petty cash fund P 3,600

Cash in Metrobank (reconciliation shows that a check of
P6,000 is outstanding at December 31, 2012) 336,750
Notes receivable in the possession of a collecting agency 25,000
Undeposited receipts, including a customer’s post-dated check
For P10,500 and traveler’s check for P10,000 178,000
Bond sinking fund cash 127,500
IOUs signed by employees 4,950
Paid vouchers not yet recorded 6,450
At what amount should Cash on hand and in bank be reported on Gabbana Company’s
December 31, 2012 statement of financial position? 507,850

19. The cash account of Kate Company showed a ledger balance of P396,980 on June 30,
2012. The bank statement as of that date showed a balance of P415,000. Upon comparing the
statement with the cash records, the following facts were determined:
• There were bank service charges for June of P1,500.
• A bank memo stated that ABC Company’s note for P90,000 and interest of P2,600
had been collected on June 29, and the bank has made a charge of P550 on the
collection. (No entry had been made in Kate Company’s books when ABC’s note
was sent to the bank for collection.)
• Receipts of June 30 for P289,000 were not deposited until June 2
• Checks outstanding on June 30 totaled P186,610.
• The bank had charged the Kate Company’s account for customer’s uncollectible
check amounting to P45,320 on June 29.
 • A customer’s check for P90,000 had been entered as P60,000 in the cash books;
checks no. 798 for P49,100 was recorded as P41,900 and check no. 799 in the
amount of P5,820 had been entered as P58,200. Both checks had been issued to
pay for a purchase of an equipment.
What is the amount of cash to be shown in the June 30, 2012 statement of financial
position? 517,390
20. The bank statement of ELLEN Corporation for February 2014 showed an ending balance of
P169,700. Deposit in transit on February 28 was P18,200. Outstanding checks as of February
28 were P59,000, including a P5,000 check which the bank had certified on February 25.
During the month of February, the bank charged back NSF checks in the amount of P3,000 of
which P1,000 had been redeposited in February. On February 20, the bank charged the
account of ELLEN Company for P2,000 which should have been charged against the account
of another company; the error was not detected by the bank. During February, the proceeds
from the note collected by the bank for ELLEN Company was P7,500 and bank charge for this
services was P50.
The adjusted cash balance on February 28, 2014 is 135,900