CASH and Accounts Receivable

1. Which of the following should be considered cash?

a. Certificate of Deposit
b. Money Orders
c. Money Market Instruments
d. Treasury Bills
2. What is compensating Balance?
a. Saving Account balance
b. Loan account with bank
c. Temporary investment serving as collateral for loan
d. Minimum deposit required to be maintained in connection with borrowing arrangement
3. Deposits held as compensating Balance
a. Usually do not earned interest
b. If legally restricted and held against short-term credit may be included as cash
c. If legally restricted and held against long-term credit may be included among current assets
d. None of these
4. A cash equivalent is a short term, highly liquid investment that is readily convertible into known
amount cash and
a. Is acceptable as a means to pay current liabilities
b. Has a market value greater than original cost
c. Bears an interest rate that is at least equal to the prime interest rate
d. IS so near maturity that it presents insignificant risks of change in interest rate
5. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents
if the investments have a maturity of 90 days or less
a. From the date the investments are acquired
b. From the end of reporting period
c. From the date of issue of financial statements
d. From the date the investments are acquired or from the end of the reporting period
6. Which of the following could not be reported as cash or cash equivalents?
a. Money market accounts
b. Demand deposits
c. BSP Treasury bills with an original maturity of sixty days from date purchased
d. Legally restricted deposit held as compensating balance against borrowing arrangement
7. All of the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity Investments
d. A bank overdraft

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 8. 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 employees
d. To effectively control cash disbursements
9. Which of the following statements in relation to petty cash fund is incorrect?
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 the cash in the petty cash fund and the total of the petty cash
vouchers should equal the amount for which the imprest petty cash fund was established
d. With the establishment of imprest petty cash fund, one person is given the authority and
the responsibility for issuing checks to cover minor disbursements
10. When an imprest petty cash fund is used, which of the following statements is true?
a. The balance of petty cash fund should be reported in the statement of financial position as a
long-term investment
b. The petty cashier’s summary of petty cash payments serves a journal entry that is posted as
a long-term investment
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
11. If the balance shown in the bank statement is less than the correct cash balance and neither the
entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity
b. Outstanding Checks
c. Deposit in Transit
d. Bank charges not yet recorded by the entity
12. If the cash balance shown in the accounting records is less than the correct cash balance and
neither the entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity
b. Deposits in Transit
c. Outstanding Checks
d. Bank charges not yet recorded by the entity
13. Bank reconciliations 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. Bank errors, outstanding checks and deposits in transit
b. All items except 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

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 14. Bank statements provide information about all of the following, except
a. Checks cleared during the period
b. NSF Checks
c. Bank charges for the period
d. Errors made by the depositor
15. The ideal measure of short-term receivables is the discounted value of cash to be received in the
future. Failure to follow this practice usually does not make the statement of financial position
misleading because
a. Most short-term receivables are noninterest bearing
b. The allowance for uncollectible accounts includes a discount element
c. The amount of the discount is not material
d. Most receivables can be sold to a bank or factor
16. Which is more theoretically correct to record cash discount?
a. Net Approach
b. Gross Approach
c. Allowance Approach
d. All of the above
17. All are problems associated with the valuation of accounts receivable, except
a. Uncollectible Accounts
b. Returns
c. Cash discounts under the net method
d. Allowances granted
18. Which of the following is generally accepted method of determining the amount of the
adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and adjusted for the balance in the
allowance
19. Which method of determining bad debt expense best achieves the matching concept?
a. Percentage of Sales
b. Percentage of ending accounts receivable
c. Percentage of Average accounts receivable
d. Direct write off
20. Which is not permitted for accounting for uncollectible accounts receivable?
a. Percentage of AR using allowance method
b. Percentage of Sales using allowance method
c. Direct write off method
d. All of the choices are acceptable

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 21. The advantage of relating bad debts expense to accounts receivable is that this approach
a. Gives a reasonably correct statement of receivables in the statement of financial position
b. Best relates bad debt expense to the period of sale
c. Is the only generally accepted method for valuing accounts receivable
d. Makes estimates of uncollectible accounts unnecessary
22. Which concept relates to the allowance method in accounting for accounts receivable?
a. Bad debts expense is an estimate that is based on historical and prospective information
b. Bad debt expense is based on the actual amounts determined to be uncollectible
c. Bad debt expense is an estimate that is based only on an aging analysis of accounts
receivable
d. Bad debt expense is management’s determination of which accounts will be sent to the
attorney for collection
23. Which method does not properly match expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method
b. Charging bad debts using percentage of AR under the allowance method
c. Charging bad debts using aging AR under the allowance method
d. Charging bad debts as accounts are written off as uncollectible
24. When an entity uses the allowance method for recognizing doubtful accounts, the entry to
record the write off of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
25. When the direct write off method is used, the entry to write off a customer account would
a. Increase net income
b. Have no effect on net income
c. Increase both accounts receivable and net income
d. Decrease both accounts receivable and net income
26. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income

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 Answers
1. B
2. D
3. D
4. D
5. A
6. D
7. C
8. D
9. D
10. C
11. C
12. A
13. B
14. D
15. C
16. A
17. C
18. B
19. A
20. C
21. A
22. A
23. D
24. A
25. D
26. D

*Source - CPAR Handouts (Batch 82 - October 2017)