THEORIES

Bank overdraft- current liability

Postdated Checks- accounts receivable

1. What is the basic requirement for cash and cash equivalent?

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

2. Which of the following is usually considered cash?

a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated check

3. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amount of
cash and
a. Is acceptable as a means to pay current liabilities
b. Has a current market value that is greater than the original cost
c. Bears an interest rate that is at least equal to the prime interest rate at the date of liquidation
d. Is so near maturity that it presents insignificant risk of change in interest rate

4. 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

5. If material, deposits in foreign bank which are subject to foreign exchange restriction shall be classified
a. Separately as current asset, with appropriate disclosure
b. Separately as noncurrent asset with appropriate disclosure
c. Be written off as loss
d. As part of cash and cash equivalents

6. All of the following may be included in “cash” except:

a. Currency
b. Money market instrument
c. Checking account balance
d. Saving account balance

7. Deposits held as compensating balance

a. Usually do not earn 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

8. Which of the following should be excluded from cash and cash equivalents?
a. The minimum cash balance in the current account which is maintained to avoid service charge
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 denominated in a foreign currency
9. Which of the following statements is incorrect?
a. The accounting function should be separated from the custodianship of assets
b. Certain clerical personnel should be rotated among various jobs
c. The responsibility for receiving merchandise and paying for it should usually be given to one person
d. An entity’s personnel should be given well-defined responsibilities

10. Under which classification is cash restricted for plant expansion reported?
a. Current assets
b. Noncurrent assets
c. Current liabilities
d. Equity

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. 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 everytime 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

13. Which of the following statements in relation to the cash short or over account is true?
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

14. In preparing a bank reconciliation, interest paid by the bank on the account is
a. Added to the bank balance
b. Subtracted from the bank balance
c. Added to the book balance
d. Subtracted from the book balance

15. Bank statements provide information about all of the following, except
a.checks cleared during the period
b.errors made by the company
c.NSF checks
d.bank charges for the period

3. Seldom does the balance of the cash in bank account in the depositor’s books agree with the balance
appearing in the bank statement at a particular date because of
a. Bank secrecy requirements
b. Negligence by the bookkeeper
c. A tax avoidance scheme
d. Time – lapse differences
7. If the cash balance shown in a company’s accounting records is less than the correct cash balance, and
neither the company nor the bank has made any errors, there must be
a. deposits credited by the bank but not yet recorded by the company
b. outstanding checks
c. bank charges not yet recorded by the company
d. deposit in transit