QUESTION 21-12 MULTIPLE CHOICE

1. Which of the following should not be considered cash?

a. Petty cash fund

b. Money order

c. Coin and currency

d. IOU

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. Which of the following should not be included in cash?

a. Travel cash advance

b. Certified check

c. Personal check

d. Manager check

4. All of the following may be included in cash, except

a. Currency

b. Money market instrument

c. Checking account balance

d. Saving account balance’

5. Which statement is true about reporting bank overdraft under IFRS?

a. Overdraft typically cannot be offset against positive balance in other cash account but reported as
current liability.

b. Generally, cash overdraft is not allowed.

c. Overdraft can be offset against other bank account when payable on demand and often
fluctuates from positive to overdrawn as an integral part of cash management.

d. All of these statements are true about bank overdraft.

6. Technically, cash may not include

a. Foreign currency

b. Money order

c. Restricted cash

d. Undeposited customer check

7. Restricted deposits in foreign bank are classified as

a. Current asset with appropriate disclosure.

b. Noncurrent asset with appropriate disclosure

c. Be written off as loss.

d. As part of cash and cash equivalents.

8. What is a compensating balance?

a. Saving account balance

b. Demand deposit account balance

c. Temporary investment as collateral for loan.

d. Minimum deposit required to be maintained in connection with a borrowing arrangement

9. Compensating balance represents

a. Fund in a bank account that cannot be spent

b. Balance in a payroll checking account

c. Account that is subject to bank service charge

d. Account on which a bank pays interest

10. 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.

QUESTIONS 21-13 MULTIPLE CHOICE

1. A cash equivalent is a short-term highly liquid investment readily convertible into known amount of
cash and

a. Is acceptable as a means to pay current liability

b. Has a greater current market value

c. Bears prime interest rate

d. Is so near maturity that it presents insignificant risk of change in interest rate.

2. Highly liquid investments are cash equivalents if the maturity is 90 days or less

a. From the date the investments are acquired

b. From the end of the reporting period

c. From the date of issue of financial statements

d. From the beginning of reporting period

3. All can be classified as cash and cash equivalents, except

a. Redeemable preference shares due in 60 days

b. Commercial papers due for repayment in 90 days

c. Equity investments

d. A bank overdraft

4. Cash equivalents do not include

a. Money market funds

b. High grade marketable equity investments

c. BSP treasury bills

d. Commercial papers

5. Cash equivalents are

a. Treasury bills and money market instruments

b. Investments with original maturity of three months or less

c. Readily convertible into known amount of cash

d. All of these are features of cash equivalents.

QUESTION 21-14 MULTIPLE CHOICE

1. The internal control feature specific to petty cash is

a. Separation of duties

b. Assignment of responsibility

c. Proper authorization

d. Imprest system

2. 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

3. 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

4. Which statement in relation to an imprest petty cash is incorrect?

a. The imprest petty cash system in effect adheres to the rule of disbursement by check.

b. Entries are made to the petty cash account only to increase or decrease the size of the fund or to
adjust the balance if not replenished at year-end.

c. The petty cash account is debited when the fund is replenished

d. The petty cash fund is reported as part of cash and cash equivalents under current assets.

5. When an imprest petty cash fund is used, which statement is true?

a. The balance of the 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 as 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.

6. In reimbursing the imprest petty cash fund, which of the following statements is true?

a. Cash is debited

b. Petty cash is debited

c. Petty cash is credited

d. Expense accounts are debited

7. A cash over and short 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

8. 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

9. Which statement in relation to petty cash fund is false?

a. Each disbursement from petty cash should be supported by a petty cash voucher

b. The creation of 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 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.

10. Which statement in relation to 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 shall be considered a liability because the short-
changed customer will demand return of this amount.

QUESTION 21-15 Multiple Choice

1. A bank reconciliation is

a. A formal financial statement that lists all of the bank account balance 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 cash balance shown on the bank statement and
the cash balance shown on the general ledger.

2. 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

3. Which of the following would be added to the balance per bank statement to arrive at the correct
cash balance?

a. Outstanding check

b. Bank service charge

c. Deposit in transit

d. A customer note collected by the bank on behalf of the depositor

4. Which of the following must be deducted from the bank statement balance in preparing a bank
reconciliation which ends with adjusted cash balance?

a. Deposit in transit

b. Outstanding check

c. Reduction of loan charge to the account of the depositor

d. Certified check

5. 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 depositor

b. Outstanding checks

c. Deposits in transit

d. Bank charges not yet recorded by the depositor

6. 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 depositor

b. Deposits in transit

c. Outstanding checks

d. Bank charges not yet recorded by the depositor

7. 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 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

8. Bank statements provide information about all of the following except

a. Checks cleared during the period

b. NSF checks

c. Bank charge for the period

d. Errors made by the depositor

9. Which statement in relation to a certified check is not true?

a. A certified check is a liability of the bank certifying it.

b. A certified check will be accepted by many persons who would not otherwise accept a personal check.

c. A certified check is one drawn by a bank upon itself.

d. A certified check should not be included in the outstanding checks.

10. Which statement in relation to the bank reconciliation 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. Credit memos will cause the cash balance per ledger to be higher than that reported by the bank, all
other things being equal.

c. Outstanding checks will cause the cash balance per ledger to be higher than that reported by the
bank, all other things being equal.

d. The cash amount reported in the statement of financial position must be the balance reported in the
bank statement.