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

Petty cash fund

Money orders
Coins and currencies
IOUs

2) Which of the following is usually considered cash?

Certificate of deposit
Checking account
Money market saving certificate
Postdated Check

3) A cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amount of cash and

Is acceptable as a means to pay current liabilities

Has a current market value that is greater than the original cost.

Bears an interest rate that is at least equal to the prime interest rate at the date of liquidation.

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

4) All of the following can be classified ae cash and cash equivalents, except

Redeemable preference shares acquired and due in 60 days

Commercial papers held end due for repayment in 90 days

Equity investments

A bank overdraft

5. Bank overdraft generally should be

Reported as a deduction from current assets.

Reported as a deduction from cash.

Netted against cash and a net cash amount reported

Reported as a current liability.

6) Deposits in foreign bank which are subject to foreign exchange restriction should be classified

Separately as current asset with appropriate disclosure.

Separately as noncurrent asset with appropriate disclosure.

Be written off as loss.

As part of cash and cash equivalents.

7) What is a compensating balance?

Saving account balance

Demand deposit account balance

Temporary investment serving as collateral for outstanding loan

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

8) A compensating balance

Must be included in cash and cash equivalent.

Which is legally restricted and related to a long-term loan is classified ag current asset.

Which is legally restricted and related to a short-term loan is classified Ueparately as current
asset.

Which is not legally restricted as •to withdrawal is classified separately a.s current asset.

P. 274

Which of the following should not be considered "cash"'

a. Change fund
b. Certified check
C. Personal check
d. Postdated check

2) All of the following may be included in "cash", except

a. Currency

b. Money market instrument

c. Checking account balance

d. Saving account balance

3. 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.

If legally restricted 'and held against long-term credits may be included,among current. assets.

None of these

4.. Which of the following is not considered as a cash equivalent?

a: A three-year treasury note maturing on 'January 31 of the next year purchased by the entity on
December 1 of the current year.

b, A three-year treasury note maturing January 31 of the next year purchased by the entity on
October 1 of the current year

c. A 90-day T-bill

d. A 60-day money market placement

5. At the end of the current year. an entity had cash accounts at three different banks. One account
is segregated solely for payment into a bond sinking fund. A second account, used for branch
operations, is overdrawn. The third account, used for regular corporate operations, has a
positive balance. How should these accounts be reported?

a. The segregated account should be reported as a noncurrent asset, the regular account should be
reported as a current asset, and the overdraft should be reported as a current liability

P. 276
1) Petty cash fund is
Money kept on hand for making minor disbursements

2) The internal control feature specific to petty cash is

Imprest system

3) What is the major purpose of an imprest petty cash fund?

To effectively control cash disbursements

4) The petty cash fund account under the imprest fund system is debited
When the fund is created and when the size of the fund is increased

5) A cash short and short account

Is debited when the petty cash fund proved out short

6) Which statement in relation to an imprest petty cash is incorrect?

The petty cash account is debited when the fund is replenished

7) When an imprest petty cash fund is used, which statement is true?

The reimbursement of the petty cash fund should be credited to the cash account
8) Which statement in relation to petty cash fund is false?
With the establishment of an imprest petty cash fund, one person is given the authority and
responsibility for issuing checks to cover minor disbursements

P. 278

1) Which of the following items must. be added to the caeh balance per ledger in preparing a
bank reconciliation which ends with adjusted cash balance?

Note receivable collected by bank in favor of the depositor and credited to the account of the
depositor

2. In preparing a bank reconciliation, interest paid by the bank on the combined current and
saving account is

Added to the bank balance

Subtracted from the bank balance Added to the book balance
Subtracted from the book balance

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

Outstanding check
Bank service charge
Deposit in transit
A customer's 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?

Deposit in transit

Outstanding check

c. Reduction of loan charged to the account ofthe

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

Deposits in transit

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

Deposits credited by the bank but not yet recorded by the entity
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 the depositor
should be recorded for

Bank errors, outstanding checks and deposits in transit.

All items except bank errors, outstanding checks and deposits in transit.

Book errors, bank errors, deposits in transit and outstanding checks.

Outstanding checks and deposits in transit.

8) Bank statements provide information about all of the following, except

Checks cleared during the period

NSF checks

Bank charges for the period

Errors made by the depositor

9) Which statement in relation to a certified check is false?

A certified check is one drawn by a bank upon itself

10) Which statement in relation to bank reconciliation is true?

Bank service charge will cause the cash balance per ledger to be higher than that reported by the
bank all other things being equal

ACCOUNT RECEIVABLE
1) Trade receivables are classified as current assets if these are reasonably expected to be
collected

Within one year or within the operating cycle, whichever is longer

2) Nontrade receivables are classifed as current assets only if these are reasonably expected to be
realize in cash

Within one year ,the length of the operating cycle notwithstanding

3) Which statement is true in relation to presentation of receivables in the statement of financial

position?

Trade receivables and nontrade receivables which are currently collectible may be presented as
one line item called "trade and other receivables"

4) Credit balances in accounts receivable are classified as

Current liabilities
5) Receivables from subsidiaries are classified as

Current assets

Noncurrent assets

Either as current or noneurrent depending on the expectation of realizing them within one year or
over one year

Partly current and partly noncurrent

6) Where the operating cycle extends beyond one year because of normal credit terms as in the
case of installment sales of household appliances

It is proper to classify the entire receivables as current assets with disclosure of the amount not
realizable within one year, if material

The entire receivables are shown as noncurrent assets.

The portion due in one year is shown as current and the balance a.s noncurrent.

The receivables are not. recognized.

7) In the case of long-term installments receivable as in real estate installment sales where a
major portion collected beyond the normal operating cycle

The entire receivables are shown as current without disclosure of the amount not currently due.

The entire receivables are shown as noncurrent.

Only the portion currently due is shown as current and the balance as noncurrent.

The entire receivables are shown as current with disclosure of the amount not currently due.

P.288

Which method of recording bad debt loss is consistent with accrual accounting?

Allowance method

Direct writeoff method

Percent of sales method

Percent of accounts receivable method

2) A method of estimating bad debts that focuses on the income statement rather than the
statement of financial position is the allowance method based on
Credit sales

3) A method of estimating uncollectible accounts that emphasizes asset valuation rather than
income meagurement is the allowance method based on

Aging of accounts receivable

Direct writeoff

Gross sales

Credit sales less returns and allowances

4) The advantage of relating the bad debt experience to accounts receivable is that this approach

Gives a reasonably accurate measurement of receivables in the statement of financial position

5) When a specific customer account receivable is written off as uncollectible, what will be the
effect on net income under the allowance and direct writeoff method?

No effect under allowance method and decrease under direct writeoff method

6) When the allowance method of recognizing uncollectible accounts is used, the entry to record
the writeoff of a specific account would

a. Decrease both accounts receivable and the allowance for uncollectible accounts

b, Decrease accounts receivable and increase the allowance for uncollectible accounts.

Increase the allowance for uncollectible accounts and decrease net income.

Decrease both accounts receivable and net income.

7) When an entity uses the allowance method for recognizing uncollectible accounts, the entry to
record the writeoff of a specific uncollectible account

a. Affects neither net income nor working capital

Affects neither net income nor accounts receivable

Decreases both net income and accounts receivable

Decreases both net income and working capital

8. When the allowance method of recognizing bad debt expense is used, the entries vat the time
of collection of an account previously written off would
a. Decrease the allowance for doubtful accounts

b. Increase net income

Have no effect on the allowance for doubtful accounts

Have no effect on net income

9. An entity uses the allowance method to recognize doubtful accounts expense. What is the
effect of a collection of an account previously written off?

a. No effect on both allowance for doubtful accounts and doubtful accounts expense

b. No effect on allowance for doubtful accounts and decrease in doubtful accounts expense

c. Increase in allowance for doubtful accounts and no effect on doubtful accounts expense

d. Increase in allowance for doubtful accounts and decrease in doubtful accounts expense

10. When an accounts receivable aging schedule is prepared, a series of computatibns is made to
determine the estimated unedlectible accounts. The resulting amount from this aging schedule

a. When added to the total accounts written off during the year is the desired credit balance of the
allowance for doubtful accounts at year-end

b. Is the amount of doubtful accounts expense for the year c. Is the amount that should be added
to the beginning allowance for doubtfu.l accounts. to get the doubtful accounts expense for the
year

d. Is the amount of desired credit balance ofthe allowance for doubtful accounts to be reported at
year-end

P. 291

1) Which method of determining bad debt expense does not Inatch expense and revenue?

Charging bad debts with a percentage of sales under the allowance method

Charging bad debts with a percentage of accounts receivable under the allowance method

Charging bad debts with an amount derived from aging the accounts receivable under the
allowance method

(d) Charging bad debts as accounts are written off as uncollectible

2) Which method of determining bad debt expense most closely matches expense to revenue?

Charging bad debts with percentage of sales for that period.

3. Which concept relates to the allowance method in accounting for uncollectible accounts
receivable?

Bad debt expense is an estimate based on historical and prospective information.

Bad debt expense is the actual amount determined to be uncollectible.

Bad debt expense is an estimate based only on aging of accounts receivable.

Bad debt expense is management determination of which accounts are considered doubtful.

4. Why is the allowance method preferred over the direct writeoff method of accounting for bad
debts?

Improved matching of bad debt expense with revenue is achieved.

5) Which of the following is not acceptable in estimating uncollectible accounts receivable?

No estimate of uncollectible accounts is made but accounts are written off when it is determined
that the accounts cannot be collected.

6) The estimate of uncollectible accounts receivable based on a percentage of sales

a. Emphasizes measurement of the net realizable value of. accounts receivable.

b. Emphasizes measurement of bad debt expense.

c.. Emphasizes measurement of total assets.

7) The entry debiting accounts receivable and crediting allowance for doubtful accounts would be
made when

a. A customer pays an account balance. b, A customer defaults on an account.

A previously defaulted customer pays the outstanding balance.

Estimated uncollectible receivables are too low.

8) A debit balance in the allowance for doubtful accounts

May occur before the end of period adjustment for uncollectible accounts

9) Which is not permitted in accounting for uncollectible accounts receivable

Direct writeoff method
10) When the direct write off method of recognizing bad debt expense is used, the entry to write
off a specific customer account would

Decrease both accounts receivable and net income

P.294

1) What is the theoretically correct method of recording cash discounts related to accounts
receivable

Net method

2) All of the following are problems, associated with the measurement of accounts receivable,
except
Cash discounts under the net method

3) When the allowance method of recognizing bad debt expense is used, the allowance for
doubtful accounts would decrease when
Specific uncollectible account is written off

4) Which item should be included in accounts receivable?

Allowance for doubtful accounts

Which of the following statements concerning compensating balance agreements is not true?

They always involve legal restrictions on the cash received.

When a company factors its accounts receivable, it

sells individual accounts to a financial institution.

What is "recourse" as it relates to selling receivables?

The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.

Which of the following statements is incorrect regarding the classification of accounts and notes
receivable?
Any discount or premium resulting from the determination of present value in notes receivable
transactions is an asset or liability respectively.

Travel advances should be reported as

receivables

Which of the following is not considered cash for financial reporting purposes?
Postdated checks and I. O. U's
Which of the following items should not be included in the Cash caption on the balance sheet?
D) Postage stamps on hand

In which account are post dated checks received classified?

Receivables

Which of the following statements is correct regarding accounts receivables?

Accounts receivables are claims held against customers and others for money, goods, or services

If a company employs the gross method of recording accounts receivable from customers, then
sales discounts taken should be reported as
a deduction from sales in the income statement

Which of the following would be included in cash and cash equivalents on the balance sheet?
A. commercial paper
B. bank overdrafts
C. sinking funds
D. compensating balances

A. commercial paper

Which of the following would be included in cash and cash equivalents on the balance sheet?
A. postdated checks
B. travel advance funds
C. certificates of deposit
D. undeposited credit cards
D. undeposited credit card sales receipts

Which of the following would NOT be considered a cash equivalent?

A. undeposited credit card sales receipts

B. money market fund securities
C. savings account fund to be used to retire bonds
D. commercial paper
C. savings account fund to be used to retire bonds

Items classified as "cash" on the balance sheet

A. may be subject to contractual restrictions
B. do not include negotiable checks or bank drafts
C. are limited to coins, currency, or bank drafts
D. must be available to pay current obligations
D. must be available to pay current obligations

Compensating balance agreements are held against short-term borrowings should

A. be separately classified as noncurrent assets on the balance sheet
B. not be shown on the balance sheet
C. be separately reported in the current assets portion of the balance sheet
D. only be described in the footnotes to the financial statements
C. separately reported in the current assets portion of the balance sheet

Which of the following would NOT be a contractual restriction to the cash available to pay
current obligations?
A. certificate of deposit
B. negotiable instruments
C. sinking fund
D. postdated checks
B. negotiable instruments

Compensating balance agreements that do NOT legally restrict the amount of funds shown on the
balance sheet should be reported in the
A. current asset section
B. long-term investment section
C. other asset section
D. notes of the financial statements
D. notes of the financial statements

Which of the following is a key element of internal control over cash payments?
A. requiring that all petty cash vouchers be approved by two signatures
B. periodically reconciling the cash account balance on the company's books to the bank
statement balance
C. making daily bank deposits
D. authorizing and verifying that all cash received is recorded daily
B. periodically reconciling the cash account balance on the company's books to the bank
statement balance

Which of the following is a key element of internal control over cash receipts?A. immediate
counting of cash in the cash register when a new cashier begins working
B. reconcile the bank account
C. authorize and sign checks only after the approval
D. making all payments by check
A. immediate counting of cash in the cash register when a new cashier begins working

All of the following are nontrade receivables EXCEPT

A. deposit paid to utility companies
B. promissory note from a customer
C. declared dividend from an investment
D. advances to executives and employees
B. promissory note from a customer

Most trade receivables are initially recorded at their

A. net realizable values
B. present values
C. discounted values
D. maturity values
D. maturity values

Which of the following statements about accounting for discounts is true?

D. the net price method highlights sales discounts not taken and the gross price method
highlights sales discounts taken

Which of the following is an advantage of using the net price method for recording cash
discounts on credit sales?
A. it simplifies recording of sales returns and allowances
B. it requires less record keeping than the gross method
C. it conservatively reflects current period sales revenue
D. it eases communication with customers about thier balances
C. it conservatively reflects current period sales revenue

DISADVANTAGE of using the gross price method to account for cash discounts extended by the
seller to its customer is that
A. the method reports accounts receivable at the net realizable value
B. the method requires more bookkeeping than the net price method
C. the method enables sales returns and allowances to be recorded at gross amounts
D. the method overstates current sales and accounts receivable
D. the method overstates current sales and account receivables

Which of the following methods is NOT an appropriate method for estimating bad debt expense
for companies whose uncollectibe accounts are material?
A. aging of accounts receivable
B. percentage of net credit sales
C. percentage of outstanding accounts receivable
D. direct write-off method
D. direct write-off method

Receivable from officers, employees, or affiliated companies should be reported in the

statement of financial position as

current assets, if collectible within twelve months

Which of the following is not a valid basis for using trade discounts as adjustment to list price?

To encourage collection of account within a specified period.

Under the allowance method of recording cash discounts, sales discounts are recorded

when offered at the date of sale.

An entity uses the allowance method of accounüng for uncollectible accounts. What is the effect
on profit and amortized cost of accounts receivable of the entry to write off a customer's
account?

Profit: None, amortized: none

When the allowance method of recognizing uncollectible accounts expense is used, the entries
at the time of collection of an account previously written off would

increase the allowance for uncollectible accounts.

If a company employs the goss method of recording accounts receivable from customers, then
sales discounts taken should be reported as

a deduction from sales in the statement of comprehensive income.

If a company employs the net method of recording accounts receivable from customers, then
sales discounts not taken should be reported as

a deduction from the gross accounts receivable to arrive at amortize cost.

What is the initial recognition basis of a non-interest bearing note received in exchange for
property?

At fair value of the property or note

Which form of receivable financing is equivalent to an absolute sale of accounts receivable?

Factoring

Which of the following is not a required disclosure for loans and receivables
Names of debtors who defaulted on the payment

Which of the following is true

A non interest bearing promissory note is measured on the statement of financial position at
face value less the amount of unamortized discount

The account crediten when a note receivable is discounted with recourse is

Liability on discounted notes

A company writes off as uncollectible an account receivable from a bankrupt customer. The
company has an adequate amount in its allowance for bad debts. This transaction will
Have no effect on total current assets
Which of the following is considered cash?
Money market checking account

A bank overdraft should be

Reported as current liability, where there is no valid basis for offsetting against another
bank account

In preparing a monthly bank reconciliation, which of the following items would be added to the
balance reported on the bank statement to arrive at the correct cash balance?

Outstanding checks

Bank service charge

Deposits in transit

A customer's note collected by bank on behalf of the depositor

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in
the depositor's records and to identify bank errors. Addustrnents should be recorded for

b. all items except bank errors, outstanding checks, and deposits in transit.

The journal entries for a bank reconciliation

may include a debit to Office Expense for bank service charges.

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

deposits credited by the bank but not yet recorded by the company.

Which of the following information is not provided in a bank statement?

Checks cleared during the period

Errors made by the company

NSF checks

Bank charges for the period

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

bank secrecy requirements.

negligence by the bookkeeper.

a tax avoidance scheme.

time-lapse differences.

I. Which of the following items must be added to the cash balance per ledger in preparing a bank
reconcibation which ends with adjusted cash balance?

Note receivable collected by bank in favor of the depositor and credited to the account Of
the depositor

NSF customer check

Service charge

Erroneous bank debit

2) In preparing a bank reconciliation, interest paid by the bank on the combined current and
saving account is

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

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

Outstanding check

Bank service charge

Deposit in transit

A customer's 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?

Deposit in transit

Outstanding check

Reduction of loan charged to the account of the depositor

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

Deposits credited by the bank but not yet recorded by the entity

Outstanding checks

Deposits in transit

Bank charges not yet recorded by the entity

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

Deposits credited by the bank but not yet recorded by the entity

Deposits in transit

Outstanding checks

Bank charges not yet recorded by the entity

7) Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed
the depositors records and to identify bank errors. Adjustments on the part of the depositor should
be recorded for

Bank errors, outstanding checks and deposits in transit.

All items except bank errors, outstanding checks and deposits in transit.

Book errors, bank errors, deposits in transit and outstanding checks.

Outstanding checks and deposits in transit.

8) Bank statements provide information about all of the following, except

Checks cleared during the period

NSF checks
Bank charges for the period

Errors made by the depositor

9) Which statement in relation to a certified check is false?

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.

A certified check is one drawn by a bank upon itself

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

10) Which statement in relation to bank reconciliation is true?

Bank service charge will cause the cash balance per ledger to be higher than that reported
by the bank, all other things being equal.

11) If a company employs the gross method of recording accounts receivable from customers,
hen

Reported as a deduction from accounts receivable in determining the nel realizable value of
accounts receivable.

Trade discounts should be reported as deduction from sales revenue.

Sales discounts taken should be reported as a deduction from sales revenue.

Sales discounts should be reported as an expense.

12) Advocates of the allowance method of recognizing bad debts argue that

It provides better matching of bad debts expense with revenue.

It provides better measurement of accounts receivable.

Both (a) and (b).

It avoids the use of estimates.

13) Which of the following methods of determining annual bad debts expense best achieves the
atching concept?

Percentage of sales

Percentage of ending accounts receivable

Percentage of average accounts receivable

Direct write-off

14) Which of the following generally provides a more accurate valuation of accounts receivable?

Direct write off

Allowance method using percentage of receivables

Allowance method using percentage of accounts sales with adjustment for the balance in the
allowance account

Allowance method using percentage of accounts sales with no adjustment for the balance in the
allowance account

1) Which of the following should be considered cash?

Certificates of deposit

Money market checking accounts

Money market savings certificates

Postdated checks

2) If the cash balance shown in an entity's accounting records is less than the correct cash balance
and neither the entity nor the bank has made any errors, there must be

Deposits credited hy the bank but not yet recorded by the entity.

Deposit in transit

Outstanding checks

Bank charges not yet recorded by the entity.

3) Bank reconciliation

Is the prccess of transferring money in or out of a bank account

Requires that evelY transaction which will result in a cash payment be verified, approved and
recorded before a bank check is prepared

Is an analysis that reflects the bank transactions made by a depositor.

d. Explains the difference between the bank balance and the balance shown in the
depositor's records.
4) If the cash balance in an entity's bank statement is less than the correct cash balance and
neither the entity nor the bank has made any errors, there must be

Deposits credited by the bank but not yet recorded by the entity.

b. Outstanding checks.

Bank charges not yet recorded by the entity,

Deposits in transit.

5) The journal entries for a bank reconciliation

Are taken from the "balance per bank"/section only.

May include a debit to Office Expense for bank service charges.

May include a credit to Accounts Receivable for an NSÉ check.

d. May include a debit to Accounts Payable for an NSF check.

6) A Cash Over and Short account

Is not generally accepted.

Is debited when the petty cash fund proves out over.

Is debited when the petty cash fund proves out short.

Is a contra account to Cash.

7) A cash equivalent is a short-term, highiy liquid investment that readily convertible into known
amounts of cash and

Is acceptable as a means to pay current liabilities

Has a current marketvalue that is greater than its original cost

Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation d

Is so near its maturity that it presents insignificant risk of changes in interest rates

8) Cash equivalents are

Short-term and highly liquid investments that are readily convertible into cash

b. Short-term and highly liquid investments that are readily converüble into cash with remaining
maturity of three months
Short -term and highiy liquid investments that are readily convertible into cash and so near their
maturity that they represent significant risk of changes in value because of changes in interest
rates.

Short -term and highly liquid investments that are readily convertible into cash so near
their maturity that they represent insignificant risk of changes in value because of changes
in interest rate

9) Bank overdrafts, if material, should

Be reported as a deduction from the current asset section.

Be reported as a deduction from cash.

Be netted against cash and a net cash amount reported

Be reported as a current liability.

10) The following statements relate to cash. Which statement is true?

C. Classification of a restricted cash balance as current or noncurrent should parailel the

ciassification of the related obligation for which the cash was restricted

d. Compensating balances required by a bank should always be excluded from cash and cash
equivalent".

11. Which is true when a petty Cash fund is used?

The petty cash fund balance should be reported as investment

The petty cashier's summary of petty cash payments serves as a journal entry that is posted to the
appropriate general ledger account.

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 payments from
the petty cash fund are made

12. What is the major purpose of an imprest petty cash fund?

a. To effectively plan cash inflows and outflows bi To ease the payment of cash to vendors.

To determine the honesty of the employees.

To effectively control cash disbursements.

13. Entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting procedure typically exemplifies the

a. Imprest petty cash system

Fluctuating petty cash system

internal control

Administrative control

14. Travel advances should be reported as

Suppiies.

Cash because they represent the equivalent of money

!nvestrnents.

Prepaid expense.

Which of the following is an approlriate reconciling item to the balance per bank in a bank
reconciliation
Deposit in transit

1) Which of the following statements concerning compensating balance agreements is not true?

a. They reduce the amount of cash available to the borrower.

They always involve legal restrictions on the cash received.

They increase the effective interest rate to the borrower.

They must be disclosed in the financial statements footnotes.

2) Compensating balance agreements that do not legally restrict the amount of funds shown on
the statement of financial position should

Be reported in the current asset section.

Be reported in the long — term investment section.

Be reported in the other asset section.

Be reported in the footnotes.

3) In order to be classified as cash equivalent, an investment must have a maturity date of

Less than six months c. Six to twelve months

Three months or less

4) Cash control systems are the methods and procedures used to

Ensure that current obligations are met.

Ensure that excess cash does not exist. Ensure the safeguarding of cash.
d. Ensure that unused cash in invested.

5 which of the following is classified as a current liability on the statement of financial

position?

Bank overdrafts

Post — dated checks

Customer non — sufficient fund checks

Travel advances

6. Which of the following is a key element of internal control over cash payments?

Periodically reconciling the cash account balance on the company's books to the bank statement
balance.

Making daily bank deposits.

Requiring that all petty cash vouchers be approved by two signatories. Authorizing and verifying
that all cash received is recorded daily.

7) all of the following may be included under the heading of "cash", except

a. Currency c. Checking account balance b

Money market certificates
d. Savings account balance

8) which of the following should be considered cash?

c. Money market savings certificates
Money orders
d. Treasury bills

10) deposits held as a compensating balance

a. Usually do not earn interest

If legally restricted and held against short-term credit may be included as cash

If legally restricted and held against long-term credit may be included among current

assets

None of these

1. Which of the following statements is not true?

The petty cash account is debited when the fund is replenished

The imprest petty cash system is effect adheres to the rule of disbursement by check

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

All of these are not true

2) what is the major purpose of an imprest petty cash fund?

effectively plan cash inflows and outflows

To ease payment of cash to vendors

To determine the honesty of the employees

To effectively control cash disbursements

3) which of the following instances is acceptable in as far as imprest system of the petty cash
fund is

The petty cash fund account is affected when che fund is used.

The general cash account is affected every end of the reporting period with regards to petty cash
fund.

The expenses incurred are recognized only when the petty cash fund is replemshed.

When no adjustment for expense items in the petty cash fund is made, the general cash account
becomes overstated at the end of the reporting period.

4 Which of the following statements is true when an imprest petty cash fund is used?

The petty cash fund should be reported as an mvestment

The petty cashier's summary of petty cash payments serves as a journal entry that is posted to the
appropriate general ledger account

The reimbursement of the petty cash fund should be recorded at the time payments from the petty
cash fund are made

d. Entries that include a credit to petty cash account should be recorded at the time
payments from the petty cash fund are made

5) the petty cash fund under the imprest fund system is debited?

Only when the fund is created

When the fund is created and every time it is replenished

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

6) entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting typically exemplifies the

a Imprest cash system c. Internal control

Fluctuating petty cash system d. Administrative control

7) All cash receipts are deposited intact and all cash disbursements are made by means of check

Administrative control c. Accounting control

b. Imprest system
d. Auditing control

8) Which of the following statements in relation to accounting for cash fund false?

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

The creation of a petty cash fund requires a journal entry to reflect the transfer out of the
general cash account.

At any time, the sum of the cash in the petty cash fund and the total of petty 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.

9) what happens when a petty cash is in use?

Expenses paid with petty cash are recorded when the fund is replenished.

Most small amounts are paid from cash receipts before they are deposited.

Petty cash is debited when then fund is replenished.

Pet ash is credited when the fund is replenished.

10. 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.

The entry to account for daily cash sales for which is a small amount of cash shortage
existed would include a debit to cash short or over account.
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.

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 account.

1) The category "trade receivables" includes

a. Advances to subsidiaries and affiliates.

Income tax refunds receivable.

•c. Claims against insurance companies for casualties sustained.

d. None of these.

2) which of the following should be recorded in Trade Receivables?

Receivables from officers

Receivables from customers on long-term contracts

Dividends receivable

None of these

3) If a company employs the gross method of recording accounts

a. Reported as a deduction from accounts receivable in determimng the net ealizable of accounts
receivable.

Trade discounts should be renorted as deduction from sales revenue.

Sales discounts taken should be reported as a deduction from sales revenue.

d. Sales discounts should be reported as an expense.

4) Advocates of the allowance method of recognizing bad debts argue that provides better
matching of bad debts expense with revenue.

It provides better measurement of accounts receivable.

Both (a) and (b).

It avoids the use of estimates.

5. Which of the following methods of determining annual bad debts expense best achieves the
matching concept?

Percentage of sales
Percentage of ending accounts receivable

Percentage of average accounts receivable

Direct write-off

6) Which the following generally provides a more accurate valuation of accounts receivable?

Direct write-off

Allowance method using percentage of receivables

Allowance method using percentage of accounts sales with adjustment for the balance in the
allowance account

Allowance method using percentage of accounts sales with no adjustment for the balance in the
allowance account

7) The advantage of relating a company's bad debt expense to its outstanding accounts receivable
is t this approach

a. Gives a reasonably correct statement of receivables in the balance sheet.

Best relates bad debts expense to the period of sale.

Provides better control over collection of receivables.

Makes estimates of uncollectable accounts unnecessary.

8) Under the allowance method of recording cash discounts, sales discounts are recorded

When offered at the date of sale.

When the account is collected within the discount period.

Only when not taken within the discount period.

When the customer pays beyond the discount period.

9) Which of the following is not a valid basis for using trade discounts as adjustment to list price?

a. To avoid frequent changes in price catalogues.

b, To encourage collection of' accounts within the specified period.

To make price differentials among different classes of customers. d To encourage customers to

buy in big quantities.

10. When th allowance method of recognizing uncollectible accounts expense is used, the entries
at the e of collection of an account previously written off would
Increase profit.

Decrease profit.

Increase the allowance for uncollectible accounts.

d. Increase the amortized cost of accounts receivable.

A bank reconciliation is

is formal financial statement that lists all of the bank account balance-of an enterprise. merger of
two banks that previously were competitors.

A statement sent by the bank to depositor on a monthly basis.

A schedule that accounts for the differences between an entity's cash balance as shown on
its bank statement and the cash balance shown in its general ledger

2. Which of the following items must be added to the cash balance per ledger in preparing a bank
reco ation which ends with adjusted cash balances?

NOte receivable collected by bank in favour of the depositor and credited to the account of
the depositor

NSF customer check

Service charge

Erroneous bank debit

3) preparing bank reconciliation, interest paid by the bank on the account is

Added to the bank balance

Added to the book balance

Subtracted from the bank balance d. Subtracted from the book balance

4) In preparing monthly bank reconciliation, which of the following items would be added to the
b ce per bank statement to arrive at the correct cash balance?

Outstanding checks d. A customefs note collected by the bank

b. Bank service charge on behalf of the depositor c Deposits in transit'

5) Which e following must be deducted from the bank statement balance in preparing a bank rec
clliation which ends with adjusted cash balance?

Deposit in transit c. Reduction of loan charged to the

Outstanding check amount of the depositor

d. Certified check

6. If the balance shown on an entity's bank statement is less than the correct cash balance and n
ler the entity nor the bank has made any errors, there must be

a. Deposits credited by the bank but not Deposits in transit not yet recorded by the entity
d. Bank charges not yet recorded by the

b. Outstanding checks entity

7. If the balance shown on entity's 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
c. Deposits in transit yet recorded by the entity d. Bank charges not yet recorded by th

b. Outstanding checks entity

1) Why would an entity sell accounts receivable to another entity?

To improve the quality of credit granting process

To limit its legal liability

To accelerate access to amount collected

d. To comply with customer agreements

2. Which of the following is a method to generate cash from accounts receivable?

a. Assignment

b. Factoring

C) Assignment and factoring

d. Assignment, factoring and discounting

3. The practice of realizing cash from trade receivables prior to maturity date is •widespread.
Which term is not associated with this .practice?

a. Hypothecation b Factoring

Defalcation

Pledging

4. When the accounts receivable are sold outright, the accounts receivable have been

a. Pledged k Assigned
Factored

d. Collateralized

5• It is a predetermined amount withheld by a factor as a Protection against customer returns,

allowances and other special adjustments.

Equity in assigned accounts

Service charge c Factor's holdback Loss on factoring