Cash, Receivables and Inventory

TRUE OR FALSE
1.
2.
3.

4.
5.

6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.

Accounts Receivables turnover is computed as net credit sales divided by net trade accounts receivable at the
end of the accounting period.
When a company reports a higher accounts receivable turnover ratio, then the number of days it takes to collect
the receivables has also increased.
While preparing the statement of cash flows, the reason that we must adjust sales revenue for the change in
acco unts receivables to convert the figure to cash collected from customers is that accounts receivable
represent sales revenue not collected from customers at the beginning and end of the accounting year.
Effective internal control of cash should include the separation of the duties for receiving and disbursing cash.
If a check received from a customer that has been deposited by the seller is returned with the bank statement
marked not sufficient funds (NSF), it would appear on the seller's bank reconciliation as a deduction from the
ending bank statement balance.
The primary purpose of preparing a bank reconciliation is to reconcile the bank balance at the end of the period
with the company's book balance at the end of the period.
When completing a bank reconciliation, bank service charges should be deducted from the company's cash
balance.
If a customer pays for merchandise using a credit card, the Sales Revenue recorded by the retailer will be more
than the amount of Cash recorded.
Under the completed-contract method of accounting for long-term construction projects, revenue is not
recognized until the project is complete.
"F.O.B. destination" means that title to the shipped goods passes to the buyer on the shipment date.
Most companies record revenue when they ship goods to customers not when they are delivered to customers.
Credit terms "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid
within two days, the full invoice price will be due in thirty days.
The sales returns and allowances account should be reported as a deduction from sales revenue because it is a
contra-revenue account.
Sales returns and allowances should be included as a selling expense.
Many merchants accept credit cards for the sale of goods because it can increa se the number of customers.
A company is thinking of borrowing money at an 18% annual interest rate in order to pay a P30,000 invoice
within the discount period. The invoice terms are 2/10, n/30. They shou ld borrow the money because they will
still have a net savings of 19.2%.
An entry to bad debts expense and the allowance for doubtful accounts is made to write off a customer's
account during the year when it is determined to be uncollectable.
When a particular account receivable is determined to be uncollectible, the entry to write off the account
requires a debit to the allowance for doub tful accounts.
The allowance for doubtful accounts normally has a debit balance after the year-end adju stment.
An entry to write off an uncollectible account does not change the net realizable value (book value) of accounts
receivable.
Activity-based cost (ABC) systems are designed to allocate direct labor costs to manufacturing activities.
Work in process inventories include only the costs of direct materials and direct labor.
When a perpetual inventory system is used, physical counts should be made periodically to confirm the
inventory balances on the books.
Abnormal shortages or thefts of inventory should be reported separately as operating expenses.
Normal inventory adjustments for shrinkage and breakage are reported as adjustments to cost of goods sold.
When the terms of a sale are FOB shipping point, goods in transit at year-end should be included in the
inventory of the seller.
Title to goods shipped FOB destination remains with the seller from the shipping point to the destination point.
Goods held by customers on approval should be excluded from the seller's inventory.
Consigned goods are reported by the consignor in inventory at the sum of their cost, handling and shipping
costs, and the estimated gross profit.
The LIFO conformity rule (IRS Regulations) does not permit companies to report inventory values using any
method other than LIFO in the financial statements or in the attached notes.
In a period of rising prices, the use of FIFO relates the current high costs of acquiring goods with rising sales
prices. As a result, FIFO tends to have a stabilizing effect on gross profit margins.
The gross method of accounting for purchase discounts is theoretically preferable to the net method.
The gross method of accounting for purchase discounts reflects the fact that discounts not taken are in effect
credit-related expenditures incurred for failure to pay within the discount period.
The specific identification method is a highly objective approach to matching historical costs with revenues.
Specific identification as an inventory method matches the flow of recorded costs to the physical flow of

40.

The gross profit method is based on an assumed relationship between gross profit and net sales.
41. The gross profit method is an alternative inventory costing method used in the preparation of annual financial
statements.
42. The gross profit method is useful when a periodic inventory system is used and inventories are required for
interim financial statements.
43. In applying the gross profit method of estimating inventory, the gross profit may be stated as either a
percentage of sales or a percentage of cost.
44. The markup percentage on sales can be expressed as the gross margin percentage less the cost percentage.
45. Overstating ending inventory will affect the balance sheet, but not the i ncome statement.
46. Under the lower-of-cost-or-market rule, market value is always the lowest of three amounts --replacement cost,
floor, and ceiling.
47. Overstating purchases will cause the gross margin to be understated by the same amount.
48. The lower-of-cost-or-market method may be applied to each inventory item, to major classes or categories of
inventory items, or to the inventory as a whole.
49. Application of lower of cost or market to individual items results in a higher inventory valuation than
application to classes of inventory or inventory as a whole.
50. In valuing inventories at the lower of cost or market, the ceiling limitation is applied so that inventories are not
valued at more than their net realizable value.
51. Overstating ending inventory in Period 1 will cause ending inventory in Period 2 to be understated by the same
amount.

MULTIPLE CHOICE
1.
a.
b.
c.
d.

An operating cycle
is twelve months or less in length.
is the average time required for a company to collect its receivables.
is used to determine current assets when the operating cycle is longer than one year.
begins with inventory and ends with cash.

2.

The amount reported as "Cash" on a company's balance sheet normally should exclude
a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.

3.

Which one of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of a company's assets.
b. Certain clerical personnel in a company should be rotat ed among various jobs.
c. The responsibility for receiving merchandise and paying for it should usually be given to one
person.
d. A company's personnel should be given well - defined responsibilities.

4.

If the balance shown on a company's bank statement 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 reco rded by the company.
d. deposits in transit.

5.

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. deposits in transit.
c. outstanding checks.
d. bank charges not yet recorded by the company.

7.

Which one of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of a company's assets.
b. Certain clerical personnel in a company should be rotated among various jobs.
c. The responsibility of receiving merchandise and paying for it usually should be given to one
person.

d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.
9. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a
a. quantity discount.
b. cash discount.
c. trade discount.
d. size discount.
10. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer
account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.
11. When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the
following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible account.
12. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a specific
uncollectible account would decrease
a. allowance for doubtful accounts.
b. net income.
c. net realizable value of accounts receivable.
d. working capital.
13. When a specific customer's account is written off by a company using the allowance method, the effect on net
income and the net realizable value of the accounts receivable is
Net Income
a.
b.
c.
d.

None
Decrease
Increase
Decrease

Net Realizable Value

of Accounts Receivable
None
Decrease
Increase
None

14. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a small
account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.
15. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the
allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.
16. The entry
Accounts Receivable
Allowance for Uncollectible Accounts
would be made when
a. a customer pays its account balance.
b. a customer defaults on its account.

xxx
xxx

b. Materiality
c. Full Disclosure
d. Conservatism
18. In
a.
b.
c.
d.

calculating a company's accounts receivable turnover, which of the following sets of factors would be used?
Net income and average accounts receivable
Average accounts receivable and average total assets
Average accounts receivable and net credit sales
Net credit sales and average stockholders' equity

19. Which of the following factors are used to compute the number of days' sales in accounts receivable?
a. Inventory turnover and 365 days
b. Net sales and average inventory
c. Accounts receivable turnover and 365 days
d. Average accounts receivable and cost of goods sold
20. Which of the following would
a.
b.
c.
d.

not be classified as cash?

Personal checks
Travelers' checks
Cashiers' checks
Postdated checks

21.

Which of the following is not a basic characteristic of a system of cash control?

a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals

22.

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 company.

23.

Which of the following items would be added to the book balance on a bank reconciliation?
a. Outstanding checks
b. A check written for P63 entered as P36 in the accounting records
c. Interest paid by the bank
d. Deposits in transit

24.

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.

25.

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?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customer's note collected by the bank on behalf of the depositor

26.

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's
records and to identify bank errors. Adjustments should be recorded for
a. bank errors, outstanding checks, and deposits in transit.
b. all items except bank errors, outstand ing checks, and deposits in transit.
c. book errors, bank errors, deposits in transit, and outstanding checks.
d. outstanding checks and deposits in transit.

1.

The use of the gross profit method assumes

a. the amount of gross profit is the same as in prior years.

required for inventory valuation are not available.

c. there is a significant change in the mix of products being sold.
d. the relationship between gross profit and sales remains stable over time.
3. The
a.
b.
c.
d.

gross profit method of inventory valuation is invalid when

there is substantial increase in the quantity of inventory during the year.
there is substantial increase in the cost of inventory during the year.
the gross margin percentage changes significantly during the year.
all ending inventory is destroyed by fire before it can be counted.

4. When the current year's ending inventory amount is overstated,

a. the current year's cost of goods sold is overstated.
b. the current year's total assets are understated.
c. the current year's net income is overstated.
d. the next year's income is overstated.
5. If
a.
b.
c.
d.

the ending inventory balance is understated, net income of the same period
will be overstated.
will be understated.
will be unaffected.
cannot be determined from the above information.

6. An
a.
b.
c.
d.

overstatement of ending inventory in Period 1 would result in income of Period 2 being

overstated.
understated.
correctly stated.
The answer cannot be determined from the information given.

7. Which statement is true about the gross profit method?

a. It may not be used to estimate inventories for annual statements.
b. It may not be used to estimate inventories for interim statements.
c. It may not be used by insurers of inventory.
d. It may not be used for internal estimates of inventory.
8. Which of the following will result if the current year's ending inventory amount is understated in the cost of goods
sold calculation?
a. Cost of goods sold will be overstated.
b. Total assets will be overstated.
c. Net income will be overstated.
d. Both a and c.
9. If ending inventory on December 31, 2004, is overstated by P30,000, what is the effect on net income for 2005?
a. Net income is overstated by P30,000.
b. Net income is understated by P30,000.
c. Net income is overstated by P60,000.
d. The answer cannot be determined from the information given.
10. The
a.
b.
c.
d.

retail inventory method is characterized by

the recording of sales at cost.
the recording of purchases at selling price.
the reporting of year-end inventory at retail in the financial statements.
the recording of markups at retail and markdowns at cost.

11. What is the maximum amount at which inventory can be valued when the goods have experienced a permanent
decline in value?
a. Historical cost
b. Sales price
c. Net realizable value
d. Net realizable value reduced by a normal profit margin
12. Net realizable value can be defined as
a. selling price.

b. 20 percent
c. 25 percent
d. 33 percent
14. When would the replacement cost of inventory be used as the market value under the lower-of-cost-or-market
method?
a. Always.
b. When replacement cost is above net realizable value.
c. When replacement cost is below net realizable value and above net realizable value less normal
profit margin.
d. When replacement cost is below net realizable value less normal profit margin.
15. If the replacement cost of a unit of inventory has declined below original cost, but the replacement cost exceeds net
realizable value, the amount to be used for purposes of inventory valuation is
a. net realizable value.
b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
16. Under generally accepted accounting principles, the lower-of-cost-or-market procedure for assigning a value to
inventory can be assigned to
a. total inventory.
b. groups of similar inventory items.
c. individual inventory items.
d. all of the above.
17. The lower-of-cost-or-market inventory procedure would be expected to result in the lowest inventory valuation
when applied to
a. total inventory.
b. groups of similar inventory items.
c. individual inventory items.
d. none of the above.
18. When valuing raw materials inventory at lower of cost or market, what is the general meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value
19. An
a.
b.
c.
d.

example of an inventory accounting policy that should be disclosed is the

effect of inventory profits caused by inflation.
classification of inventory into raw materials, work in process, and finished goods.
identification of major suppliers.
method used for inventory costing.

21. Which of the following statements is true?

A. revenue is usually recorded when goods are shipped
B. revenue is recorded when cash collection is made.
C. revenue is usually recorded upon delivery to the customer.
D. revenue is recorded either when the sale is made, collection occurs and/or delivery is made. It is the company's
decision.
22. A company that sells magazines and collects subscription fees prior to the publication and distribution of the
magazine. As the cash is received in advance from the customers, the company should record a debit to Cash and a
credit to
A. Sales revenue.
B. Prepaid expenses.
C. Unearned revenue.
D. Accounts payable.
23. Most companies usually recognize revenue as earned and record the revenue when
A. the customer's order is received
B. the order is shipped
C. the order is delivered
D. the return period is over.

D. The buyer will pay the shipping and title is exchanged when the goods are received by the customer.
25. On the income statement, the amount of sales returns and allowances is normally
A. added into selling expenses.
B. subtracted from gross margin to determine net sales.
C. added in the calculation of cost of goods sold.
D. subtracted from gross sales to determine net sales.
26. Which of the following statements is false?
A. Sales returns and allowances is always treated as a contra-revenue.
B. Sales returns and allowances, sales discounts and credit card discounts are always treated as selling expenses.
C. Credit card discounts and sales discounts can be treated as contra-revenue accounts or as selling expenses.
D. Sales discounts are used to encourage early payment by customers.
27. Credit terms of 2/10, n/30 indicate that a
A. two percent discount for early payment is available if the invoice is paid before the tenth day of the month
following the month to of sale.
B. two percent discount for early payment is available within ten days of the date of sale.
C. ten percent discount for early payment is available if the invoice is paid within two days of the date of the
invoice.
D. two percent discount for early payment is available if the invoice is paid after the tenth day, but before the
thirtieth day of the invoice date.
28. Miranda Corp. received an order from a customer on October 1. The toys were shipped on October 15. The
customer sent a check for full payment on November 5. Miranda received the check on November 10 and deposited
it in the bank account. Miranda should record sales revenue related to this series of transactions on
A. October 1.
B. October 15.
C. November 5.
D. November 10.
29. A customer purchased P5,000 of goods on credit from Discount Paper Supply on September 1. The customer
received the bill on September 13 and mailed a P5,000 check on September 30. Discount Paper Supply received the
check on October 4. In recording this transaction, Discount Paper Supply should credit Sales Revenue for P5,000 on
A. September 1. B. September 13. C. September 30.
D. October 4.
30. When a credit sale is made with terms of 2/10, net 30 on May 10 and the customer's check is received on May
19, which of the following is true about the May 19 journal entry?
A. The debit to cash will equal the credit to accounts receivable because the discount was recorded on May 10.
B. There will be a debit to sales discounts on May 10.
C. The debit to cash will be less than the credit to accounts receivable on May 19.
D. There will be a credit to sales discounts on May 19.
31. When goods are sold to a customer with credit terms of 2/10, n/30, the customer will receive a
A. 10% discount if they pay within 2 days.
B. 2% discount if they pay 10% of the amount due within 30 days.
C. 10% discount if they pay within 30 days.
D. 2% discount if they pay within 10 days.
32. A company had the following partial list of account balances at year -end: The amount of Net Sales shown on the
income statement would be
A. P91,900.
B. P 90,700.
C. P 89,900.
D. P88,600.
33. A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash
available to pay within the discount period, the manager of the company is considering borrowing money to take
advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate
associated with the sales discount. This annual rate is approximately
A. 56%.
B. 38%.
C. 25%.
D. 18%.
34. When credit terms for a sale are 2/15, n/40, the customer saves by paying the bill early. Approximately what
percent would this savings amount to on an annual basis?
A. 18%.
B. 20%.
C. 30%.
D. 37%.
35. What is the annual interest rate of a sales discount of 3/10, n/60?
A. 21.9%
B. 22.6%
C. 18.8%

D. 14.6%

A. Gross margin is reduced by sales returns and allowances, sales discounts and credit card discounts
B. Gross margin is increased by sales returns and allowances, sales discounts and credit card discounts
C. Gross margin is unchanged by sales returns and allowances, sales discounts and credit card discounts
D. Net income is increased by sales returns and allowances, sales discounts and credit card discounts
38. In 2006, Deckers gross profit percentage was 46.4% while their competitor, Timberland's percentage was 47.3%.
Which was the most likely reason for Timberland's higher percentage?
A. Higher selling prices
C. Ability to differentiate their product in consumers' eyes
B. Lower product cost as a percentage of sales
D. Lower cost of goods sold
39. Which of the following is the most likely cause of a decrease in a company's gross profit percentage? A. They
discounted their prices.
B. They reduced product cost as a percentage of sales.
C. They reduced their operating costs.
D. They sold fewer products.
40. Which of the following is the most likely cause of an increase in gross profit percentage?
A. selling products for higher prices
C. higher product costs
B. selling products with lower margins
D. selling fewer products
41. In 2009, Worldwide Waffles reported net operating revenues of P18.2 billion and cost of goods sold for P10.8
billion. Their gross profit percentage for 2009 was
A. 29.9%
B. 40.7%
C. 69.6%
D. None of these
43. When using the allowance method for accounting for bad debts, accounts receivable is reported on the balance
sheet at the expected net realizable value. When a particular receivable from a customer ultimately is determined to
be uncollectible and is written off, the recording of this event will
A. decrease the net realizable value of the accounts receivable.
B. have an effect that is not determinable from the information given.
C. increase the net realizable value of the accounts receivable.
D. have no effect on the net realizable value of the accounts receivable.
44. Assuming the allowance method for bad debts is used, when a customer's uncollectible account is written off, a
credit should be made to
A. Bad debt expense.
B. Allowance for doubtful accounts. C. Sales revenue. D. Accounts receivable.
45. On January 31, 2009, Klein Company wrote off an uncollectible account of P5,000. The allowance method is
used. The write-off would cause bad debt expense to
A. decrease by P 5,000.
B. increase by P 5,000. C. increase by P10,000.
D. not change.
46. Accrual accounting requires that the loss resulting from the failure of credit customers to pay their bills should
A. not be recorded until cash is collected from the customer in settlement of the account because that is the only sure
event.
B. be estimated in the period in which sales are made but should not be recorded until the customer defaults because
of the matching principle.
C. be estimated and recorded in the period in which sales are made so that expenses are matched with revenues.
D. be recognized in the period in which the account receivable proves to be uncollectible because that is the only
date when the loss will really be known.
47. Which generally accepted accounting principle best supports the establishment of the account, allowance for
doubtful accounts?
A. Matching principle.
B. Continuity principle.
C. Exception principle.
D. Revenue principle.
48. When the allowance method is used, the entry which is appropriate when a particular account is written off as
uncollectible should include a
A. debit to accounts receivable.
C. debit to allowance for doubtful accounts.
B. debit to bad debt expense.
D. debit to sales revenue.
51. At year end, Chief Company has a balance of P10,000 in accounts receivable of which P 1,000 is more than 30
days overdue. Chief has a credit balance of P 100 in the allowance for doubtful accounts before any year- end
adjustments. Chief estimates its bad debts losses at 1% of current accounts and 10% of accounts over thirty days.
What adjustment should Chief make to the allowance for doubtful accounts?

53. LRP Company uses the allowance method to record its bad debt expense. When the account of a particular
customer is deemed to be uncollectible and is written off, LRP will prepare a journal entry with a
A. debit to bad debt expense.
C. debit to accounts receivable.
B. credit to bad debt expense.
D. debit to allowance for doubtful accounts.
54. If a customer pays her bill after her account has already been written off, the company receiving the payment
should record the account reinstatement with
A. a credit to bad debt expense.
C. a credit to cash.
B. a credit to allowance for doubtful accounts.
D. a debit to bad debt expense.
55. When using the allowance method of accounting for bad debts, bad debt expense should be recorded A. as an
adjusting entry at the end of the accounting period.
B. when a particular account is written off.
C. whenever the allowance for doubtful accounts has a debit balance.
D. whenever the allowance for doubtful accounts has a zero balance.
56. Bad debt expense should
A. appear on the balance sheet as a contra-asset.
B. appear on the income statement as part of selling expenses.
C. appear on the income statement as a contra-revenue.
D. not appear in the financial statements.
57. Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works estimated that
P5,000 of the current P 98,000 of accounts receivable would be uncollectible. The allowance for doubtful accounts
had a P400 debit balance at year -end prior to adjustment. The amount of bad debt expense that should appear in
Rosco's income statement for the year is
A. P5,000.
B. P 5,400.
C. P 4,600.
D. P0.
58. Which of the following entries will affect both the balance sheet and the income statement?
A. A debit to bad debts expense and a credit to the allowance for doubtful accounts
B. A debit to the allowance for doubtful accounts and a credit to accounts receivable
C. A debit to accounts receivable and a credit to the allowance for doubtful accounts
D. None of the entries affects the balance sheet and income statement
59. In 2009, Deckers reported an accounts receivables turnover ratio of 6.8 and their competitor, Timberland's,
reported a ratio of 8.4. Which of the following is false?
A. Deckers needs to increase their ratio in order to improve collection time.
B. Deckers needs to focus on improving their credit and collection process.
C. Deckers has done a better job of collecting their accounts receivables than Timberland's.
D. Deckers requires more time to collect accounts receivables than Timberland's.
60. An increase in the accounts receivable turnover ratio will have what type of effect on cash?
A. Cause an increase in cash flow from operations
B. Cause a decrease in cash flow from operations
C. Cause no change in cash flow from operations
D. The effect on cash flow cannot be determined with the above information.
61. If Worldwide Waffles accounts receivable balance was P1,973 million in 2009 and P 1,814 million in 2008, the
impact on the statement of cash flows would be
A. An increase in cash flow from investing activities.
B. A decrease in cash flow from operating activities.
C. An increase in cash flow from operating activities.
D. A decrease in cash flow from investing activities.
62. Net income for Trex Outdoors in 2009 was P9,154 (in thousands). There was an addition to net income on the
statement of cash flows for P 2,106 (in thousands) for the change in accounts receivable. The accounts receivable
balance on December 31, 2008 was P 20,851 (in thousands). How much was the accounts receivable balance on
December 31, 2009?
A. P11,260 (in thousands) B. P 18,745 (in thousands) C. P 22,957 (in thousands) D. P 20,851 (in thousands)
63. The Mickey Company reported revenue of P30,752 million for 2009. Their accounts receivable balance was
P5,330 million in 2009 a nd P 4,912 million in 2008. Cash collected from customers equals
A. P25,013 million
C. P 30,334 million

D. a note received from a customer in settlement of an overdue account receivable.

65. When a depositor receives a bank statement indicating a "NSF check", he should
A. credit the cash account for the amount of the check.
B. record the amount as an expense of the current period.
C. credit a special receivable for the amount of the check.
D. debit sales revenue.
66. A deposit in transit on a bank reconciliation should be
A. added to the depositor's book cash balance.
B. subtracted from the depositor's book cash balance.
C. added to the bank statement balance.
D. subtracted from the bank statement balance.
67. Linetech Company's bank statement showed an ending balance of P 8,000. Items appearing in the bank
reconciliation included: outstanding checks, P 500; deposits in transit, P1,000; bank service charges, P 50; and Driver
Company's check erroneously deducted from Linetech's bank account by the bank, P250. The correct cash balance at
the end of the month should be reported as
A. P10,600
B. P 8,750
C. P 8,500
D. P8,250
68. Which of the following demonstrates a poor internal control procedure?
A. The bookkeeper makes cash deposits and records journal entries related to cash, while the treasurer prepares the
bank reconciliation.
B. The president, who does no bookkeeping, prepares the bank reconciliation each month.
C. The treasurer signs all checks after the bookkeeper prepares the supporting documents.
D. One bookkeeper prepares cash deposits and the other bookkeeper enters the collections in the journal and ledger.
69. The cash records and the bank statement of Frankel Company showed the following at the end of February 2009:
Outstanding checks at the end of January 2009, P 8,000; checks written by Frankel Company during February 2009,
P50,000; and checks cleared by the bank during February 2009, P 54,000. Therefore, the outstanding checks at the
end of February 2009, amounted to
A. P2,000.
B. P 4,000.
C. P 6,000.
D. P8,000.
70. The cash account and the December bank statement of Gomez Company showed the following: Deposits made
by Gomez Company during December 2009, P90,00 0; deposits reflected on the December 2009 bank statement,
P88,000; and deposits in transit on November 30, 2009, P5,000. Therefore, the deposits in transit at the end of
December 2009 amounted to
A. P10,000.
B. P 7,000.
C. P 5,000.
D. P 2,000.
71. To aid internal control, the individual authorized to sign checks should be the
A. supervisor of receiving. B. accounts payable bookkeeper.
C. treasurer.
D. purchasing agent.
72. Effective control of cash requires that
A. one person handle the receipts and disbursements of cash.
B. cash be deposited monthly in a bank.
C. there be approval of cash payments.
D. a reconciliation of the bank balance with the cash balance be prepared twice a year.
73. When preparing the monthly bank reconciliation, the accountant for Fareway Corporation discovered that a
check correctly written to one of Fareway's suppliers for P159 had been incorrectly recorded in the books as P195.
To correct the error, the accountant prepared an adjusting entry which required a debit to
A. Cash.
B. Bad debt expense.
C. Accounts receivable.
D. Purchases.
74. When preparing a bank reconciliation, which of the following would be deducted from the company's cash
balance?
A. Interest paid by bank. B. Deposit s in transit. C. Outstanding checks. D. Bank service charges.
75. Merchandise was sold on credit for P10,000, terms 2/10, n/30. The entry to record the cash collection should
include a
A. debit Cash, P 10,000, and credit Accounts Receivable, P 10,000, if collected within the discount period. B. debit
Cash, P10,000, and credit Accounts Receivable, P 9,800, and Sales Discount, P 200, if collected within the discount
period.

A. debit accounts receivable for P2,000.

B. credit sales revenue for P2,000.

C. credit sales revenue for P1,800.

D. credit unearned sales revenue for P2,000.

77. Under the installment method, revenue is recognized when the customer
A. orders the merchandise. B. receives the merchandise. C. receives the bill.

D. makes a cash payment.

78. Under the percentage-of-completion method, revenue is recognized

A. when construction begins on the project.
B. when the project is complete.
C. throughout the project, based upon the amount of work completed each year.
D. throughout the project, based upon the amount of cash received from the customer.
79. If a company uses the completed-contract method rather than the percentage -of-completion method, the total net
income the company recognizes from the beginning of the project throughout its completion A. will be greater if the
completed-contract method is used.
B. will be greater if the percentage-of-completion method is used.
C. will be the same for both methods.
D. will be greater for the completed-contract method only if the project takes longer than five years to complete.