THEORY OF ACCOUNTS

TOA_01: CASH AND CASH EQUIVALENENTS

LET’S GO!
1) To qualify for reporting as part of cash in the current assets section of the statement of financial position, cash item
must be any of the following, except:
A. Unrestricted
B. Intended for the payment of operating expenses
C. Cash fund for the acquisition of non-current asset which is expected to be disbursed within 12 months from
reporting date
D. Intended for the settlement of current liabilities

2) Which of the following is not considered cash for financial reporting purposes?
A. Petty cash funds and postal money order C. Dividend, interest and tax fund
B. Unrestricted compensating balances D. Postdated and stale checks from customers
3) Which of the following would not be classified as cash?
A. Personal checks B. Traveler’s check C. Cashier’s check D. Postdated checks
4) Which of the following is cash for financial reporting purposes assuming the balance sheet date is December 31, 2021?
A. Check payable to a supplier unreleased at the balance sheet date.
B. Check received from a customer dated January 5, 2022.
C. Check received from a customer marked as DAUD/DAIF.
D. Undeposited customer’s check which is already outstanding for more than 6 months at the balance sheet date.

5) Company’s unreleased or undelivered checks should be

A. Restored to cash account even though the said check is not recorded.
B. Restored to cash account only if the said check is previously recorded as a disbursement.
C. Reported as current receivable
D. Not reported at all

6) What is the proper accounting treatment for a stale check of the company?
A. Revert back to cash and accounts payable C. Ignored
B. Revert back to cash and credit gain D. Either A or B
7) Compensating balance
A. If legally restricted is reported as part of the regular cash account.
B. If legally restricted is reported as cash held as compensating balance and classified as current asset if related to
short term loan.
C. If legally restricted is reported as cash held as compensating balance and classified as current asset if related to
long term loan.
D. If not legally restricted is reported separately in the current asset section of the statement of financial position.

8) The following statements relate to Cash

I. Credit balances in bank accounts can be offset against demand deposit balances in other accounts in the same
bank, as well as, demand deposit balances in other banks.
II. Credit balances in bank accounts as shown in the books which cannot be offset are to be shown as current
liabilities.
A. True, true B. True, false C. False, true D. False, true
9) A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and
A. Is acceptable as a means to pay current liabilities.
B. Has a current market value that is greater than its original cost
C. 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 value because of the changes in market interest
rate.

10) Which of the following statement is not an example of cash equivalents?

A. 90-da treasury bills.
B. Treasury bills purchased one month prior to its maturity.
C. Money market fund purchased six months prior to its maturity but with remaining maturity of 2 months after the
balance sheet date.
D. Redeemable preference shares that are to be reacquired by the issuing corporation at a determined redemption
date purchased within 3 months before the redemption date.
11) Petty cash fund is established to
A. Pay small amounts of expenditures. C. East the payment of any disbursements of the company
B. Accommodate petty cash receipts and payments D. Determine the personality of the petty cash custodian
12) An employee asks for an authorized reimbursement of transportation charges out of the Imprest petty cash fund. To
document this transactions, the petty cash cashier should
A. Debit ‘transportation expense’ C. Credit ‘cash’
B. Debit ‘receivable from employee’ D. Prepare the petty cash voucher
13) In petty cash fund replenishment under imprest system
A. Expense accounts are credited C. Cash in bank is credited
B. Cash in bank is debited D. No journal entry
14) Which of the following is false when the petty cash fund proves out short?
A. Cash short and over account is debited
B. Cash short and over account is credited
C. Miscellaneous expense may be debited to close cash short/over account
D. Receivable from custodian may be debited to close cash short/over account

15) Bank statement may provide information about all of the following except
A. Total checks paid by the bank C. Deposit in transit
B. Total deposits acknowledged by the bank D. Bank service charge
16) In preparing monthly bank reconciliation, which of the following items would be deducted from balance of cash in order
to arrive at the correct cash balance for balance sheet purposes?
A. Bank service charge C. Erroneous bank charge
B. Deposit in transit D. Erroneous bank credit
17) In what way would erroneous bank credit affect the bank reconciliation?
A. Added to the book balance of cash C. Deducted from the book balance of cash
B. Added to the bank balance of cash D. Deducted from the bank balance of cash
18) 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 check
C. Bank charges not yet recorded by the company
D. Deposits in transit

19) 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. Deposit 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

20) Which of the following is a characteristic of a sound system of cash control?

A. Audited at announced date C. Combined responsibility of handling and recording cash
B. Monthly deposit of cash receipts D. Monthly preparation of bank reconciliation

END OF TOA_01: CASH AND CASH EQUIVALENTS

TOA_01: CASH AND CASH EQUIVALENENTS PAGE 2 OF 5
 SELF-TEST

1) Bank statement may provide information about all of the following except
A. Total checks paid by the bank C. Deposit in transit
B. Total deposits acknowledged by the bank D. Bank service charge
2) In preparing monthly bank reconciliation, which of the following items would be deducted from balance of cash in order
to arrive at the correct cash balance for balance sheet purposes?
A. Bank service charge C. Erroneous bank charge
B. Deposit in transit D. Erroneous bank credit
3) In what way would erroneous bank credit affect the bank reconciliation?
A. Added to the book balance of cash C. Deducted from the book balance of cash
B. Added to the bank balance of cash D. Deducted from the bank balance of cash
4) How will the following reconciling items be treated in a bank reconciliation that attempts to bring unadjusted bank
balance to its unadjusted book balance?
Outstanding Deposit in Credit Outstanding Deposit in Credit
Check Transit Memo Check Transit Memo
A. Added Deducted Added C. Added Added Deducted
B. Deducted Added Deducted D. Deducted Added Added
5) In preparing a bank reconciliation that uses that bank to book form, outstanding check is
A. Added to the bank balance of cash C. Not a reconciling item at all
B. Deducted from the bank balance of cash D. Deducted from the book balance
6) The following reconciling items are deducted from the bank balance of cash in order to arrive at the unadjusted book
balance of cash except
A. Erroneous bank credit C. Outstanding checks
B. Erroneous bank charge D. Proceeds of bank loan
7) Which will not require an adjusting entry in the depositor’s books?
A. Bank service charge
B. Credit memo
C. Deposit of another company is debited to the account of the depositor
D. Check in payment of account payable for P100 is recorded by the depositor as P10

8) The adjusting entries for a bank reconciliation

A. May include a debit to accounts receivable for overstatement of cash receipt arising from a collection of open
account.
B. May include a debit to accounts payable for overstatement of cash disbursements arising from payment of open
account.
C. May include a credit to cash for net proceeds of bank loan.
D. May include a credit to notes payable for net proceeds of note collected by the bank in behalf of the depositor.

9) The amount reported as “Cash” on a company’s balance sheet normally should exclude
A. Cash in a payroll account C. Postdated checks that are payable to the company
B. Petty cash D. Undelivered checks written and signed by the company
10) Which of the following would not be classified as cash?
A. Personal checks B. Traveler’s check C. Cashier’s check D. Postdated checks
11) What is the proper accounting treatment for a stale check of the company?
A. Revert back to cash and accounts payable C. Ignored
B. Revert back to cash and credit gain D. Either A or B
12) Which of the following is not basic characteristic of a system of cash control?
A. Use of voucher system.
B. Combined responsibility for handling and recording cash
C. Daily deposit of all cash received
D. Internal audit at irregular intervals

13) Bank statements provide information about all of the company except
A. Checks cleared during the period C. Bank charges for the period
B. NSF checks D. Errors made by the company

TOA_01: CASH AND CASH EQUIVALENENTS PAGE 3 OF 5
14) 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. Deposit in transit

15) In preparing a bank reconciliation, interest paid by the bank on the account is
A. Added to the bank balance C. Added to the book balance
B. Subtracted from the bank balance D. Subtracted from the book balance
16) 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. Deposit in transit
D. A customer’s note collected by the bank on behalf of the depositor.

17) 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 deposit in transit
B. All items except bank errors, outstanding checks, and deposits in transit.
C. Book errors, bank errors, deposit in transit, and outstanding checks.
D. Outstanding checks and deposit in transit.

18) Which of the following is not considered cash for financial reporting purposes?
A. Petty cash funds and change funds
B. Money orders, certified checks, and personal checks
C. Coin, currency, and available funds
D. Postdated checks and I.O.U.’s

19) Which of the following may qualify as cash equivalent?

A. Investment in ordinary shares acquired on December 31, 2021 expected to be sold within the next three months.
B. Treasury notes acquired on November 1, 2021, maturing on March 31, 2022.
C. One-year money market placements.
D. Investments in redeemable preference shares acquired on December 31, 2021, maturing on February 28, 2022.

20) Which of the following statements in incorrect?

A. Cash which is restricted and not available for use within ne year of the reporting period should be included in
noncurrent assets.
B. Cash in a demand deposit account, being held specifically for retirement of long-term debts not maturing currently,
should be excluded from current assets and shown as a noncurrent investment.
C. Investments which can be liquidated at once and with little risk of loss of principal may be classified as cash
equivalent and included in the caption “Cash and Cash Equivalents”.
D. Compensating balances are cash amounts that are not immediately accessible by the owners.
E. Cash and cash equivalents is always presented first in statement of financial position when presenting current and
non-current classifications.

21) Deposits held as compensating balances

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.

22) A petty cash system is designed to

A. Cash checks for employees C. Account for all cash receipts and disbursements
B. Handle cash sales D. Pay small miscellaneous expenses
23) In most situations, the petty cash fund is reimbursed just prior to the year end and an adjusting entry is made to avoid
A. The overstatement of cash and the understatement of expenses.
B. The understatement of cash and the overstatement of expenses.
C. The misstatement of revenues
D. The understatement of cash with the appropriate statement of expenses.

TOA_01: CASH AND CASH EQUIVALENENTS PAGE 4 OF 5
24) In replenishing a petty cash fund, which one of the following entries is required?
A. Debit Cash in Bank, credit individual expense accounts. C. Debit Patty Cash, and credit Cash in Bank
B. Debit individual expense accounts, credit Cash in Bank. D. Debit Cash in Bank, credit Petty Cash

25) Which cash item should be reported as current asset?

A. Cash segregated for payment of long-term bonds payable.
B. Cash set aside for the acquisition of furniture and fixtures.
C. Restricted compensating balance for which the related loan is short-term.
D. Restricted compensating balance for which the related loan is long-term.

26) Which of the following checks would not be classified as cash?

A. Traveler’s check B. Manager’s check C. Undelivered check D. None of the above
27) Which of the following is false about erroneous bank charge?
A. Cash balance per bank is understated
B. Disbursement per bank is overstated
C. It should be recorded as a debit to cash in bank account
D. It should be added to balance per bank in preparing bank reconciliation

28) Which of the following explains the imprest system of operating petty cash?
A. Weekly expenditure cannot exceed a set amount.
B. The exact amount of expenditure is reimbursed at intervals to maintain a fixed float.
C. All expenditure out of the petty cash must be properly authorized.
D. Regular equal amounts of cash are transferred into petty cash at intervals.

29) Which of the following is cash for financial reporting purposes assuming the balance sheet date is December 31, 2021?
A. Check payable to a supplier unreleased at the balance sheet date.
B. Check received from a customer dated January 5, 2022.
C. Check received from a customer marked as DAUD/DAIF.
D. Undeposited customer’s check which is already outstanding for more than 6 months at the balance sheet date.

30) The following reconciling items are deducted from the bank balance of cash in order to arrive at the unadjusted book
balance of cash expect
A. Erroneous bank credit B. Outstanding check C. Credit memo D. Erroneous bank charge

END OF TOA_01: SELF TEST

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