AE 15 REVIEWER QUIZ #1
TOPIC: Cash and Cash Equivalents, Bank Reconciliation, Proof of Cash (Theories)
TRUE OR FALSE
TRUE 1. Savings accounts are usually classified as cash on the balance sheet.
TRUE 2. Cash in foreign currency is valued at current exchange rate.
FALSE 3. Companies include customers' postdated checks and petty cash funds as cash.
FALSE 4. Cash equivalents are investments with original maturities of six months or less.
FALSE 5. Bank overdrafts are always offset against the cash account in the balance sheet.
TRUE 6. Short-term, highly liquid investments may be included with cash on the balance sheet.
TRUE 7. Both a debit memo for NSF check or debit memo for bank service charge are book
reconciling items that are added to the book balance.
TRUE 8. A debit balance in Bank account in the Cash book appears as a credit balance in the Bank
statement.
TRUE 9. Savings account is an account where a passbook is required in making deposits and
withdrawals.
TRUE 10. The procedures followed for a one-date reconciliation are the same for a two-date bank
reconciliation.
TRUE 11. Legally, when a deposit is made, there exists a debtor-creditor relationship between the
bank-debtor and the depositor-creditor.
FALSE 12. Bank service charges are an example of credit memos.
TRUE 13. The bottom-line figure in a bank reconciliation prepared under the adjusted balance
method is the correct amount of cash balance to be presented in the financial statements.
TRUE 14. Deposits in transit would not need an adjusting entry on the part of the depositor company.
TRUE 15. The bank increases the bank balance of the depositor through a credit.
MULTIPLE CHOICE
1. 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
2. Cash equivalents are
a. Short-term and highly liquid investment that are readily nonconvertible in to cash.
b. Short-term and highly liquid investment that are readily convertible into cash with remaining
maturity of three months.
c. Short-term and highly 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.
d. Short-term and highly liquid investments that are readily convertible into cash and so
near their maturity that they represent insignificant risk of changes in value because of
changes in interest rates
3. Which of the following items should not be included in the Cash caption on the balance
sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
4. All cash receipts are deposited intact and all cash disbursements are made by means of
check. This internal control is known as
a. administrative control
b. imprest system
c. accounting control
d. auditing control
5. In which account are post-dated checks received classified?
a. Receivables.
b. Prepaid expenses.
c. Cash.
d. Payables.
6. What is a compensating balance?
a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
d. Minimum deposits required to be maintained in connection with a borrowing
arrangement.
7. 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 interest rates.
8. Bank overdrafts, if material, should be
a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
9. 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.
10. Which of the following is an appropriate reconciling item to the balance per bank in a
bank reconciliation?
a. Bank service charge.
b. Deposit in transit.
c. Bank interest.
d. Chargeback for NSF check
11. Which of the following is not true?
a. The imprest petty cash system in effect adheres to the rule of disbursement by check.
b. Entries are made to the Petty Cash account only to increase or decrease the size of the fund or
to adjust the balance if not replenished at year-end.
c. The Petty Cash account is debited when the fund is replenished.
d. All of these are not true.
12. Petty cash fund is
a. Separately classified as current asset
b. Is money kept on hand for making minor disbursements of coins and currency rather
than by writing checks
c. Set aside for payment of payroll
d. Restricted cash
13. The petty cash fund under the imprest system is debited
a. Only when the fund is created.
b. When the fund is created and every time it is replenished.
c. When the fund is created and the size of the fund is increased.
d. When the fund is created and when the fund is decreased.
14. The journal entries for a bank reconciliation
a. are taken from the "balance per bank" section only.
b. may include a credit to Office Expense for bank service charges.
c. may include a debit to Accounts Receivable for an NSF check.
d. may include a debit to Accounts Payable for an NSF check.
15. A Cash Over and Short account
a. is not generally accepted.
b. is debited when the petty cash fund proves out over.
c. is debited when the petty cash fund proves out short.
d. is a contra account to Cash.
16. When preparing a bank reconciliation, bank credits are
a. added to the bank statement balance.
b. deducted from the bank statement balance.
c. added to the balance per books.
d. deducted from the balance per books.
17. To be reported as cash and cash equivalents, the cash and cash equivalent must be
a. Unrestricted in use for current operations
b. Available for the purpose of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank
18. Bank overdraft
a. Is a debit balance in cash in bank account
b. Is offset against demand deposit account in another bank
c. Which cannot be offset is classified as current liability
d. Which cannot be offset is classified as non-current liability
19. The journal entries for a bank reconciliation
a. are taken from the "balance per bank" section only.
b. may include a debit to Bank Service Charge Expense for bank service charges.
c. may include a credit to Accounts Receivable for an NSF check.
d. may include a debit to Accounts Payable for an NSF check.
20. Which of the following is not considered a cash equivalent?
a. A three-year treasury note maturing on May 30 of the current year purchased by the entity on
April 15 of the current year
b. A three-year treasury note maturing on May 30 of the current year purchased by the
entity on January 15 of the current year
c. A 90-day treasury bill
d. A 60-day money market placement
21. Which of the following items must be added to the cash balance per ledger in preparing
a bank reconciliation which ends with adjusted cash balance?
a. Note receivable collected by bank in favor of depositor and credited to the account of the
depositor
b. NSF customer check
c. Service charge
d. Erroneous bank debit
22. If the balance shown on 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
a. Deposits credited by the bank but not yet recorded by the entity
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity
23. Which of the following will not require an adjusting entry on the depositor’s books?
a. NSF check from customer
b. Check in payment of account payable as recorded by the depositor is overstated
c. Deposit of another entity is credited by the bank to the account of the depositor
d. Bank service charge
24. 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 depositor
25. Which of the following items on a bank reconciliation would require an adjusting entry
on the company’s books?
a. An error by the bank.
b. Outstanding checks.
c. A bank service charge.
d. A deposit in transit
