FINANCIAL ACCOUNTING AND REPORTING

Cash and Cash Equivalents

Bank Reconciliation
Proof of Cash
Contents
DISCUSSION QUESTIONS ......................................................................................... 3
MULTIPLE CHOICE PROBLEMS ............................................................................ 4
Petty cash fund .......................................................................................................... 4
Cash ........................................................................................................................... 4
Unrestricted cash ....................................................................................................... 5
Cash & cash equivalents ............................................................................................ 6
Cash - current assets ................................................................................................ 10
Bank reconciliation .................................................................................................. 11
Proof of Cash ........................................................................................................... 17
MULTIPLE CHOICE THEORY ............................................................................... 19
Cash ......................................................................................................................... 19
Cash equivalent ....................................................................................................... 20
Cash & cash equivalent ............................................................................................ 20
Internal control over cash........................................................................................ 21
Petty cash fund ........................................................................................................ 21
Presentation & disclosure........................................................................................ 23
Bank reconciliation .................................................................................................. 24
Proof of cash ............................................................................................................ 27
 Cash and Cash Equivalents
DISCUSSION QUESTIONS

1. What is cash?
2. What is the meaning of "unrestricted cash"?
3. What is the meaning of "cash equivalents"?
4. Explain the valuation of cash in the statement of financial position.
5. Explain the financial statement presentation and classification of cash and cash
equivalents.
6. Explain the classification of investments in time deposit, money market instrument,
and treasury bills.
7. Explain the treatment of foreign currency.
8. Explain the classification of a cash fund set aside for a certain purpose.
9. Explain the treatment of a bank overdraft.
10. What is a compensating balance? Explain the classification in the statement of
financial position.
11. Explain fully the treatment of compensating balance.
12. What is the meaning of undelivered check? Postdated check? Stale check?
13. Explain window dressing, lapping and kiting.
14. Explain the imprest system.
15. What are the two systems of handling petty cash fund? Explain briefly.
16. What is a bank reconciliation?
17. What are credit memos and debit memos?
18. Explain deposits in transit.
19. Explain outstanding checks.
20. What are the three forms of bank reconciliation?
21. What is a "proof of cash"?

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MULTIPLE CHOICE PROBLEMS

Petty cash fund

1. Liwanag Company reported petty cash fund with the following details:

Coins & Currencies 22,000

Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500
Loans to employees 3,500
A check drawn by the entity payable to the order of
Grace de la Cruz, petty cash custodian, representing her salary 15,000
An employee's check returned by the bank for insufficiency of funds 3,000

A sheet of paper with names of several employees together with contribution for a
birthday gift of a co-employee. Attached to the sheet of paper is a currency of 5,000
The petty cash general ledger account has an imprest balance of P50,000.
What is the amount of petty cash fund that should be reported in the statement of
financial position?
A. 22,000 C. 37,000
B. 27,000 D. 42,000

Cash
2. At year-end, Myra Company reported cash and cash equivalents which comprised
the following:

Cash on hand 500,000

Demand deposit 4,000,000
Certificate of deposit 2,000,000
Postdated customer check 300,000
Petty cash fund 50,000
Traveler's check ' 200,000
Manager's check 100,000
Money order 150,000

What total amount should be reported as "cash" at year-end?

A. 4,800,000 C. 6,800,000
B. 5,000,000 D. 7,000,000

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 Cash and Cash Equivalents
3. Dove Company reported checkbook balance on December 31, 2020 at P4,000,000.
Data about certain cash items follow:

 A customer check amounting to P200,000 dated January 2, 2021 was included

in the December 31, 2020 checkbook balance.
 Another customer check for P500,000 deposited on December 22, 2020 was
included in the checkbook balance but returned by the bank for insufficiency of
fund. This check was redeposited on December 26, 2020 and cleared two days
later.
 A P400,000 check payable to supplier dated and recorded on December 30,
2020 was mailed on January 16, 2021.
 A petty cash fund of P50,000 with the following summary on December
31,2020:

Coins and currencies 5,000

Petty cash vouchers 43,000
Return value of 20 cases of soft drinks 2,000
50,000

 A check of P43,000 was drawn on December 31, 2020 payable to Petty Cash.
What total amount should be reported as "cash" on December 31, 2020?
A. 3,748,000 C. 4,205,000
B. 4,200,000 D. 4,248,000

Unrestricted cash
4. Islander Company provided the following information with respect to the cash and
cash equivalents on December 31, 2020:

Checking account at First Bank (200,000)

Checking account at Second Bank 3,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account - unrestricted (in equivalent pesos) 2,000,000
Postage stamps 50,000
Employee's postdated check 300,000
IOU from president 750,000
Credit memo from a vendor for a purchase return 80,000
Traveler's check 300,000
Not-sufficient-fund check 150,000
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Petty cash fund (P20,000 in currency and
expense receipts for P30,000) 50,000
Money order 180,000

What amount should be reported as unrestricted cash on December 31, 2020?

A. 4,600,000 C. 5,900,000
B. 4,900,000 D. 6,900,000

Cash & cash equivalents

5. Everlast Company reported the following information at the current year-end:

 Investment securities of P1,000,000. These securities are share investments in

entities that are traded in the Philippine Stock Exchange. As a result, the shares
are very actively traded in the market.
 Investment securities of P2,000,000. These securities are government treasury
bills. The treasury bills have a 10-year term and purchased on December 31 at
which time they had two months to go until they mature.
 Cash of P3,400,000 in the form of coin, currency, saving account and checking
account.
 Investment securities of P1,500,000. These securities are commercial papers.
The term of the papers is nine months and they were purchased on December
31 at which time they had three months to go until they mature.

What total amount should be reported as cash and cash equivalents at the current
year-end?
A. 5,400,000 C. 6,900,000
B. 6,400,000 D. 7,900,000

6. On December 31, 2020, Roel Company reported cash accounts with the following
details:

Undeposited collections 60,000

Cash in bank - PCIB checking account 500,000
Cash in bank - PNB (overdraft) ( 50,000)
Undeposited NSF check received from customer, dated Dec. 1, 2020 15,000
Undeposited check from a customer, dated January 15, 2021 25,000
Cash in bank - PCIB (fund for payroll) 150,000
Cash in bank - PCIB (saving deposit) 100,000
Cash in bank - PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank restricted 100,000
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 Cash and Cash Equivalents
IOUs from officers 30,000
Sinking fund cash 450,000
Financial asset held for trading 120,000

On December 31, 2020, what total amount should be reported as "cash and cash
equivalents"?
A. 810,000 C. 2,770,000
B. 2,660,000 D. 2,810,000

7. Campbell Company had the following account balances on December 31, 2020:

Petty cash fund 50,000

Cash in bank - current account 4,000,000
Cash in bank - sinking fund 2,000,000
Cash on hand 500,000
Cash in bank - restricted account for plant addition,
expected to be disbursed in 2021 1,500,000
Treasury bills 1,000,000

The petty cash fund included unreplenished December 2020 petty cash expense
vouchers of P10,000 and employee IOU of P5,000. The cash on hand included a
P100,000 check payable to Campbell dated January 15,2021. In exchange for a
guaranteed line of credit, the entity has agreed to maintain a minimum balance of
P200,000 in its unrestricted current bank account. The sinking fund is set aside to
settle a bond payable that is due on June 30, 2021. What total amount should be
reported as "cash and cash equivalents" on December 31, 2020?
A. 4,435,000 C. 5,535,000
B. 5,435,000 D. 7,435,000

8. Yasmin Company provided the following information on December 31, 2020:

Petty cash fund 50,000

Current account - First Bank 4,000,000
Current account - Second Bank (overdraft) ( 250,000)
Money market placement - Third Bank 1,000,000
Time deposit - Fourth Bank 2,000,000

 The petty cash fund included unreplenished December 2020 petty cash expense
vouchers for P15,000 and an employee check for P5,000 dated January 31,2021.
 A check for P100,000 was drawn against First Bank current account dated and
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recorded December 29,2020 but delivered to payee on January 15,2021.
 The Fourth Bank time deposit is set aside for land acquisition in early January
2021.

What total amount should be reported as "cash and cash equivalents" on December
31, 2020?
A. 4,130,000 C. 5,130,000
B. 4,880,000 D. 5,150,000

9. Karla Company provided the following information on December 31, 2020:

Cash on hand 500,000

Petty cash fund 20,000
Security Bank current account 1,000,000
PNB Current account No. 1 400,000
PNB Current account No. 2 ( 50,000)
BSP treasury bill - 60 days 3,000,000
BPI time deposit - 30 days 2,000,000

 The cash on hand included a customer postdated check of P 100,000 and postal
money order of P40,000.
 A check for P200,000 was drawn against Security Bank account, dated January
15, 2021, delivered to the payee and recorded December 31, 2020.
 The BPI time deposit is set aside for acquisition of equipment.
What total amount of cash and cash equivalents should be reported on December
31, 2020?
A. 1,970,000 C. 4,970,000
B. 4,770,000 D. 6,970,000

10. On December 31, 2020, Erika Company reported "cash account" balance per ledger
of P3,600,000 which included the following:

Demand deposit 1,500,000

Time deposit - 30 days 500,000
NSF check of customer 20,000
Money market placement due on June 30, 2021 1,000,000
Saving deposit 50,000
IOU from an employee 30,000
Pension fund 400,000
Petty cash fund 10,000
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 Cash and Cash Equivalents
Customer check dated January 31, 2021 60,000
Customer check outstanding for 18 months 30,000
3,600,000

 Check of P100,000 in payment of accounts payable was dated and recorded on

December 31, 2020 but mailed to creditors on January 15,2021.
 Check of P50,000 dated January 31, 2021 in payment of accounts payable was
recorded and mailed December 31,2020.
 The entity used the calendar year. The cash receipts journal was held open until
January 15, 2021, during which time P200,000 was collected and recorded on
December 31,2020.
What total amount should be reported as "cash and cash equivalents" on December
31, 2020?
A. 1,510,000 C. 1,960,000
B. 1,860,000 D. 2,010,000

11. Celine Company provided the following information on December 31, 2020:

Cash on hand 200,000

Petty cash fund 20,000
Philippine Bank current account 5,000,000
Manila Bank current account 4,000,000
City Bank current account (bank overdraft) (100,000)
Asia Bank saving account for equipment acquisition 250,000
Asia Bank time deposit, 90 days 2,000,000

Cash on hand included customer check of P30,000 dated January 10, 2021 received
on December 23, 2020.
Included among the checks drawn by Celine against the Philippine Bank current
account and recorded in December 2020 are:
* Check written and dated December 23, 2020 and delivered to payee on January
3, 2021, P25,000.
* Check written December 26, 2020, dated January 30, 2021, delivered to payee
on December 28, 2020, P45,000.
What total amount should be reported as cash and cash equivalents on December
31, 2020?
A. 11,160,000 C. 11,330,000
B. 11,260,000 D. 11,510,000

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Cash - current assets
12. Tawiran Company reported cash account which consisted of the following:

Bond sinking fund 1,500,000

Checking account in BPI (A P320,000 check is still outstanding
per bank statement) 3,155,000
Currency and coins awaiting deposit 1,135,000
Deposit in a bank closed by BSP 500,000
Petty cash fund (of which P10,000 in is the form of paid vouchers) 50,000
Receivables from officers and employees 175,000
6,515,000

What total amount of cash should be reported under current assets?

A. 4,330,000 C. 4,830,000
B. 4,440,000 D. 5,830,000

13. ABC Company provided the following information on December 31, 2020:

Balance per book 6,776,000

Balance per bank statement 6,532,000
Deposit in bank closed by BSP 1,600,000
Deposit in transit 1,234,000
Outstanding checks 987,000
Currency and coins counted 950,000
Petty cash fund (of which P10,000 is in the form of paid vouchers) 50,000
Bank service charge not yet taken up in the book 6,000
Bond sinking fund 1,000,000
Receivables from employees 70,000
Error in recording a check in the book. The correct amount as
paid by the bank is P89,000 instead of P98,000 as recorded
in the book, or a difference of 9,000

What total amount of cash should be reported as current asset on December 31,
2020?
A. 6,779,000 C. 8,769,000
B. 7,769,000 D. 9,309,000

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 Cash and Cash Equivalents
Bank reconciliation
Adjusted cash balance
14. Esteem Company provided the month-end bank statement which showed a balance
of P3,600,000. Outstanding checks amounted to P1,200,000, a deposit of P400,000
was in transit at month-end, and a check for P50,000 was erroneously charged by
the bank against the account. What amount should be reported as cash in bank at
month-end?
A. 2,050,000 C. 2,850,000
B. 2,750,000 D. 4,350,000

15. In an audit of Mindanao Company on December 31, 2020, the following data are
gathered:

Balance per book 1,000,000

Bank charges 3,000
Outstanding checks 235,000
Deposit in transit 300,000
Customer note collected by bank 375,000
Interest on customer note 15,000
Customer check returned NSF 62,000
Depositor's note charged to account 250,000

What is the adjusted cash in bank on December 31, 2020?

A. 1,065,000 C. 1,325,000
B. 1,075,000 D. 1,575,000

16. Core Company provided the following data for the purpose of reconciling the cash
balance per book with the balance per bank statement on December 31, 2020:

Balance per bank statement 2,000,000

Outstanding checks (including certified check of P100,000) 500,000
Deposit in transit 200,000
December NSF checks (of which P50,000 had
been redeposited and cleared by December 27) 150,000
Erroneous credit to Core's account, representing
proceeds of loan granted to another company 300,000
Proceeds of note collected by bank for Core, net of service
charge of P20,000 750,000

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What amount should be reported as cash in bank on December 31, 2020?
A. 1,400,000 C. 1,500,000
B. 1,450,000 D. 1,800,000

17. Aries Company kept all cash in a checking account. An examination of the
accounting records and bank statement for the month ended June 30, 2020 revealed
the following information:

 The cash balance per book on June 30 is P8,500,000.

 A deposit of P1,000,000 that was placed in the bank's night depository on June
30 does not appear on the bank statement.
 The bank statement shows on June 30, the bank collected note for Aries and
credited the proceeds of P950,000 to the entity's account.
 Checks outstanding on June 30 amount to P300,000.
 Aries discovered that a check written in June for P200,000 in payment of an
account payable, had been recorded in the entity's records as P20,000.
 Included with the June bank statement was NSF check for P250,000 that Aries
had received from a customer on June 26.
 The bank statement shows a P20,000 service charge for June.

What amount should be reported as cash in bank on June 30, 2020?

A. 8,300,000 C. 9,180,000
B. 9,000,000 D. 9,360,000

18. Ron Company provided the following data for the month of January of the current
year:

Balance per book, January 31 3,130,000

Balance per bank statement, January 31 3,500,000
Collections on January 31 but undeposited 550,000
NSF check received from a customer returned by the
bank on February 5 with the January bank statement 50,000
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not recorded
by depositor 5,000
A creditor check for P30,000 was incorrectly recorded in
the depositor's book as 300,000
A customer check for P200,000 was recorded by the depositor as 20,000
The depositor neglected to make an entry in its books for a check
drawn in payment of an account payable 125,000
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 Cash and Cash Equivalents
What is the adjusted cash in bank on January 31 ?
A. 2,950,000 C. 3,400,000
B. 3,130,000 D. 3,500,000

19. In reconciling the cash balance on December 31, 2020 with that shown in the bank
statement, Sam Company provided the following information:

Balance per bank statement 4,000,000

Balance per book 2,700,000
Outstanding checks 600,000
Deposit in transit 475,000
Service charge 10,000
Proceeds of bank loan, December 1, discounted for 6 months
at 12%, not recorded on Sam Company's books 940,000
Customer's check charged back by bank for absence of
counter signature 50,000
Deposit of P100,000 incorrectly recorded by bank as 10,000
Check of Sim Company charged by bank against Sam account 150,000
Customer's note collected by bank in favor of Sam Company.
Face 400,000
Interest 40,000
Total 440,000
Collection fee 5,000 435,000
Erroneous debit memo of December 28, to charge Sam
account with settlement of bank loan 200,000
Deposit of Sim Company credited to Sam account 300,000

What is the adjusted cash in bank on December 31, 2020?

A. 3,075,000 C. 4,015,000
B. 3,925,000 D. 4,315,000

20. Susan Company showed the following information on August 31, 2020.

Balance of cash in bank account 1,300,000

Balance of bank statement 1,200,000
Outstanding checks, August 31:
Number 555 10,000
761 55,000
762 40,000
763 25,000
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764 65,000
765 70,000
Receipts of August 31, deposited September 1 275,000
Service charge for August 5,000
NSF check received from a customer 85,000

The cashier-bookkeeper had misappropriated P30,000 and an additional P10,000 by

charging sales discounts and crediting accounts receivable. The stub for check
number 765 and the invoice relating thereto show that it was for P50,000. It was
recorded incorrectly in the cash disbursements journal as P70,000. This check was
drawn in payment of an account payable. Payment has been stopped on check
number 555 which was drawn in payment of an account payable. The payee cannot
be located. What is the adjusted cash in bank on August 31, 2020?
A. 1,200,000 C. 1,230,000
B. 1,210,000 D. 1,240,000

21. Mcbride Company provided the following data pertaining to the cash transactions
and bank account for May of the current year:

Cash balance per accounting record 1,719,000

Cash balance per bank statement 3,195,000
Bank service charge 10,000
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting record 12,000
Outstanding checks 685,000
Deposit of May 30 not recorded by bank until June 1 500,000
Proceeds of a bank loan on May 30, not recorded in
the accounting record, net of interest of P30,000 570,000
Proceeds from a customer's promissory note, principal
amount P800,000 collected by the bank not taken up in
the accounting record with interest 810,000
Check No. 1086 issued to a supplier entered in the accounting
record as P210,000 but deducted in the bank statement at an
erroneous amount of 120,000
Stolen check lacking an authorized signature deducted
from Mcbride's account by the bank in error 80,000
Customer's check returned by the bank marked NSF, indicating
that the customer's balance was not adequate to cover the
check; no entry has been made in the accounting record to
record the returned check 77,000
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 Cash and Cash Equivalents
What is the adjusted cash in bank?
A. 2,910,000 C. 3,000,000
B. 2,990,000 D. 3,080,000

22. Carefree Company prepared the following bank reconciliation on March 31:

Book balance 1,405,000

Add: March 31 deposit 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total 4,805,000
Less: Careless Company's deposit to our account 1,100,000
Bank service charge 45,000 1,145,000
Adjusted book balance 3,660,000

Bank balance 5,630,000

Add: Error on check No. 175 45,000
Total 5,675,000
Less: Preauthorized payments for water bills 205,000
NSF check 220,000
Outstanding check 1,650,000 2,075,000
Adjusted bank balance 3,600,000

Check No. 175 was made for the proper amount of P249,000 in payment of account.
However it was entered in the cash payments journal as P294,000. The entity
authorized the bank to automatically pay its water bills as submitted directly to the
bank. What is the adjusted cash in bank on March 31 ?
A. 2,880,000 C. 3,630,000
B. 3,600,000 D. 3,660,000

Cash balance per ledger

23. On June 30, 2020, the bank statement of Bougainvilla Company had an ending
balance of P3,735,000. The following data were assembled in the course of
reconciling the bank balance:

 The bank erroneously credited Bougainvilla Company for P21,000 on June 22.
 During the month, the bank charged back NSF checks amounting to P23,000 of
which P8,000 had been redeposited by June 25.
 Collection for June 30 totaling PI03,000 was deposited the following month.
 Checks outstanding on June 30 amounted to P302,000.
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 Note collected by the bank for Bougainvilla Company was P80,000 and the
corresponding bank charge was P5,000.

What is the unadjusted cash in bank per ledger on June 30, 2020?
A. 3,455,000 C. 3,557,000
B. 3,515,000 D. 3,497,000

Cash balance per bank statement

24. On March 31, 2020, Able Company received the bank statement. However, the
closing balance of the account was unreadable. Attempts to contact the bank after
hours did not secure the desired information. The following data are available in
preparing a bank reconciliation:

February 28 book balance 1,460,000

Note collected by bank 100,000
Interest earned on note 10,000
NSF check of customer 130,000
Bank service charge on NSF check 2,000
Other bank service charges 3,000
Outstanding checks 202,000
Deposit of February 28 placed in night depository 85,000
Check issued by Axle Company charged to Able's account 20,000

What is the cash balance per bank statement?

A. 1,338,000 C. 1,532,000
B. 1,435,000 D. 1,557,000

Deposit in transit
25. Kate Company shows a cash account balance per ledger of P1,652,000 at December
31. The bank statement, however, shows a balance of P2,090,000 at the same date.
The only reconciling items consist of a bank service charge of P2,000, a large
number of outstanding checks totaling P590,000 and a deposit in transit. What is the
deposit in transit in the December 31 bank reconciliation?
A. 150,000 C. 440,000
B. 154,000 D. 592,000

Outstanding checks
26. Grass Company provided the following information:

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Balance per bank statement July 31 1,240,000
Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo - service charges 10,000
Credit memo - collection of note by bank for Grass 300,000
Outstanding checks ?

An analysis of the canceled checks returned with the bank statement reveals the
following:
 Check for purchase of supplies was drawn for P60,000 but was recorded as
P90,000.
 The manager wrote a check for traveling expenses of P100,000 while out of
town. The check was not recorded.
What is the amount of outstanding checks on July 31 ?
A. 270,000 C. 610,000
B. 550,000 D. 970,000

Proof of Cash
27. Oro Company had the following bank reconciliation on March 31 of the current year:

Balance per bank statement, March 31 4,650,000

Add: Deposits in transit 1,000,000
Total 5,650,000
Less: Outstanding checks 1,250,000
Balance per book, March 31 4,400,000

Data per bank statement for the month of April follow:

Deposits 6,000,000
Disbursements 5,000,000

All reconciliation items on March 31 cleared through the bank in April. Outstanding
checks on April 30 totaled P750,000 and deposits in transit amounted to P1,500,000.
What is the amount of cash receipts per book in April?
A. 5,000,000 C. 6,500,000
B. 5,500,000 D. 7,500,000

THE NEXT ITEMS ARE BASED ON THE FOLLOWING

Lira Company prepared the following bank reconciliation dated June 30 of the current year.

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Balance per bank 9,800,000
Deposits in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000

There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for
July per bank statement. All reconciliation items on June 30 cleared the bank on July 31.
Checks outstanding amounted to P1,000,000 and deposits in transit totaled P1,200,000 on
July 31.

28. What is the amount of cash disbursements per book in July?

A. 7,600,000 C. 8,600,000
B. 8,400,000 D. 9,400,000

29. What is the adjusted cash in bank on July 31?

A. 6,300,000 C. 7,300,000
B. 6,500,000 D. 7,500,000

THE NEXT ITEMS ARE BASED ON THE FOLLOWING

Lazer Company had the following bank reconciliation on June 30, 2020:

Balance per bank statement, June 30 3,000,000

Deposit in transit 400,000
Total 3,400,000
Outstanding checks ( 900,000)
Balance per book, June 30 2,500,000

The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Lazer) 9,000,000
Disbursements (including P 140,000 NSF check and
P10,000 service charge) 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totaled P600,000 and the deposit in transit amounted to P1,000,000 on July31.

30. What is the cash balance per book on July 31?

A. 4,500,000 C. 5,400,000
B. 5,350,000 D. 5,550,000

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31. What is the amount of cash receipts per book in July?
A. 8,600,000 C. 9,600,000
B. 9,400,000 D. 9,800,000

32. What is the amount of cash disbursements per book in July?

A. 6,550,000 C. 6,850,000
B. 6,700,000 D. 7,300,000

MULTIPLE CHOICE THEORY

Cash
1. Which of the following is usually considered cash?
A. Certificate of deposit C. Money market saving certificate
B. Checking account D. Postdated check

2. Which of the following shall not be considered cash for financial reporting
purposes?
A. Coin and currency C. Money orders
B. IOUs D. Petty cash fund

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

A. Checking account balance C. Money market instrument
B. Currency D. Saving account balance

4. Which of the following should not be considered "cash"?

A. Certified check C. Personal check
B. Change fund D. Postdated check

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

A. Certified check C. Personal check
B. Manager check D. Travel cash advance

6. At the end of the current year, an entity had various checks and papers in the safe.
Which of the following should not be included in "cash" in the current year-end
statement of financial position?
A. US $20,000 cash.
B. Past due promissory note issued in favor of the entity by the President.
C. The entity's undelivered check payable to a supplier dated December 31 of the
current year.
D. Another entity's P150,000 check payable to the entity dated December 15 of the
current year.
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Cash equivalent
7. A cash equivalent is a short-term, highly liquid investment that is readily convertible
into known amount of cash and
A. Is acceptable as a means to pay current liabilities.
B. Has a current market value that is greater than the original cost.
C. Is so near maturity that it presents insignificant risk of change in interest rate.
D. Bears an interest rate that is at least equal to the prime interest rate at the date of
liquidation.

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

A. A 90-day T-bill
B. A 60-day money market placement
C. A three-year treasury note maturing on May 30 of the current year purchased by
the entity on April 15 of the current year
D. A three-year treasury note maturing on May 30 of the current year purchased by
the entity on January 15 of the current year

Cash & cash equivalent

9. What is the basic requirement for cash and cash equivalent?
A. Deposited in bank
B. Unrestricted in use for current operations
C. Set aside for the liquidation of long-term debt
D. Available for the purchase of property, plant and equipment

10. Which of the following should be excluded from cash and cash equivalents?
A. Time deposit which matures in one year.
B. A customer's check denominated in a foreign currency.
C. The minimum cash balance in the current account which is maintained to avoid
service charge.
D. A check issued by the entity on December 27 of the current year but dated
January 15 of next year.

11. All of the following can be classified as cash and cash equivalents, except?
A. A bank overdraft
B. Equity investments
C. Commercial papers held and due for repayment in 90 days
D. Redeemable preference shares acquired and due in 60 days

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12. Which is false concerning measurement of cash and cash equivalents?
A. Cash is measured at face value.
B. Cash in foreign currency is measured at the current exchange rate.
C. Cash equivalents should be measured at maturity value, meaning face value plus
interest.
D. If a bank or financial institution holding the funds of the entity is in bankruptcy
or financial difficulty, cash should be written down to estimated realizable
value.

Internal control over cash

13. Which of the following statements is incorrect?
A. Certain clerical personnel should be rotated among various jobs.
B. An entity's personnel should be given well-defined responsibilities.
C. The accounting function should be separated from the custodianship of assets.
D. The responsibility for receiving merchandise and paying for it should usually be
given to one person.

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

A. Use of a voucher system
B. Daily deposit of all cash received
C. Internal audits at irregular intervals
D. Combined responsibility for handling and recording cash

Petty cash fund

15. Petty cash fund is
A. Restricted cash
B. Set aside for the payment of payroll
C. Separately classified as current asset
D. Money kept on hand for making minor disbursements of coin and currency
rather than by writing checks

16. The internal control feature specific to petty cash is

A. Assignment of responsibility C. Proper authorization
B. Imprest system D. Separation of duties

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

A. To ease the payment of cash to vendors
B. To effectively control cash disbursements
C. To effectively plan cash inflows and outflows
D. To determine the honesty of the petty cashier
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18. The petty cash fund account under the imprest fund system is debited
A. Only when the fund is created.
B. When the fund is created and everytime it is replenished.
C. When the fund is created and when the fund is decreased.
D. When the fund is created and when the size of the fund is increased.
19. In reimbursing the petty cash fund, which of the following is true?
A. Cash in debited C. Petty cash is credited
B. Expense accounts are debited D. Petty cash is debited
20. Which of the following statements in relation to petty cash is incorrect?
A. The petty cash fund is reported as part of current assets.
B. The petty cash account is debited when the fund is replenished.
C. The imprest petty cash system in effect adheres to the rule of disbursement by
check.
D. 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.
21. When a petty cash fund is used, which of the following statements is true?
A. The reimbursement of the petty cash fund should be credited to the cash account.
B. The balance of the petty cash fund should be reported in the statement of
financial position as a long-term investment.
C. The petty cashier's summary of petty cash payments serves as a journal entry
that is posted to the appropriate general ledger account.
D. Entries that include a credit to the cash account should be recorded at the time
the payments from the petty cash fund are made.
22. A Cash Over and Short account
A. Is not generally accepted.
B. Is a contra account to cash.
C. Is debited when the petty cash fund proves out over.
D. Is debited when the petty cash fund proves out short.
23. 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.
B. 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.
C. The entry to account for daily cash sales for which a small amount of cash
shortage existed would include a debit to cash short or over account.
D. 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 amount.
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24. Which of the following statements in relation to petty cash fund is false?
A. Each disbursement from petty cash should be supported by a petty cash voucher.
B. The creation of a petty cash fund requires a journal entry to reflect the transfer
of fund out of the general cash account.
C. With the establishment of an imprest petty cash fund, one person is given the
authority and responsibility for issuing checks to cover minor disbursements.
D. At any time, the sum of the cash in the petty cash fund and the total of petty cash
vouchers should equal the amount for which the imprest petty cash fund was
established.

Presentation & disclosure

25. What is the treatment of customers' postdated checks?
A. Accounts payable C. Cash
B. Accounts receivable D. Prepaid expenses

26. If material, deposits in foreign bank which are subject to foreign exchange
restriction shall be classified
A. Be written off as loss.
B. As part of cash and cash equivalents.
C. Separately as current asset, with appropriate disclosure.
D. Separately as noncurrent asset with appropriate disclosure.

27. Under which classification is cash restricted for plant expansion reported?
A. Current assets C. Equity
B. Current liabilities D. Noncurrent assets

28. Bank overdraft generally should be

A. Reported as a current liability.
B. Reported as a deduction from cash.
C. Reported as a deduction from current assets.
D. Netted against cash and a net cash amount reported.

29. What is a compensating balance?

A. Saving account balance
B. Demand deposit account balance
C. Temporary investment serving as collateral for outstanding loan
D. Minimum deposit required to be maintained in connection with a borrowing
arrangement

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30. 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.
C. If legally restricted and held against long-term credit may be included among
current assets.
D. None of these

31. A compensating balance

A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as current
asset.
C. Which is not legally restricted as to withdrawal is classified separately as current
asset.
D. Which is legally restricted and related to a short-term loan is classified
separately as current asset.

32. 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 and regular accounts should be reported as current assets net of
the overdraft
B. The segregated and regular accounts should be reported as current assets, and
the overdraft should be reported as a current Iiability
C. The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft
D. 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

Bank reconciliation
33. A bank reconciliation is
A. A merger of two banks that previously were competitors.
B. A statement sent by the bank to depositor on a monthly basis.
C. A formal financial statement that lists all of the bank account balances of an
entity.
D. A schedule that accounts for the differences between an entity's cash balance as
shown in the bank statement and the cash balance shown in the general ledger.

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34. Bank statements provide information about all of the following, except
A. Bank charges for the period C. Errors made by the depositor
B. Checks cleared during the period D. NSF checks
35. 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. Service charge
B. NSF customer check
C. Erroneous bank debit
D. Note receivable collected by bank in favor of the depositor and credited to the
account of the depositor
36. When preparing a bank reconciliation, bank credits are
A. Added to the balance per book.
B. Added to the bank statement balance.
C. Deducted from the balance per book.
D. Deducted from the bank statement balance.
37. In preparing a bank reconciliation, interest paid by the bank on the account is
A. Added to the bank balance C. Subtracted from the bank balance
B. Added to the book balance D. Subtracted from the book balance
38. In preparing a monthly bank reconciliation, which of the following would be added
to the balance per bank statement to arrive at the correct cash balance?
A. Deposits in transit
B. Outstanding checks
C. Bank service charge
D. A customer's note collected by the bank on behalf of the depositor
39. Which of the following must be deducted from the bank statement balance in
preparing a bank reconciliation which ends with adjusted cash balance?
A. Certified check
B. Deposit in transit
C. Outstanding check
D. Reduction of loan charged to the account of the depositor
40. 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 in transit
B. Outstanding checks
C. Bank charges not yet recorded by the entity
D. Deposits credited by the bank but not yet recorded by the entity
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41. If the cash 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 in transit
B. Outstanding checks
C. Bank charges not yet recorded by the entity
D. Deposits credited by the bank but not yet recorded by the entity

42. Which of the following would not require an adjusting entry on the depositor's
books?
A. Bank service charge
B. NSF check from customer
C. Deposit of another entity is credited by the bank to the account of the depositor
D. Check in payment of account payable as recorded by the depositor is overstated

43. The adjusting entries for a bank reconciliation

A. Are taken from the "balance per bank" section only.
B. May include a debit to office expense for bank service charge.
C. May include a debit to accounts payable for an NSF customer check.
D. May include a credit to accounts receivable for an NSF customer check.

44. 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
A. Outstanding checks and deposits in transit.
B. Bank errors, outstanding checks and deposits in transit.
C. Book errors, bank errors, deposits in transit and outstanding checks.
D. All items except bank errors, outstanding checks and deposits in transit.

45. Which of the following statements in relation to bank reconciliation is true?

A. The cash amount reported in the statement of financial position must be the
balance reported in the bank statement.
B. Credit memos will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal.
C. Bank service charge will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal.
D. Outstanding checks will cause the cash balance per ledger to be greater than the
balance reported by the bank, all other things being equal.

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46. Which of the following statements is false?
A. A certified check is a liability of the bank certifying it.
B. A certified check is one drawn by a bank upon itself.
C. A certified check should not be included in the outstanding checks.
D. A certified check will be accepted by many persons who would not otherwise
accept a personal check.

Proof of cash
47. A proof of cash
A. Is a summary of cash receipts and cash payments.
B. Is a formal statement showing the total cash receipts during the year.
C. Is a physical count of currencies on hand at the end of reporting period.
D. Is a four-column bank reconciliation showing reconciliation of cash balances
per book and per bank at the beginning and end of the current month and
reconciliation of cash receipts and cash disbursements of the bank and the
depositor during the current month.

48. A proof of cash would be useful for

A. Discovering time lag in making deposits
B. Discovering cash receipts that have not been recorded in the journal
C. Discovering an inadequate separation of incompatible duties of employees
D. Discovering cash receipts that have been recorded but have not been deposited

***end of handouts***

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