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FARC

The document outlines various aspects of cash and cash equivalents for financial reporting, including what is considered cash, items excluded from cash, and the treatment of bank overdrafts. It explains concepts such as compensating balances, bank reconciliations, and the appropriate accounting entries for petty cash and bank service charges. Additionally, it discusses the preferred method for bank reconciliation and the treatment of highly liquid investments.

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53 views3 pages

FARC

The document outlines various aspects of cash and cash equivalents for financial reporting, including what is considered cash, items excluded from cash, and the treatment of bank overdrafts. It explains concepts such as compensating balances, bank reconciliations, and the appropriate accounting entries for petty cash and bank service charges. Additionally, it discusses the preferred method for bank reconciliation and the treatment of highly liquid investments.

Uploaded by

DustinEarth Buyo Montebon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Which of the following is not considered cash for financial reporting purposes?

D. Postdated checks and I.O.U.'s

EXPLANATION Postdated checks and IOUs are not considered cash because they represent a future
promise of payment, not immediate liquidity.

2. Which of the following is considered cash?

B. Money orders

EXPLANATION: Money orders are considered cash because they are readily accepted as payment and
can be easily converted to cash.

3. Which of the following items should not be included in the Cash caption on the statement of financial
position?

D. Postage stamps on hand

EXPLANATION: Postage stamps are considered a prepaid expense, not cash, because they represent the
future use of a service, not immediate liquidity.

4. All of the following may be included under the heading of "cash" except

B. money market funds.

EXPLANATION: Money market funds are considered short-term investments, not cash, because they are
not immediately available for use as payment.

5. What is a compensating balance?

D. Minimum deposits required to be maintained in connection with a borrowing arrangement.

EXPLANATION: A compensating balance is a minimum amount of money that a borrower must keep in a
bank account as a condition for a loan.

6. Under which section of the statement of financial position is "cash restricted for plant expansion"
reported?

B. Non-current assets.

EXPLANATION: Cash restricted for plant expansion is reported as a non-current asset because it's not
available for general use and is earmarked for a long-term investment.

7. Bank overdrafts generally should be

D. reported as a current liability.

EXPLANATION: Bank overdrafts represent an amount owed to the bank, making them a current liability.
8. Which of the following is an appropriate reconciling item to the balance per bank in a bank
reconciliation?

B. Deposit in transit.

EXPLANATION: A deposit in transit is a deposit made by the company but not yet recorded by the bank.
It needs to be added to the balance per bank.

9. Which of the following is not true?

C. The Petty Cash account is debited when the fund is replenished.

EXPLANATION: When replenishing a petty cash fund, you are essentially bringing the cash balance back
up to its original amount. This is done by crediting Cash and debiting the various expense accounts that
were paid from the petty cash fund.

10. The journal entries for a bank reconciliation

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

EXPLANATION: Bank service charges are expenses incurred by the company and need to be recorded in
the company's books. This is done by debiting Office Expense and crediting Cash.

11. When preparing a bank reconciliation, bank credits are

C. added to the balance per books.

EXPLANATION: Bank credits represent items that increase the bank balance but haven't been recorded
by the company yet. To reconcile the balance per books, these credits need to be added.

12. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if
the investments have a maturity of 90 days or less

A. From the date of investments are acquired.

EXPLANATION: Because the 90-day maturity rule for cash equivalents is primarily based on the date the
investment is acquired.

13. In reimbursing the imprest petty cash fund, which of the following statements is true?

D. Expense accounts are debited

EXPLANATION: When reimbursing the petty cash fund, you're essentially replacing the cash used for
expenses. This means you debit the specific expense accounts that were incurred and credit cash.

14. Which does not require an adjusting entry on the depositor’s books?

C. Deposit of another company's credited to the account of our enterprise


EXPLANATION This scenario doesn't require an adjusting entry because the deposit was made in error
and doesn't represent a legitimate transaction for the depositor. The depositor would need to contact
the bank to rectify the error.

15. Which method of bank reconciliation is preferable?

A. Adjusted balance method

EXPLANATION: The adjusted balance method is often viewed as a clear and systematic approach to
reconcile bank statements because it straightforwardly leads to a reconciled cash balance and is useful
for understanding discrepancies between the bank and book balances.

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