CASH AND CASH EQUIVALENTS
THEORY
1. Cash and cash equivalents on the balance sheet may include the following items
I. Currency or cash items on hand
II. Deposits in foreign countries which are subject to foreign exchange restrictions
III. Short-term placements of excess cash which can be pre-terminated
IV. Postdated checks
V. Cash set aside for the acquisition or construction of noncurrent assets
a. 1, 2 and 3 only
b. 2, 3 and 5 only
c. 1 and 3 only
d. Not given
2. Cash equivalents are
a. Short-term and highly liquid investments that are readily convertible into cash
b. Short-term and highly liquid investments 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
acquired three months before maturity
d. Short-term and highly liquid marketable equity securities
3. All of the following can be classified as cash and cash equivalents, except
a. Bank drafts
b. Equity investments
c. Loan notes held due for repayment in 90 days
d. Redeemable preference shares acquired and due in 60 days
4. Which of the following items should not be included in “cash”?
a. Coins and currency in the cash register
b. Amounts on deposit in checking account at the bank
c. Checks from other parties presently in the cash register
d. Money market placement
5. Which of the following is not considered cash for financial reporting purposes?
a. Bank charges for the period c. Petty cash funds and change funds
b. Errors made by the company d. Postdated checks and IOUs
6. What is a compensating balance?
a. Savings account balances
b. Margin account held with brokers
c. Temporary investment serving as collateral for outstanding loan
d. Minimum deposit required to be maintained in connection with a borrowing
arrangement
7. If the deposit is legally restricted as to withdrawal, the compensating balance related to a
long-term loan is shown as
a. Cash
b. Other asset
c. Long-term investment
d. Current liability
8. Bank overdraft, 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. If a financial institution has cash funds in a company, which is in bankruptcy, and the amount
recoverable is estimated to be lower than the face amount, cash should be
a. Eliminated from the balance sheet
b. Written down to its discounted or present value
c. Written down to estimated realizable value
d. Stated at face amount
10. The following statements relate to cash. Which statement is true?
a. The term “cash equivalent” refers to demand credit instruments such as money order
and bank drafts
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to
cover all normal operating expenses for a period of time
c. Classification of a restricted cash balance as current or non-current should parallel the
classification of the related obligation for which the cash was restricted
d. Compensating balances required by a bank should always be excluded from “cash and
cash
equivalent”
11. 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
12. 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
13. Entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
a. Imprest petty cash system
b. Fluctuating petty cash system
c. Internal control
d. Administrative control
14. What is the major purpose of an imprest petty cash fund?
a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the employees
d. To effectively control cash disbursements
15. A cash over or 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. Which is true when a petty cash fund is used?
a. The petty cash fund balance should be reported as investment
b. The reimbursement/replenishment of the petty cash fund should be debited to
expenses and credited to the cash account
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
payments from the petty cash fund are made
17. The following statements relate to the petty cash fund. Which statement is true?
a. The amount of coins and currency in the petty cash fund is the same before the fund
is reimbursed as it is afterwards
b. Entries to record the replenishment of the imprest petty cash fund result in debit to
various expense accounts and a credit to the petty cash funds
c. At any time, the sum of the cash in the petty cash fund and the total petty cash
vouchers should equal the amount for which the imprest petty cash fund was
established
d. Under the imprest petty cash system, it is not necessary to adjust unreplenished petty
cash expenses at end of the year
18. A bank reconciliation is prepared monthly in order for the enterprise to
a. Arrive at the correct cash balance
b. Correct bank errors
c. Correct book errors
d. Unearth any undetected cash fraud
19. Bank reconciliation
a. Is the process of transferring money in or out of a bank account
b. Requires that every transaction which will result in a cash payment be verified,
approved and
recorded before a bank check is prepared
c. Is an analysis that reflects the bank transactions made by a depositor
d. Explains the difference between the bank balance and the balance shown in the
depositor’s records
20. A bank statement provides information about all of the following, except
a. Bank charges for the period
b. Check cleared during the period
c. Errors made by the company
d. NSF checks
21. 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 book
d. Deducted from the balance per book
22. For purposes of bank reconciliation, debit memos are
a. Added to the bank balance
b. Added to the book balance
c. Deducted from the bank balance
d. Deducted from the book balance
23. Which of the following items must be added to the cash balance per ledger in preparing a
bank reconciliation which ends with adjusted balance?
a. Note receivable collected by the bank in favor of the depositor and credited to the
account of the
depositor
b. NSF customer check
c. Service charge
d. Erroneous bank credit
24. In the process of preparing a bank reconciliation
a. Outstanding checks should be added to the bank balance of cash
b. Outstanding checks should be subtracted from the book balance of cash
c. All of the reconciling items shown on a bank reconciliation must be entered in the
accounting
records after the reconciliation is completed
d. Items that appear on the reconciliation as corrections to the book balance of cash
should be entered in the accounting records
25. The reconciling item in bank reconciliation that will result in an adjusting entry by the
depositor is
a. Outstanding checks
b. Deposit in transit
c. Bank error
d. Bank service charges
26. What is the adjusting entry for a customer NSF check?
a. Debit cash and credit accounts receivable
b. Debit accounts receivable and credit cash
c. Debit service charge and credit cash
d. No adjustment is necessary
27. If the cash balance shown in a company’s accounting records is more 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
28. In reconciling the bank balance with the book cash balance, which of the following would
not cause the bank balance shown in the bank statement to be lower than the unadjusted book
balance?
a. Deposits in transit
b. Cash on hand at the company
c. Interest credited to the account by the bank
d. NSF checks from a customer as reported on the bank statement
29. If the cash balance in 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 recorded by the company
d. Deposits in transit
30. If the cash balance in a company’s bank statement is more 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 recorded by the company
d. Deposits in transit
31. A proof of cash
a. Is a physical count of currencies on hand at the end of reporting period
b. Is a formal statement showing the total cash receipts during the year
c. 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 disbursement of the bank and the depositor during the current month
d. Is a summary of cash receipts and cash payments
PROBLEMS
1. RCL Company provided the following information for the month of December:
Balance per bank statement, December 31 P2,800,000
Bank service charge for December 12,000
Interest paid by bank to CPA Company for December 10,000
Deposits made but not yet recorded by the bank 350,000
Checks written but not yet recorded by the bank 650,000
The entity discovered that it had drawn and erroneously recorded a check for P46,000 that
should have been recorded for P64,000.
What is the cash balance per ledger on December 31?
a. P2,500,000
b. P2,520,000
c. P2,540,000
d. P2,800,000
2. BSA Company provided the following data relating to the cash transactions and bank account
for the month of July:
Cash balance per ledger ?
Cash balance per bank statement ?
Debit memo for July service charge 5,000
Deposit of July 31 not recorded by bank until August 1 450,000
Outstanding checks, including certified check of P50,000 750,000
Proceeds of bank loan not recorded in ledger 500,000
Proceeds from a customer note, face P450,000, collected by bank,
collection fee of P15,000 435,000
A creditor check had been entered into the book as P20,000 and was
erroneously deducted by the bank at 200,000
A customer check was returned by bank marked DAIF (NSF) 50,000
Correct cash balance 3,000,000
What is the cash balance per ledger?
a. P2,120,000
b. P3,055,000
c. P2,555,000
d. P2,065,000
3. What is the cash balance per bank statement?
a. P3,700,000
b. P3,070,000
c. P3,050,000
d. P2,370,000
4. My Company established a petty cash fund for P6,000. The petty cash fund included the
following details:
Coins and currency P2,000
Paid vouchers
Transportation P1,600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 4,000
Employee’s check returned by bank marked “NSF” 1,000
Check drawn to the order of petty cash custodian 4,000
What amount of petty cash should be reported?
a. P2,000
b. P7,000
c. P6,000
d. P9,000
5. On December 31, 2024, the cash account of C Company has a debit balance of P3,500,000.
An analysis of the cash account shows the following details:
Undeposited collections P60,000
Cash in bank-PCIB checking account 500,000
Cash in bank-PNB (overdraft) (50,000)
Undeposited NSF check received from a customer, dated Dec. 1, 2024 15,000
Undeposited check from a customer, dated January 15, 2025 25,000
Cash in bank-PCIB (fund for payroll) 150,000
Cash in bank-PCIB (savings deposit) 100,000
Cash in bank-PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed stock held as temporary investment 120,000
P3,500,000
Cash and cash equivalents on its December 31, 2024 statement of financial position should be
a. P2,760,000
b. P2,810,000
c. P2,885,000
d. P2,935,000
6. Shown below is the bank reconciliation for Krishna Company for November 2024:
Balance per bank, Nov. 30, 2024 P150,000
Add: Deposit in transit 24,000
Total P174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000
Cash balance per books, Nov. 30, 2024 P136,000
The bank statement for December 2024 contains the following data:
Total deposits P110,000
Total charges, including NSF check of P8,000
and a service charge of P400 96,000
All outstanding checks on November 30, 2024, including the bank credit, were cleared in the
bank in December 2021. There were outstanding checks of P30,000 and deposits in transit of
P38,000 on December 31, 2024.
Question 1: How much is the cash balance per bank on December 31, 2024?
a. P154,000
b. P150,000
c. P164,000
d. P172,400
Question 2: How much is the December receipts per book?
a. P124,000
b. P 96,000
c. P110,000
d. P148,000
Question 3: How much is the December disbursements per books?
a. P96,000
b. P79,600
c. P89,600
d. P98,000
Question 4: How much is the cash balance per books on December 31, 2024?
a. P150,000
b. P170,400
c. P180,400
d. P162,000
Question 5: The adjusted cash in bank balance as of December 31, 2024 is:
