Chapter 7 - I hope these notes can help you. Study smart! PDF

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Chapter 7—Cash TRUE/FALSE 1. Money orders are considered cash. ANS: T

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2. Unrestricted cash in the bank is reported on the balance sheet as cash. ANS: T

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3. If a business has several bank accounts, it has a subsidiary ledger or a separate ledger account for each of them. ANS: T

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4. A customer's check received in settlement of an account receivable is considered cash. ANS: T

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5. Preventive controls are the same as detective controls. ANS: F

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6. If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period. ANS: F

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7. If the balance in Cash Short and Over at the end of a period is a debit, it should be reported as an expense on the income statement. ANS: T

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8. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement. ANS: T

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9. If the balance in Cash Short and Over at the end of a period is a debit, it indicates that the cash overages have exceeded the cash shortages for a period. ANS: F

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10. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment. ANS: T

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11. All unpaid vouchers are filed in an unpaid vouchers file in order of due date.

ANS: T

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12. When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor. ANS: T

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13. A voucher system is an example of an internal control procedure over cash payments. ANS: T

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14. In a voucher system, paid vouchers are discarded. ANS: F

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15. A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT). ANS: T

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16. A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid. ANS: F

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17. A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid. ANS: T

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18. The party signing a check is called the drawer. ANS: T

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19. The bank often informs the depositor of bank service charges by including a credit memorandum with the monthly bank statement. ANS: F

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20. A signature card shows the signature of only the person who authorizes others in the company to sign checks. ANS: F

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21. The drawee is the bank on which a check is drawn. ANS: T

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22. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records. ANS: T

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23. A debit memorandum received with a bank statement means the bank account has been increased. ANS: F

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24. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash. ANS: T

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25. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement. ANS: F

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26. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement. ANS: F

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27. In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is added to the balance per depositor's records. ANS: F

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28. In preparing a bank reconciliation, the amount of a check omitted from the journal is added to the balance per depositor's records. ANS: F

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29. The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date. ANS: T

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30. The data needed to prepare entries based on the bank reconciliation are shown as adjustments to the depositor's records. ANS: T

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31. All bank memorandums reported on the bank reconciliation require entries in the depositor's accounts. ANS: T

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32. The bank reconciliation is an important part of the system of internal controls. ANS: T

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33. Outstanding checks are checks that have been issued, but have not cleared the bank. ANS: T

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34. A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor's account. ANS: T

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35. Any adjustment to the depositor's records because of an item on the bank statement requires a journal entry. ANS: T

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36. The bank reconciles its statement to the depositor's records. ANS: F

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37. The depositor reconciles the bank's statement to the depositor's records. ANS: T

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38. In preparing a bank reconciliation, the amount of deposits in transit is added to the balance per bank statement. ANS: T

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39. In preparing a bank reconciliation, the amount of outstanding checks is deducted from the balance per bank statement. ANS: T

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40. In preparing a bank reconciliation, the amount indicated by a credit memorandum for a note receivable collected by the bank is added to the balance per depositor's records. ANS: T

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41. In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted from the balance per depositor's records. ANS: T

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42. In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per depositor's records. ANS: T

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43. The data needed to prepare entries based on the bank reconciliation are shown as adjustments to the balance per bank statement. ANS: F

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44. A special cash fund maintained to pay relatively small amounts is called a petty cash fund. ANS: T

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45. When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since the fund was last replenished. ANS: F

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46. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash. ANS: F

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47. A minimum cash balance maintained in a bank account is called a consolidating balance. ANS: F

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48. Money market accounts, commercial paper, and United States Treasury Bills are examples of cash equivalents. ANS: T

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49. The doomsday ratio includes both cash and cash equivalents in the numerator. ANS: T

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MULTIPLE CHOICE 1. Which of the following is not defined as Cash? a. coins b. checks c. money orders d. commercial paper ANS: D

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2. Which of the following is not defined as Cash? a. checks b. compensating bank balances c. money orders d. cash-in-bank ANS: B

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3. The cash account in the depositor's ledger is a(n): a. asset with a debit balance b. asset with a credit balance c. liability with a debit balance d. liability with a credit balance ANS: A

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4. The notification accompanying a check that indicates the specific invoice being paid is called a: a. remittance advice b. voucher c. debit memorandum d. credit memorandum

ANS: A

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5. The credit balance in Cash Short and Over at the end of an accounting period is reported as: a. an expense on the income statement b. income on the income statement c. an asset on the balance sheet d. a liability on the balance sheet ANS: B

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6. The debit balance in Cash Short and Over at the end of an accounting period is reported as: a. an expense on the income statement b. income on the income statement c. an asset on the balance sheet d. a liability on the balance sheet ANS: A

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7. Cash change funds, once established, require no additional charges or credits to Cash: a. unless the amount of the fund is to be increased or decreased b. until cash is needed for the following business day c. until all change has been used for changing large bills d. until bills or coins are exchanged for another denomination at the bank ANS: A

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8. An example of a preventive control is: a. The use of a bank account b. separation of the Cashier Department and Accounting Department personnel c. bonding employees who handle cash d. accepting payment in currency only ANS: B

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9. Procedures designed to detect theft or misuse of cash are called: a. accounting controls b. cash controls c. protective controls d. detective controls ANS: D

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10. Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called: a. accounting controls b. cash controls c. preventive controls d. detective controls ANS: C

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11. A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a: a. voucher b. credit memorandum

c. debit memorandum d. remittance advice ANS: A

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12. EFT: a. means Efficient Funds Transfer b. can process certain cash transactions at less cost than by using the mail c. makes it easier to document purchase and sale transactions d. means Effective Funds Transfer ANS: B

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13. A voucher: a. is received from customers to explain the purpose of a payment b. is normally prepared in the Accounting Department c. system is used to control cash receipts d. system is an internal control procedure to verify that the assets in the ledger are the ones the company owns ANS: B

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14. A voucher is usually supported by: a. a supplier's invoice b. a purchase order c. a receiving report d. all of the above ANS: D

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15. The person who signs the check is called the: a. drawee b. drawer c. payee d. bank examiner ANS: B

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16. On the bank's accounting records, customers' accounts are normally shown as: a. debit balances b. expenses c. an asset d. a liability ANS: D

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17. Credit memorandums from the bank: a. decrease a bank customer's account b. Are used to show a bank service charge c. show that a company has deposited a customer's NSF check d. show the bank has collected a note receivable for the customer ANS: D

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18. The party to whose order a check is written is called the: a. payer

b. drawer c. drawee d. payee ANS: D

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19. The bank on which a check is drawn is called the: a. drawer b. payee c. drawee d. creditor ANS: C

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20. A debit or credit memorandum describing entries in the depositor's bank account may be enclosed with the bank statement. An example of a credit memorandum is: a. deposited checks returned for insufficient funds b. a promissory note left for collection c. a service charge d. notification that a customer's check for $375 was recorded by the depositor as $735 on the deposit ticket ANS: B

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21. A person authorized to write checks drawn on a checking account at a bank must sign and have on file with the bank a: a. signature card b. deposit ticket c. checkbook d. bank card ANS: A

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22. A check drawn by a depositor for $195 in payment of a liability was recorded in the journal as $915. This item would be included on the bank reconciliation as a(n): a. addition to the balance per the depositor's records b. addition to the balance per the bank statement c. deduction from the balance per the bank statement d. deduction from the balance per the depositor's records ANS: A

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23. A check drawn by a depositor for $195 in payment of a liability was recorded in the journal as $915. What entry is required in the depositor's accounts? a. Debit Accounts Payable; credit Cash b. Debit Cash; credit Accounts Receivable c. debit Cash; credit Accounts Payable d. debit Accounts Receivable; credit Cash ANS: C

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24. A bank reconciliation should be prepared periodically because: a. the depositor's records and the bank's records are in agreement b. the bank has not recorded all of its transactions c. any differences between the depositor's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected

d. the bank must make sure that its records are correct ANS: C

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25. The bank reconciliation: a. should be prepared by an employee who records cash transactions b. is part of the internal control system c. is for information purposes only d. is sent to the bank for verification ANS: B

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26. Journal entries based on the bank reconciliation are required in the depositor's accounts for: a. outstanding checks b. deposits in transit c. bank errors d. book errors ANS: D

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27. Accompanying the bank statement was a debit memorandum for bank service charges. On the bank reconciliation, the item is: a. a deduction from the balance per depositor's records b. an addition to the balance per bank statement c. a deduction from the balance per bank statement d. an addition to the balance per depositor's records ANS: A

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28. Accompanying the bank statement was a debit memorandum for bank service charges. What entry is required in the depositor's accounts? a. debit Miscellaneous Administrative Expense; credit Cash b. debit Cash; credit Other Income c. debit Cash; credit Accounts Payable d. debit Accounts Payable; credit Cash ANS: A

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29. A check drawn by a depositor in payment of a voucher for $925 was recorded in the journal as $295. This item would be included in the bank reconciliation as a(n): a. deduction from the balance per the depositor's records b. addition to the balance per the bank statement c. deduction from the balance per the bank statement d. addition to the balance per the depositor's records ANS: A

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30. Receipts from cash sales of $7,500 were recorded incorrectly in the cash receipts journal as $5,700. This item would be included on the bank reconciliation as a(n): a. deduction from the balance per depositor's records b. addition to the balance per bank statement c. deduction from the balance per bank statement d. addition to the balance per depositor's records ANS: D

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31. Receipts from cash sales of $7,500 were recorded incorrectly in the cash receipts journal as $5,700. What entry is required in the depositor's accounts? a. debit Sales; credit Cash b. debit Cash; credit Accounts Receivable c. debit Cash; credit Sales d. debit Accounts Receivable; credit Cash ANS: C

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32. Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor. This item is a(n): a. deduction from the balance per depositor's records b. addition to the balance per bank statement c. deduction from the balance per bank statement d. addition to the balance per depositor's records ANS: D

DIF: 5

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33. Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What entry is required in the depositor's accounts? a. debit Notes Receivable; credit Cash b. debit Cash; credit Miscellaneous Income c. debit Cash; credit Notes Receivable d. debit Accounts Receivable; credit Cash ANS: C

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34. The amount of the outstanding checks is included on the bank reconciliation as a(n): a. deduction from the balance per depositor's records b. addition to the balance per bank statement c. deduction from the balance per bank statement d. addition to the balance per depositor's records ANS: C

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35. What entry is required in the depositor's accounts to record outstanding checks? a. None b. debit Cash; credit Accounts Receivable c. debit Cash; credit Accounts Payable d. debit Accounts Receivable; credit Cash ANS: A

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36. Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n): a. deduction from the balance per depositor's records b. addition to the balance per bank statement c. deduction from the balance per bank statement d. addition to the balance per depositor's records ANS: A

DIF: 5

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37. Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. What entry is required in the depositor's accounts? a. debit Other Income; credit Cash b. debit Cash; credit Other Income

c. debit Cash; credit Accounts Receivable d. debit Accounts Receivable; credit Cash ANS: D

DIF: 5

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38. The amount of cash to be reported on the balance sheet at June 30 is the: a. total of the cash column in the cash receipts journal as of June 30 b. adjusted balance appearing in the bank reconciliation for June 30 c. total of the cash column in the cash payments journal as of June 30 d. balance as of June 30...