Intermediate Accounting Chapter 1

which of the following characterizes a financial instrument?

a. it results to a financial asset for one party and a financial liability or equity for another.

b. it must payable at a later date.

c. it must be signed by the issuer and countersigned by the holder.

d. it must have a maturity date.

which of the following items shall be presented as a part of an entity's cash balance?

I. foreign currency deposits

II. undeposited customers' check

III. bank deposit segregated for acquisition of equipment

IV. bank deposit segregated for payment of salaries

V. cash fund for payment of small expenditurea

VI. IOUs from employees

a. I, II, IV and V

b. II, III, IV, and V

c. I, II, III, IV and V

d. I, II, IV, V and VI

which of the following is considered cash?

a. 30-day certificate of deposit

b. Customer's post dated checks

c. Money market checking accounts

d. 6-month money market savings certificates

which of the following may qualify to be reported as cash equivalents at December 31, 2019?

I. Redeemable preference shares, purchased 3 months before the redemption date

II. 6-month treasury note, purchased on November 2, 2019 and maturing January 31, 2020

III. 3-month certificate of deposit maturing on February 14, 2019

IV. Ordinary shares of other entities held for trading purposes and expected to be sold three months from the date of acquisition

V. Check of a customer received in December and dated January 10, 2019. The check cleared the bank in January.

a. I, II, III, IV and V

b. I, II, III and V

c. I, II, III, and V

d. I, II, and III

which of the following are considered cashreporting purposes?

I. Petty cash funds and change funds

II. Money orders, travelers' checks, and personal checks

III. Coin, currency, and available funds for current operations

IV. Postdated checks and IOUS

V. Savings account for employees' travel

VI. Savings account for acquisition of equipment

VII. Savings account for acquisition of inventories

a. I, II, III, IV, V, VI and VII

b. I, II, III, V, VI, and VII

c. I, II, III, IV, V and VI

d. I, II, III, V, and VII

A bank overdraft, 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, when there is no valid basis for offsetting against another bank account.

The following items are included in an entity's account "Cash and Cash Equivalents" in the statement of financial position. Which of the following items will require an adjusting entry to state Cash and Cash Equivalents at its correct balance?

a. Checks drawn before the reporting date but held for laterdelivery to creditors

b. 60-day time deposits.

c. US dollars deposited in a foreign currency depository account

d. Cash reserved for the acquisition of fixed assets.

on October 31, 2019, Aqua, Inc. had cash accounts at different banks. One account balance is segregated solely November 15, 2019 payment of an equipment ordered. 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 in Aqua's October 31, 2019 classified statement of financial position?

a. The segregated account should be reported as a non-current asset, the regular account should be reported as acurrent asset, and the overdraft should be reported as acurrent liability.

b. The segregated and regular accounts should be reported ascurrent assets, and the overdraft should be reported as a current liability.

c. The segregated account should be reported as a non-current asset, and the regular account should be reportedas a current asset net of the overdraft.

d. The segregated and regular accounts should be reported ascurrent assets net of the overdraft.

ABC, Inc. placed P1.5 million in the money market for 60 days subject to pre-termination. It is the company's policy to treat as cash equivalents all highly liquid instruments with maturity of three months or less from the date of acquisition. The P1.5million should be

a. included as part of cash and cash equivalents and the appropriate disclosure in the notes to the financial statements should state the company's criteria for classifying financial instruments as cash equivalents.

b. recorded as part of its debt investments at fair value through profit or loss without need of any disclosure.

c. treated as short-term receivable with the appropriate disclosure in the notes to the financial statements.

d. considered as part of its debt investments at fair value through profit or loss with the appropriate disclosure in the notes to the financial statements.

As of December 31, 2019, DEF Corp. had various checks andpapers in its safe. Which items in the safe will require anadjusting entry to bring the cash account to its correctbalance?

I. US$15,000 bills included in the cash balance.

II. A past-due promissory note issued in favor of DEF by itsPresident and included in "Advances to Officers"

III. XYZ Inc.'s December 26, 2019 P15,000 check payable toDEF, and recorded as a collection on account when thecheck was received on December 20, 2016.

IV. DEF's December 28, 2019 P50,000 check payable toLMN, a DEF supplier. The check was recorded as a disbursement when it was prepared on December 27.

a. I, II, III

b. I, III, and IV

c. III and IV

d. IV only

which of the following are basic characteristics of a system ofcash control?

I. Use of a voucher system

II. Combined responsibility for handling and recording cash

III. Daily deposit of all cash received

IV. Internal audits at irregular intervals

V. Making disbursements from the day's collections tominimize cash balance for deposit.

a. I, II, III, IV and V

b. I, II, III, and IV

c. I, III, IV and V

d. I, III, and IV

which of the following is not an aid to the effective control ofcash disbursements?

a. Requiring all checks to be pre-numbered consecutively

b. Requiring all checks to be signed by one person andcountersigned by another

c. Requiring approved supporting documents for each check issued

d. Requiring disbursements to be done in cash from dailyreceipts prior to making bank deposits to minimizehandling of cash

A good internal control system for safeguarding cash provides procedures for

a. making payments from the day's collections.

b. allowing one person to receive cash and to record cash receipts

c. preparing regular bank reconciliation

d. delaying the deposit of cash collections because no one knows for sure the account to be credited

A petty cash system is designed to

a. cash checks for employees.

b. handle cash sales.

c. account for all small cash receipts and disbursements.

d. pay small miscellaneous expenses.

In most situations, the petty cash fund is reimbursed just prior to the year-end and an adjusting entry is made to avoid

a. the overstatement of cash and the understament of expenses.

b. the understatement of cash and the overstatement expenses.

c. the misstatement of revenues.

d. the understatement of cash with the appropriate statementof expenses.

Which of the following statements 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 isreplenished.

d. The account "Cash Short/Over" if debit balance, ispresented as part of operating expenses.

A Cash Short and Over account is

a. not generally accepted.

b. debited when the petty cash fund proves out over.

c. debited when the petty cash fund proves out short.

d. a contra account to Cash.

In preparing a monthly bank reconciliation, which of thefollowing items would be added to the balance reported on thebank statement to arrive at the correct cash balance?

a. Outstanding checks

b. Bank service charge

c. Deposits in transit

d. A customer's note collected by bank on behalf of thedepositor

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and toidentify bank errors. Adjustments should be recorded for

a. bank errors, outstanding checks, and deposits in transit

b. all items except bank errors, outstanding checks, and deposits in transit.

c. book errors, bank errors, deposits in transit and outstanding checks.

d. outstanding checks and deposits in transit.

The journal 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 charges.

c. may include a credit to Accounts Receivable for customer's NSF check.

d. may include a debit to Accounts Payable for a customer's NSF check.

If the cash balance shown in a company's accounting recordedless 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 thecompany.

b. outstanding checks.

c. bank charges not yet recorded by the company.

d. deposit in transit.

Which of the following information is not provided in a bank statement?

a. Checks cleared during the period

b. Errors made by the company

c. NSF checks

d. Bank charges for the period

Seldom does the balance of the cash in bank account in thedepositor's books agree with the balance appearing in the bank statement at a particular date because of

a. bank secrecy requirements.

b. negligence by the bookkeeper.

c. a tax avoidance scheme.

d. time-lapse differences.

In a bank reconciliation that attempts to reconcile the bank balance to the correct cash balance, the following items would affect reconciliation in what way?

Outstanding checks

a. Added

b. Deducted

c. Added

d. Deducted

Deposits in transit

a. Added

b. Added

c. Deducted

d. Deducted

Deposits held as compensating balances

a. usually do not earn interest.

b. if legally restricted and held against short-term credit maybe included as cash.

c. if legally restricted and held against long-term credit maybe included among current assets.

d. if legally restricted and held against short-term creditshould not be included in the cash balance but arereported among current assets.

A proof of cash is a

a. proof of a company's liquid position.

b. reconciliation of the cash receipts and payments during the previous period, together with the beginning and ending balances of cash.

c. proof of the existence of a cash deposit in a bank.

d. reconciliation of the cash receipts and payments during the current period, together with the beginning and ending balances of cash.

It is a written order addressed to the bank to pay an amount of money to the order of the maker.

This represents a credit balance in Cash in Bank account resulting from checks being written for more than the cashamount on deposit.

Monthly fee charged by a bank to service the depositor's account.

A report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement.

A bank's report on the depositor's beginning and ending cash balance and a listing of its changes, for a period.

Checks that the bank has paid and deducted from the depositor's account. This may also be termed as checks drawn.

Includes currency, coins and amounts on deposit in bank checking or savings accounts; an item acceptable for deposit at face value by a bank or other financial institution. In a limited sense, it includes currency and coins and demand credit instruments that are unrestricted and are immediately available for use in current operations.

Short-term, highly liquid investment assets that arereadily convertible into a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that the market value is not sensitive to interest rate changes.

Income statement account used to record cash overages and cash shortages arising from errors in cash receipts orpayments.

Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient or payee.

Minimum amounts that a company agrees to maintain in a bank checking account as support for a loan by the depositor.

Deposits or credits made directly by the bank to the depositor's account such as notes collected by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor's account.

Charges to the company's or depositor's account made

directly by the bank such as returned checks, bank service charge, charge for the cost of check booklets and payment of bank loans.

Funds deposited in a bank that can be withdrawn upon demand

Deposit made near the end of the month and recordedon the depositor's books but is not received by the bank in time to be reflected on the bank statement

A check drawn by a depositor but is subsequently returned by the bank to the paveebecause the amount of the deposit is not enough to cover the amount of the check.

Any asset that is cash, an equity instrument of another entity, or a contractual right to receive cash or another financial assetor to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity.

Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of anotherentity.

A method to account for petty cash fund. Under this system, a constant balance is maintained in the fund, which equalscash plus petty cash receipts. When used in relation to general cash control, it means a system of depositing cash collections intact to the bank and making payments through checks.

All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.

A demand credit instrument issued and payable by a postoffice.

see Drawn against insufficient fund check

Checks written by the company and issued to payees but have not been cleared or presented to the bank for payment

A bank account used solely for paying employees salaries.

Small amount of cash maintained in a fund to pay minor and immediate expenses.

A check, which at the date of issuance, bears a future date. This check will be honored by the bank only on or after the date indicated on the face of the check

A four-column bank reconciliation showing areconciliation of beginning and ending balances of cash as well as of cash receipts and disbursements during the period.

A system that provides for the control of purchases and cash disbursements.

Business documents are used to prepare vouchers in support of all payments by check.

The voucher identifies the person authorizing the expenditure, explains the nature of the transaction and names the affected accounts.

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Financial instruments give rise to financial asset to one entity and financial liability or equity to another entity.

Financial assets consist of cash, equity instruments of another entity, and contractual rights to receive cash or another financial asset or to exchange financial assets or financial liabilities with another entity

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Financial assets are recognized considering the attributes of relevance and faithful representation of financial information.

Furthermore, IFRS 9 requires that financial assets shall be recognized when and only when the enterprise becomes a party to the contractual provisions of the instrument.

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To qualify for presentation as "Cash" in the statement of financial position, the cash item must be unrestricted and must be immediately available for use in current operations.

are generally the first financial assetpresented in an entity's statement of financial position.

is any item that is generally accepted as medium of exchange and includes bills and coins, bank drafts, demand credit instruments and demand deposits with banks.

are highly liquid instruments that are so near their maturity that there is insignificant risk of change in value.

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Because cash is the most liquid of all assets, it is generallypresented as the first item under current assets on a properly classified statement of financial position.

Cash and cash equivalents may be combined and presented as one line item using the account title "Cash and Cash Equivalents."

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Cash is measured at face value, being its fair value on the date of acquisition and at reporting date.

Cash denominated in foreign currency must be translated using the exchange rate in effect at the end of the reporting period.

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Effective cash management requires controls to safeguard cash from loss or theft. Separation of handling and recording cash transactions, adoption of the imprest system, adoption of the voucher system, internal audits of cash at irregular intervals periodic preparation of bank reconciliation are the most common features of internal control procedures of safeguarding cash.

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To uncover discrepancies between the bank balance and the depositor's balance for cash in bank, periodic bank reconciliation is prepared.

The bank reconciliation may be prepared using the adjusted balance method (where both bank and book balances are brought to correct balance at the end of the month),

the book to bank format (where the unadjusted book balance is reconciled to unadjusted bank balance), and the bank to book format (where the unadjusted bank balance is reconciled to unadjusted book balance).

The first format has the advantage of showing the correct amount of cash balance to be shown in the statement of financial position.

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A more detailed bank reconciliation may also be prepared following the proof of cash format.

A proof of cash reconciles the bank's and depositor's beginning balance of cash, cash receipts and disbursements during the month, and ending balance of cash.