CASH AND CASH EQUIVALENTS

PREQUIZ
1. Which of the following should be considered as cash?
a. Certificates of Deposits
b. Money Orders
c. Money Market Instruments
d. Treasury Bills
2. Bank Overdraft should be
a. Reported as deduction from the current asset section
b. Reported as a deduction to cash
c. Netted against cash and a net cash amount reported
d. Reported as a current liability
3. What is a compensating balance?
a. Saving account balance
b. Loan account with bank
c. Temporary investment serving as collateral for loan
d. Minimum deposit required to be maintained in connection with borrowing arrangement
4. Deposits held as compensating balance
a. Usually do not earn interest.
b. If legally restricted and held against short-term credit may include as cash
c. If legally restricted and held against long-term credit may be included among current asset.
d. None of these.
5. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amount cash and
a. Is acceptable as a means to pay current liabilities
b. Has a market value greater than original cost.
c. Bears an interest rate that is at least equal to the prime interest rate.
d. Is so near maturity that it presents insignificant risk of change in interest rate.
6. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents
if the investments have maturity of 90 days or less
a. From the date the investments are acquired
b. From the end of the reporting period
c. From the date of issue of financial statements
d. From the date the investments are acquired or from the end of the reporting period.
7. Which of the following could not be reported as cash and cash equivalents?
a. Money market accounts
b. Demand deposits
c. BSP treasury bills with an original maturity of 60 days from date of purchased
d. Legally restricted deposit held as compensating balance against borrowing arrangement.
8. All of the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days.
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft
9. 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
10. Which statement in relation to petty cash fund is incorrect?
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. 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.
d. With the establishment of an imprest petty cash fund, one person is given the authority and
responsibility for issuing checks to cover minor disbursements.
11. Which statement is true when an imprest petty cash fund is used?
a. The balance of the petty cash fund should be reported in the statement of financial position
as long term investment.
b. The petty cashier’s summary of petty cash payments serves as journal entry that is posted as
a long term investment.
c. The reimbursement of the petty cash fund should be credited to the cash 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.
12. If the cash balance in the 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 credited by the bank but not yet recorded by the entity.
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity
13. If the cash balance in the 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 credited by the bank but not yet recorded by the entity.
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity
14. Bank statement provide information about all of the following, except
a. Checks during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
PROOF OF CASH – Discussion purposes
ABC Company had the following bank reconciliation on June 30:

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 of statement for the month of July showed the following:

Deposits, including P200,000 note collected for ABC 9,000,000

Disbursements, including P140,000 NSF customer check
And P10,000 service charge 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks totalled
P600,000 and the deposit in transit amounted to P1,000,000 on July 31.

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

2. What is the cash balance per book on July 31?
3. What is the amount of cash receipts per book in July?
4. What is the amount of cash disbursements per book in July?