Cash
Key Things To Know
Financial Accounting
Cash
Medium Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. A company that is notified of a non-sufficient funds check related to a customer
should
a. credit cash for the amount of the check
b. credit accounts receivable for the amount of the check
c. not put the amount as a reconciling item on the bank reconciliation
d. debit cash for the amount of the check
Check Your Answer
A. A non-sufficient funds check means the check did not clear and company was not paid. Since the company was not paid, the customer still owes the company. The entry that was made when the check was deposited, debit cash and credit accounts receivable, must be reversed. Cash was not really received and it must be credited to decrease the balance.
2. A deposit in transit should be written on the bank reconciliation as
a. a positive amount in the company general ledger cash column
b. a positive amount in the bank column
c. a negative amount in the bank column
d. a negative amount in the company general ledger cash column
Check Your Answer
B. A deposit in transit will be added to the bank account when the deposit is posted by the bank. Items the bank will record next period go in the bank column. It has already been added to the company cash account. “Added” to cash is done with a positive amount on the bank reconciliation.
3. Which of the following is an example of good cash internal controls?
a. the same person receives checks and records checks from customers
b. the bank reconciliation is done annually
c. outstanding checks do not ever occur
d. the accounting manager signs all checks after agreeing the check to supporting documentation approved by another manager
Check Your Answer
D. Good internal controls have approval procedures before money is paid. A different manager should give approval before the check is signed by the accounting manager. The same person should not handle cash and record cash (a). Bank reconciliations should be done monthly (b). Outstanding checks will occur every month due to the delay of when he check is written and the check is cleared by the bank (c).
4. Cash equivalents are defined as
a. short term investments of one month or less
b. short term investments of three months or less
c. short term investments of one year or less
d. certificates of deposits only
Check Your Answer
B. Cash equivalents are short term investments of three months or less whose market value is not expected to change.
5. When preparing the monthly bank reconciliation the accountant noticed that a check written for $300 was cleared by the bank for $280. How should the error be stated on the bank reconciliation?
a. as a positive amount in the bank column for $20
b. as a negative amount in the bank column for $20
c. as a positive amount in the company cash G/L column for $280
d. as a negative amount in the company cash G/L column for $20
Check Your Answer
B. The error was made by the bank so the amount is written in the bank column. The amount is a negative $20 because if the check had cleared for the correct amount the bank account would have $20 less. The amount will always be the difference.
6. When preparing the monthly bank reconciliation, the accountant noticed that a deposit in the amount of $1,000 was stated on the bank statement as $1,100. How should the error be stated on the bank reconciliation?
a. as a positive amount in the bank column for $100
b. as a negative amount in the bank column for $100
c. as a positive amount in the company cash G/L column for $100
d. as a negative amount in the company cash G/L column for $100
Check Your Answer
B. The error was made by the bank so the amount is written in the bank column. The amount will always be for the difference. If the deposit was posted for the correct amount, the bank balance would be $100 less. The amount is negative to reduce the bank balance to what it should be.
7. Amounts written in the company cash G/L column should include
a. errors made by the bank
b. deposits in transit
c. outstanding checks
d. non sufficient funds checks
Check Your Answer
D. Non sufficient funds checks are not known by the company until they receive notice on the bank statement. Items not yet know by the company are recorded in the company cash column. The error made by the bank must be fixed by the bank so it is in the bank column (a). The company has already recorded the deposits in transit and outstanding checks. The bank does not know about (b. & c.) and these go in the bank column.
8. The bank balance will not be adjusted for which of the following:
a. errors made by the bank
b. deposits in transit
c. outstanding checks
d. non sufficient funds checks
Check Your Answer
D. The bank knows about the non sufficient funds checks and has already posted the transaction so no further adjustment is required by the bank. The bank must fix the error and post deposits in transit and outstanding checks when they clear and these are all written in the bank column. (d.) goes in the company general ledger cash column.
9. The cash and cash equivalents balance will not include
a. foreign currency
b. one-year treasury bills
c. customer checks received and not deposited
d. checks written and not cleared
Check Your Answer
B. Cash and cash equivalents consist of cash and all short term investment with a maturity of less than 3 months. Foreign currency is considered cash. Checks are recorded to the cash balance when written or received from the customer.
10. Which of the following requires a journal entry after the bank reconciliation has been prepared?
a. a deposit in transit
b. an outstanding check
c. a service charge
d. an error made by the bank
Check Your Answer
C. Only amounts in the company cash column will be recorded. These are items that were not recorded before the bank statement was received. (a.) & (b.) have already been recorded by the company. (d.) will not be recorded by the company.
11. A non-sufficient funds check will be reported on the balance sheet as
a. cash
b. accounts receivable
c. a prepaid expense
d. bad debt expense
Check Your Answer
B. A non-sufficient funds check means the company was not really paid and the customer still owes. This amount will be reported as accounts receivable since the customer still owes. The cash was not really received so it is not included in cash (a). Bad debt expense is estimated in the same period as the sale, not when the check bounces (d).
12. On May 29 th , the accountant went to the bank and deposited checks received from customers into the company account. The amount was not reported on the bank statement. This is called a(n)
a. non sufficient funds check
b. deposit in transit
c. outstanding check
d. late deposit
Check Your Answer
B. This is a deposit in transit. When the bank posts the deposit in June the company’s cash balance will increase. The company recorded the deposit to the company cash G/L account as of May 29 th when the deposit was made. This reconciling item is written as a positive amount in the bank column.
13. The company’s May 31st bank statement showed an ending balance of $8,827.
The unadjusted cash balance for the company on May 31st is $7,835. The following information was gathered by the company’s accountant:
- Check # 21 was written for $196 to utility expense and cleared by the bank for $169
- Check # 29 was recorded for $389 to pay a supplier owed and the bank correctly cleared it for $398
- Outstanding checks totaled $2,789
- Deposits in transit totaled $1,654
- A customer had a NSF check in the amount of $235
- The bank statement showed $103 interest earned on the outstanding balance
- Deposits made and cleared totaled $14,926
- Checks written and cleared totaled $18,976
- Bank fees were $29
A. Prepare the bank reconciliation for the company for the month of May.
B. Prepare the journal entries required to the cash account.
Check Your Answer
A.
| Cash | Bank | ||
| Ending Balance 5/31 | $7,835 | $8,827 | |
| Bank fees | ($29) | ||
| Deposits in transit | $1,654 | ||
| Outstanding Checks | ($2,789) | ||
| NSF Checks | ($235) | ||
| Interest earned | $103 | ||
| Bank Error | ($27) | ||
| Company Error | ($9) | ||
| Adjusted 5/31 balance | $7,665 | = | $7,665 |
Deposits made and cleared and checks written and cleared are already recorded by both the bank and the company and are not a reconciling item. Reconciling items are items not yet recorded by both or errors to be fixed.
B. Record only items in the cash column. Record the difference in the current ending balance and the adjusted balance to the cash account.
Accounts Payable 9 **
Bank Fees 29
Accounts Receivable 235
Interest Earned 103
Cash 170
** The error was made on the check to pay a supplier owed. The entry to record the check debited accounts payable. The additional amount must go to accounts payable also.
Do not use the account “error”, this is not an account.
Use the account name that was used in the entry that recorded the error.
Negative amounts are debits
Positive amounts are credits
14. On April 30th, the balance on the bank statement was $11,749. The cash balance on the books on April 30th was $19,765. Total checks written were $39,014 and checks that have yet to clear total $1,329. Total deposits for the month were $44,209 and deposits in transit totaled $3,976. The bank statement showed the following: NSF check for $300. Interest earned $110. Service charges $40. Auto direct payment of a utility bill was $239. Auto direct payment to a supplier was $4,900.
A. Prepare the bank reconciliation for the company for the month of April.
B. Prepare the journal entries required to the cash account.
Check Your Answer
A.
| Cash | Bank | ||
| Ending Balance 4/30 | $19,765 | $11,749 | |
| Service Charges | ($40) | ||
| Deposit in transit | $3,976 | ||
| Outstanding Checks | ($1,329) | ||
| NSF Checks | ($300) | ||
| Interest earned | $110 | ||
| Auto Payment | ($239) | ||
| Auto Payment | ($4.900) | ||
| Adjusted 4/30 balance | $14,396 | = | $14,396 |
B. Record only amounts in the cash column. Record the total difference in the cash column to the cash account. Negatives are debits, positives are credits.
Service Charges 40
Accounts Receivable 300
Utilities Expense 239
Accounts Payable 4,900
Interest earned 110
Cash 5,369
Do not use “auto…” in the journal entry.
Use the account that describes what the payment/receipt was made for
15. State how the following would be written on the bank reconciliation:
a. beginning G/L cash balance
b. ending G/L cash balance
c. beginning bank balance
d. ending bank balance
e. deposits in transit
f. outstanding checks
g. NSF check
h. service charge
i. error made by the company
j. error made by the bank
k. total checks written by the company
l. total deposits made by the company
Check Your Answer
a. not part of the bank reconciliation
b. written at the beginning of the cash column
c. not part of the bank reconciliation
d. written at the beginning of the bank column.
Remember the bank reconciliation starts with the current period’s ending balance.
You are reconciling what it is NOW to what it really is considering all transactions.
e. a positive amount in the bank column
f. a negative amount in the bank column
g. a negative amount in the cash column
h. a negative amount in the cash column
i. the amount that fixes the error in the cash column
j. the amount that fixes the error in the bank column
k. not written on the bank reconciliation
l. not written on the bank reconciliation