BALIUAG

UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
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CASH AND CASH EQUIVALENTS

1. Cash includes all, except
a. Money.
b. Any other negotiable instrument that is payable in money and acceptable by the
bank for deposit and immediate credit.
c. Includes checks, overdrafts and money orders.
d. Currency and coins.
2. STATEMENT 1: Based on PAS 1 an entity shall classify an assets as current when it is
cash or cash equivalent unless it is restricted from being exchanged or used to settle
a liability for at least twelve months after the end of the reporting period.
STATEMENT 2: Cash includes cash on hand, cash in bank and cash fund set aside for
current purposes.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
3. According to PAS 7, cash equivalents include all, but
a. Short-term highly liquid investments that is readily available into cash.
b. Short-term highly liquid investment so near their maturity that they present
significant risk of changes in value because of change in interest rates.
c. Highly liquid investments that are acquired three months before maturity.
d. Preference share redeemable at specific date and acquired three months before
redemption date.
4. Cash is recognized in the statement of financial position at
a. Face value
b. Current exchange rate
c. Estimated realizable value
d. All of the above
5. Investments in time deposit, money market instruments and treasury bills are cash
equivalents if
a. The term is three months or less.
b. The term is more than three months but within one year
c. The term is more than one year.
d. The term is one year from the end of the reporting period.
6. Cash includes all, except
a. Cash in foreign currency that is not subject to any foreign restrictions.
b. Cash fund set aside for current operations.
c. Cash fund set aside for non-current purposes.
d. Cash set aside for certain purpose such a interest fund, dividend fund and tax
fund.
7. Analyze the following statements: STATEMENT 1: A bank overdraft is classified as
current liability and should not be offset against other bank accounts with debit
balances. STATEMENT 2: When the entity maintains two or more accounts in one
bank and one account results in overdraft, such may be offset against the other bank
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Page 1 of 4 Obstacle are those frightful things you see when you take your eyes off your

goal. (Henry Ford)

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________

account with debit balance. STATEMENT 3: Overdraft can be offset against the other
bank account if the amount is material.
a. True True True
b. True False False
c. True True False
d. False False False
8. All but one of the following statements is / are false
STATEMENT 1: The amount and nature of minimum checking or demand deposit
account balance that must be maintained in connection with a borrowing
arrangement with bank shall be disclosed in the notes to financial statements whether
legally restricted or not.
STATEMENT 2: Compensating balance is classified as noncurrent investment if the
related loan is long-term.
STATEMENT 3: Cash held as compensating balance, that is legally restricted, is
recognized in the face of the statement of financial position as current asset if the
related loan is short-term.
a. True True True
b. False False False
c. True True False
d. False False True
9. Which one of the following needs reversing the original entry so as to restore the cash
balance and the related liability account because it represents a check drawn and
recorded but not given to payee before the end of the reporting period?
a. Post-dated checks
b. Undelivered checks
c. Stale checks
d. Managers checks
10. This practice is perpetrated by recording as of last day of the accounting period
collections made subsequent to the close of the period and recording as of the last
day of the accounting period payments of accounts made subsequent to the close of
the period.
a. Income smoothing
b. Window dressing
c. Kitting
d. Lapping
11. This includes collections already forwarded to the bank for deposit but too late to
appear in the bank statement and undeposited collections or those still in the hands
of the depositor awaiting delivery to the bank for deposit.
a. Credit memos
b. Debit memos
c. Outstanding checks
d. Deposit in transit
12. This is a kind of bank reconciliation which may be useful in discovering possible
discrepancies in handling cash particularly when cash receipts have been recorded
but not have been deposited.
a. Bank to book
b. Book to bank
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Page 2 of 4 Obstacle are those frightful things you see when you take your eyes off your

goal. (Henry Ford)

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________

c. Adjusted balance method

d. Proof of cash
13.
a.
b.
c.
d.

What is the basic requirement for cash and cash equivalent?

Unrestricted in use for current operations.
Available for the purchase of property, plant and equipment.
Set aside for the liquidation of long-term debt.
Deposited in bank.

14. A cash equivalent is a short-term, highly liquid investment that is readily

convertible into known amount of cash and
a. Is acceptable as a means to pay current liabilities.
b. Has a current market value that is greater than the original cost.
c. Bears an interest rate that is at least equal to prime interest rate at the date of
liquidation.
d. Is so near maturity that it presents insignificant risk of change in interest rate.
15.
a.
b.
c.
d.

All of the following can be classified as cash and cash equivalents, except
Redeemable preference shares acquired and due in 60 days.
Commercial papers held and due for repayment in 90 days.
Equity investments
A bank overdraft

16.
a.
b.
c.
d.

Banks overdraft generally should be

Reported as a deduction from current assets.
Reported as deduction from cash.
Netted against cash and a net cash amount reported.
Reported as a current liability.

17. Which of the following is not considered as a cash equivalent?

a. A three-year treasury note maturing on May 30 of the current year purchased by
the entity on April 15 of the current year.
b. A three-year treasury note maturing on May 30 of the current year purchased by
the entity on January 15 of the current year.
c. A 90-day T-bill.
d. A 60-day money market placement.
18. At the end of the current year, an entity had cash accounts at three different
banks. One account is segregated solely for payment into a bond sinking fund. 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?
a. The segregated account should be reported as a noncurrent asset, the regular
account should be reported as a current asset, and the overdraft should be
reported as a current liability.
b. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current liability.
c. The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft.
d. The segregated and regular accounts should be reported as current assets net of
the overdraft.
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Page 3 of 4 Obstacle are those frightful things you see when you take your eyes off your

goal. (Henry Ford)

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________

19.
a.
b.
c.
d.

What is the major purpose of an imprest petty cash fund?

To effectively plan cash inflows and outflows.
To ease the payment of cash to vendors.
To determine the honesty of the petty cashier.
To effectively control cash disbursements.

20. When a petty cash fund is used, which of the following statements is true?
a. The balance of the petty cash fund should be reported in the statement of financial
position as a long-term investment.
b. The petty cashiers summary of petty cash payments serves as a journal entry that
is posted to the appropriate general ledger account.
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.
21. Which of the following items must be added to the cash balance per ledger in
preparing a bank reconciliation which ends with adjusted cash balance?
a. Note receivable collected by bank in favor of the depositor and credited to the
account of the depositor.
b. NSF customer check.
c. Service charge.
d. Erroneous bank debit.
22. If the cash balance shown on entitys accounting records is less than correct cash
balance and neither the entity not the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity.
b. Deposits in transit
c. Outstanding check
d. Banks charges not yet recorded by the entity.
23. Which of the following statements is false?
a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise
accept a personal check.
c. A certified check is one drawn by a bank upon itself.
d. A certified check should not be included in the outstanding checks.
END

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Page 4 of 4 Obstacle are those frightful things you see when you take your eyes off your

goal. (Henry Ford)