ACCOUNTING 102

CASH
SPECIAL EXAM
THEORIES. NX1

1. Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash
b. Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three months or more
c. Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three months or less
d. Short-term and highly liquid marketable equity securities
2. Bank overdraft
a. Is a debit balance in a cash in bank account
b. Is offset against demand deposit account in another bank
c. Which cannot be offset is classified as a current liability
d. Which cannot be offset is classified as non-current liability
3. Unreleased checks
a. Should be treated as outstanding checks
b. Should be restored to the cash balance
c. Should be treated as outstanding checks if the date is shortly after the balance sheet
d. Should be treated as outstanding checks if they are ultimately encashed
4. Which of the following should not be considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks and personal checks
c. Coin, currency and available funds
d. Post-dated checks and IOUs
5. The following statements pertain to accounting for petty cash fund. Which statement is false?
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 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
6. If the balance shown on a company’s bank statement is less 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 the company
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the company
7. Which statement is true?
a. Bank service charge will cause the cash balance per ledger to be higher than that reported by
the bank, all other things being equal

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 b. Outstanding checks will cause the cash balance per ledger to be greater than the balance
reported by the bank, all other things being equal
c. An error made by the bank by charging an amount to the depositor’s account requires a
correcting entry in the depositor’s own records
d. The cash amount shown in the balance sheet must be the balance reported in the bank
statement
8. The following statements relate to cash. Which statement is true?
a. The term cash equivalent refers to demand credit instruments such as money order and bank
drafts
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all
normal operating expenses for a period of time
c. Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related obligation for which cash was restricted
d. Compensating balance required by a bank should always be excluded from cash and cash
equivalents
9. As of December 31 of the current year, an entity had various checks and papers in its safe. Which
item should not be in its cash account in the current year-end balance sheet?
a. US$ 20,000 cash
b. Past due promissory note issued in favor of the entity by its President
c. Another entity’s P150,000 check payable to the entity dated December 15 of the current year
d. The entity’s undelivered check payable to a supplier dated December 31 of the current year
10. At December 31 of the current year, an entity had cash accounts at three different banks. One account
balance 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 in the December 31 classified balance sheet?
a. The segregated account should be reported as a non-current 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 non-current 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

PROBLEMS. NX2

Problem 1

You were able to gather the following from the December 31, 2018 trial balance of ABC Corporation in
connection with your audit of the company:

Cash on hand P372,000

Petty cash fund 10,000
BPI current account 950,000
Security Bank current account No. 01 1,280,000
Security Bank current account No. 02 (40,000)
PNB savings account 500,000

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PNB time deposit 300,000

Cash on hand includes the following items:

a. Customer’s check for P60,000 returned by bank on December 26, 2018 due to insufficient fund
but subsequently redeposited and cleared by the bank on January 8, 2019.
b. Customer’s check for P30,000 dated January 2, 2019, received on December 29, 2018.
c. Postal money orders received from customers, P36,000.

The petty cash fund consisted of the following items as of December 31, 2018.

Currency and coins P2,100

Employees’ vales 1,600
Currency in an envelope marked “collections for
charity” with names attached 1,200
Unreplenished petty cash vouchers 800
Check drawn by Mandaluyong Corporation, payable to
the petty cashier 4,600
P10,300

Included among the checks drawn by ABC Corporation against the BPI current account and recorded in
December 2018 are the following:

 Check written and dated December 29, 2018 and delivered to payee on January 2, 2018, P50,000.
 Check written on December 27, 2018, dated January 2, 2019, delivered to payee on December 29,
2019, P86,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the
deposit balance. These checks were still outstanding at December 31, 2018.

The savings account deposit in PNB has been set aside by the board of directors for acquisition of new
equipment. This account is expected to be disbursed in the next 3 months after the end of the reporting
period.

1. Cash on hand
a. P282,000
b. P246,000
c. P408,000
d. P342,000

2. Petty cash fund

a. P6,700
b. P9,100
c. P2,100
d. P10,000

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3. BPI current account
a. P1,086,000
b. P914,000
c. P1,000,000
d. P950,000

4. Cash and cash equivalents

a. P2,914,700
b. P2,954,700
c. P2,614,700
d. P3,414,700

Problem 2

The bank reconciliation statement of DEF Company for December 2018 shows the following:

Balance per Bank Statement P350,000

Add: Deposits in transit P175,250
Note collected by the bank 15,000 190,250
Less: Outstanding checks 246,750
Balance per General Ledger P293,500

Additional information are as follows:

a. On January 1, 2019, the bank debited the Company’s account for the erroneous bank credit made
on December 31, 2018 amounting to P30,000. DEF has not recorded the erroneous credit.
b. The outstanding checks include undelivered checks and postdated checks issued to suppliers
amounting to P14,750 and P37,210, respectively.
c. On December 31, 2018, DEF received and recorded customer’s postdated check amounting to
P50,000. The collection has been debited to cash in bank.

Based on the above, compute for the correct:

5. Deposits in transit
a. P175,250
b. P145,250
c. P125,250
d. P95,250

6. Outstanding checks
a. P246,750
b. P232,000
c. P209,540
d. P194,790

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7. Cash in bank
a. P310,460
b. P308,500
c. P293,500
d. P250,460

8. Shortage
a. P60,000
b. P56,500
c. P30,000
d. P0

Problem 3

The accountant of GHI Company is preparing a four-column reconciliation of receipts, disbursements,

and balances to reconstruct the balances per books. The following information are available:

November 30 December 31
Balances per bank P14,010 P19,630
Deposit in transit 2,740 3,110
Outstanding checks 4,260 3,870
Bank collections not in books 1,200 1,600
Bank charges not in books 950 640

a. Of the checks outstanding on December 31, one check for P700 was certified at the request of the
payee.
b. Receipts for December, per bank statement – P281,070.
c. DAIF check from customer was charged by the bank on December 28, and has not been recorded
– P800.
d. DAIF check returned in November and recorded in December, P1,050.
e. DAIF check returned and recorded in December, P900.
f. Check of JKL Co. charged by the bank in error, P2,010.
g. Receipt on December 6 paid out in cash for travel expenses, P750. Recorded as receipts and
disbursements per books.
h. Error in recording customer’s check on December 20, P165 instead of P465.
i. Error in disbursements journal for December, P3,250 instead of P325.

DAIF checks returned by the bank are recorded as a reduction on the cash receipts journal instead of
recording it at cash disbursements journal; redeposits are recorded as regular cash receipts.

9. Unadjusted cash balance per books as of November 30, 2018

a. P13,290
b. P12,490
c. P11,690
d. P11,190
10. Unadjusted book receipts for December

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 a. P284,840
b. P281,640
c. P279,540
d. P282,190
11. Unadjusted book disbursements for December
a. P273,100
b. P271,565
c. P275,335
d. P274,635
12. Unadjusted cash balance as of December 31, 2018
a. P18,195
b. P17,495
c. P21,580
d. P24,965