Deck 6: The Statement of Cash Flows

Question 1

An account receivable is usually evidenced by a formal promissory note.

Answer 1

False

Question 2

Selling on account reduces overall sales.

Answer 2

False

Question 3

Companies will never have a negative cash balance as cash is an asset and must always be in a debit position.

Answer 3

False

Question 4

Cash held in foreign currencies must be translated into Canadian dollars using the rate of exchange at the statement of financial position date.

Question 5

When preparing a bank reconciliation, the balance as reported by the bank is adjusted until it agrees with the balance reported in the company's books.

Question 6

All adjustments that are additions to the G/L side of a bank reconciliation are credits to cash.

Question 7

To adjust the cash account to the correct amount the accountant needs to make journal entries for all the adjustments on the G/L side of the bank reconciliation.

Question 8

Foreign currency is valued and reported on the statement of financial position using the exchange rate that existed on the transaction date.

Question 9

A bank reconciliation has two sides, one is the" bank side" and the other is the "balancing side".

Question 10

The likelihood a customer will default on payments depends on the customer's creditworthiness.

Question 11

Collusion is where two or more employees work together to commit the theft and conceal it.

Question 12

The definition of cash includes: currency, cheques, money orders, and bank accounts.

Question 13

Independent verification can be done internally or externally.

Question 14

Writing cheques instead of using cash would be a proper internal control procedure.

Question 15

For internal control purposes, if duties are effectively separated, there is no way fraud can occur.

Question 16

Cash equivalents have a maturity date within three months of the date of acquisition.

Question 17

Cash and accounts receivable are a company's least liquid assets.

Question 18

Bank reconciliations should only be prepared for a company's main operating account.

Question 19

A treasury bill is an example of a long-term investment.

Question 20

The reconciling items on the bank side will be items the company knows about but the bank does not.

Question 21

Bad Debt Expense is a permanent account.

Question 22

Under the allowance method a company must record the bad debt expense in the same period in which the credit sales were recorded.

Question 23

Accounts receivable are reflected on the statement of financial position at their gross amounts.

Question 24

The gross amount of accounts receivable should be reflected on the statement of financial position; this is what the company expects to collect in cash.

Question 25

A recovery of an account will decrease the cash account and increase the accounts receivable account.

Question 26

New business CANNOT account for bad debts because they do not have any historical data in relation to collectible accounts.

Question 27

The allowance method of recognizing bad debt expense does not properly match revenues and expenses.

Question 28

Percentage of sales method is also known as the statement of financial position method.

Question 29

The total of all the A/R sudledgers must equal the total of the Accounts Receivable account.

Question 30

A company with too lose credit policies will benefit from a substantial increase in sales with no impact to expenses.

Question 31

When companies are using the allowance for doubtful accounts, they are using the allowance method.

Question 32

Companies following IFRS must disclose changes in the allowance for doubtful accounts balance in the notes to the financial statements.

Question 33

The percentage of credit sales method for estimating bad debt expense is based on the assumption that the amount of bad debts is a function of the total sales made on credit.

Question 34

Allowance for doubtful accounts is a contra-liability account.

Question 35

When estimating bad debts under the allowance method, companies can only use one method.

Question 36

The A/R subledger is used to manage the individual account details of each of the company's suppliers.

Question 37

When a customer makes full or partial payment of an account that has previously been written off this is considered a recovery.

Question 38

If bad debt expense is over or underestimated in a prior period, an adjustment will be made to the allowance for doubtful accounts this period.

Question 39

A company with strict credit policies may lose potential sales.

Question 40

A writeoff is the process of reinstating a customer's account when it is deemed collectible.

Question 41

Analyzing the accounts receivable turnover is important in assessing the short-term liquidity of an organization.

Question 42

A higher asset turnover ratio number is better than a lower turnover number.

Question 43

Aging of accounts receivable method will normally result in a better approximation of the net realizable value of the receivables than the percentage of credit sales method.

Question 44

To shorten the cash-to-cash cycle companies will offer a sales discount.

Question 45

Opportunities for employee fraud arises when

A) an employee is in charge of purchasing, inspecting, and recording assets.
B) employees verify each other's work.
C) an employee has clear documentation procedures.
D) an employee is responsible for making the daily cash bank deposit.

Question 46

The direct writeoff method recognizes bad debts only when they know the customer is NOT going to pay.

Question 47

The longer a receivable goes without being collected the less likely it will become uncollectible.

Question 48

All of the following are examples of internal controls over cash EXCEPT

A) depositing cash in the bank regularly.
B) ensuring different people are responsible for receiving and depositing cash.
C) ensuring that all cash transactions are recorded on a regular basis.
D) maintaining a separate facility for the storage of perishable inventory.

Question 49

Which of the following would be classified as part of the cash account on the statement of financial position?

A) short term investments
B) prepaid expenses
C) currency
D) restricted cash

Question 50

As a contra-asset account, Allowance for Doubtful Accounts will always have a credit balance.

Question 51

All of the following are normally considered liquid assets of a company EXCEPT

A) accounts receivable.
B) inventory.
C) notes receivable.
D) short-term investments.

Question 52

Selling to customers on account reduces the cash-to-cash cycle.

Question 53

Policies and procedures that are established to protect and manage a company's assets are known as

A) a record-keeping system.
B) an accounting system.
C) internal controls.
D) management controls.

Question 54

The direct writeoff method requires two journal entries when an account is written off.

Question 55

The appropriate method to use when bad debts are significant is the allowance method.

Question 56

Two common ratios for long-term liquidity are the current ratio and the quick ratio.

Question 57

The current ratio is most commonly used to measure the stability of an entity.

Question 58

The quick ratio is a less stringent measure of liquidity than the current ratio.

Question 59

Foreign currency held by a Canadian corporation is disclosed on the financial statements using the exchange rate that existed on the date of the

A) financial statements.
B) purchase of the currency.
C) change in the exchange rate.
D) intended use of the currency.

Question 60

One problem with the current ratio is that some assets may be less liquid than others.

Question 61

The contra-asset account used to provide for an estimate of uncollectible accounts is

A) Bad Debt Expense.
B) Allowable Accounts Receivable.
C) Allowance for Doubtful Accounts.
D) A/R subledger.

Question 62

The entry to provide for uncollectible accounts under the allowance method affects both the statement of income and the statement of financial position by

A) increasing expenses and increasing the carrying amount of the accounts receivable.
B) decreasing expenses and increasing the carrying amount of the accounts receivable.
C) increasing expenses and decreasing the carrying amount of the accounts receivable.
D) decreasing expenses and decreasing the carrying amount of the accounts receivable.

Question 63

Which of the following do NOT affect the amounts collected on accounts receivables?

A) credit policy
B) returns policy
C) discounts policy
D) the allowance for doubtful accounts

Question 64

Accounts receivable are reflected on the statement of financial position at the carrying amount which is

A) accounts receivable plus allowance for doubtful accounts.
B) accounts receivable less allowance for doubtful accounts.
C) accounts receivable plus bad debt expense.
D) accounts receivable less bad debt expense.

Question 65

Who should be responsible for preparing the bank reconciliation?

A) the person who makes the deposits
B) the person who writes the cheques
C) the person who maintains the accounting records
D) a person not involved in the day-to-day banking activities

Question 66

All of the following are reasons why a transaction may have been reflected in the company's accounting records but NOT by the bank EXCEPT

A) a cheque has been written but the receiving company did not deposit it yet.
B) bank has charged service fees.
C) the company make a deposit on the last day of the month.
D) the company recorded a payment received however forgot to deposit the cheque.

Question 67

Separation of duties means

A) one person receives cash and one person signs cheques.
B) one person signs cheques and orders goods.
C) one person enters transactions and signs cheques.
D) one person receives cash and reconciles the bank.

Question 68

The starting point for the bank portion of the bank reconciliation is labelled

A) Account Balance.
B) Bank Balance.
C) Transaction Balance.
D) Cash Balance.

Question 69

When selling on account, companies incur costs such as

A) wages for credit granting function.
B) rent expense.
C) bad debt revenue.
D) sales discounts.

Question 70

As part of the bank reconciliation process the following must occur:

A) bank adjusting entries.
B) company adjusting entries.
C) verification of bank charges.
D) inventory of company cheques.

Question 71

Ventura Co. had accounts receivable totalling $450,000 and an allowance for doubtful accounts with a balance of $5,000 on June 1, 2015. On June 2 Ventura wrote off $7,500 of uncollectible accounts. The net carrying value of accounts receivable before and after the writeoff was Before After

A) $450,000 $442,500.
B) $445,000 $442,500.
C) $445,000 $452,500.
D) $445,000 $457,500.

Question 72

The process of removing a specific customer's account receivable from a company's books when the account is deemed uncollectible is

A) an allowance.
B) a write off.
C) a recovery.
D) none of the above.

Question 73

Which of the following statements is INCORRECT?

A) Companies sell on account to increase total sales.
B) Companies sell on account to remain competitive.
C) Companies sell on account to generate additional forms of revenue.
D) Companies sell on account to increase bad debt expense.

Question 74

Bank reconciliations are NOT

A) an important cash control.
B) to be completed by all companies.
C) sufficient to determine fraud.
D) useful.

Question 75

When an account receivable that has previously been written off is later paid, under the allowance method the correct accounting is to

A) Dr. A/R Cr. Allowance for Doubtful Accounts
Dr) Cash
Cr) A/R
B) Dr. Cash Cr. A/R
Dr) A/R
Cr) Allowance for Doubtful Accounts
C) Dr. Cash Cr. A/R
D) Dr. A/R Cr. Allowance for Doubtful Accounts

Question 76

The ending balance on the bank statement for December is $1,425.33. The company has outstanding cheques of $263.35, outstanding deposits of $729.61, and incurred bank service fees of $12.00 during the month. The adjusted cash balance for the company as at December 31 is

A) $947.07.
B) $1,891.59.
C) $1,879.59.
D) $1903.59.

Question 77

Which of the following entries would be the appropriate entry for writing off an uncollectible account receivable under the allowance method?

A) Dr. Bad Debt Expense Cr. Accounts Receivable
B) Dr. Sales Cr. Accounts Receivable
C) Dr. Accounts Receivable Cr. Bad Debt Expense
D) Dr. Allowance for Doubtful Accounts Cr. Accounts Receivable

Question 78

All of the following are examples of physical controls EXCEPT

A) locks.
B) fences.
C) bank reconciliations.
D) alarms.

Question 79

Which of the following is NOT a reconciling item when preparing a bank reconciliation?

A) bank service charges not recorded by the corporation
B) outstanding cheques
C) interest collected on a note receivable by the bank and recorded by the corporation
D) outstanding deposits

Question 80

Which of the following is a contra account?

A) Bad Debts
B) Accounts Receivable Recoveries
C) Allowance for Doubtful Accounts
D) Credit Sales