Deck 7: Cash and Receivables

Question 1

A retailer has 4% credit/debit card service fees deducted from the proceeds from each sale.The retailer has $1,200 in credit/debit card sales for the day.The journal entry to record these sales would be to:

A)debit Cash for $1,200 and credit Sales for $1,200.
B)debit Sales for $1,200 and credit Cash for $1,200.
C)debit Cash for $1,152,debit Service Fee Expense for $48;and credit Sales for $1,200.
D)debit Cash for $1,152 and credit Sales for $1,152.

Answer 1

C

Question 2

If possible,the bank reconciler should have no other duties relating to cash transactions in the business.

Answer 2

True

Question 3

The cash register provides control over the cash receipts for a retail business.

Answer 3

True

Question 4

The most common credit cards issued by financial institutions are Discover and American Express.

Question 5

Most financial institutions charge the retailer a service fee that enables the retailer to accept the credit cards as payment on merchandise.

Question 6

Separation of duties is essential for internal control over cash receipts and cash payments.

Question 7

Streamlined payment procedures now involve the use of electronic data interchange and electronic funds transfer between and among suppliers and merchandisers.

Question 8

Proceeds from credit card and debit card transactions are generally deposited into a business's bank account within:

A)one to three days.
B)three to five days.
C)a week.
D)a month.

Question 9

The most common types of financial institution credit cards are MasterCard and Visa.

Question 10

Credit sales are the most desirable form of sales.

Question 11

Cash receipts should never be deposited more than once a business day.

Question 12

A retailer has 3% credit/debit card service fees deducted from the proceeds from each sale.The retailer has $1,700 in credit/debit card sales for the day.The journal entry to record these sales would be to:

A)debit sales for $1,700 and credit Cash for $1,700.
B)debit Cash for $1,700 and credit Sales for $1,700.
C)debit Cash for $1,649,debit Service Fee Expense for $51;and credit Sales for $1,200.
D)debit Cash for $1,700,credit Sales for $1,649,and credit Service Fee Expense for $51.

Question 13

The processing of credit card and debit card transactions is generally done:

A)at the retail site.
B)at the financial institution of the retailer.
C)by third parties hired to do the processing.
D)over the Internet.

Question 14

MasterCard and Visa sales are treated like cash sales.

Question 15

Bank reconciliations are an important part of internal control that should be performed daily.

Question 16

Online banking should NOT be used to reconcile the bank account.

Question 17

From the retailer's perspective,debit cards are nearly identical to credit cards and have the same benefits and drawbacks.

Question 18

In a bank reconciliation,the bank balance and the book balance must be adjusted to be reconciled.

Question 19

Differences between when a company records a transaction and when the bank records the same transaction are called "timing" differences.

Question 20

Cash is one of the least vulnerable assets that a business has.

Question 21

To prevent a second payment for an invoice,the check signer should ________ the documents relating to the transaction.

A)deface
B)sign
C)file
D)throw away

Question 22

A $525 collection on a note from a customer was reflected on Ronaldo Co's bank statement.When doing the bank reconciliation,Ronaldo Co.should:

A)add $525 to the bank balance.
B)subtract $525 from the bank balance.
C)add $525 to their book balance.
D)subtract $525 from their book balance.

Question 23

A bank statement shows the:

A)ending book balance as of a specific date.
B)ending bank balance as of a specific date.
C)reconciled balance as of a specific date.
D)book errors as of a specific date.

Question 24

The process of acquiring merchandise from a supplier begins with the:

A)check for payment.
B)receiving report.
C)purchase order.
D)invoice.

Question 25

As part of the procedure to properly control cash payments received in the mail,after the mailroom employee opens the cash receipts,the remittance advices go to the:

A)Controller.
B)accounting department.
C)Treasurer.
D)bank.

Question 26

When companies extend credit to customers:

A)sales generally decrease.
B)the likelihood of not collecting money from customers decreases.
C)the likelihood of not collecting money from customers increases.
D)the business stays the same.

Question 27

Toy Company has 4% credit/debit card service fees deducted monthly by the bank from Toy Company's bank account.Toy Company has $75,000 in sales for the month.At what amount will Toy Company record this month's sales?

A)$78,000
B)$75,000
C)$72,000
D)$3,000

Question 28

Cypress Inc.deposited $2,000 into its bank account at the end of the month,but the bank statement does not show the deposit.This $2,000 is an example of a(n):

A)outstanding check.
B)bank error.
C)bank collection.
D)deposit in transit.

Question 29

Northwest Plumbing's bank statement shows a bank balance of $43,267.The statement shows a bank service charge of $50.Northwest Plumbing's book balance shows outstanding checks of $5,288 and deposits in transit of $9,325.The adjusted balance on the bank side of the reconciliation would be:

A)$43,267.
B)$43,217.
C)$39,230.
D)$47,304.

Question 30

Rex's Auto has a checking account that earns interest.The current bank statement shows interest earned of $11.27.This amount should be:

A)added to Rex's book balance.
B)subtracted from Rex's book balance.
C)ignored,as the bank has added it to Rex's book balance.
D)subtracted from the bank balance.

Question 31

In the last step of the procedure to properly control cash payments received in the mail,the ________ verifies the amount of the deposit and the total amount posted to the cash account.

A)bank
B)accounting department
C)Treasurer
D)Controller

Question 32

Once the merchandise is received from the supplier,the company:

A)issues an invoice.
B)issues a check.
C)issues a purchase order.
D)completes a receiving report.

Question 33

Pirates Party Supply deposited a check for $675,but it was recorded on their books as a check for $576.This error of $99 would be:

A)added to the bank balance.
B)added to Pirate's book balance.
C)subtracted from the bank balance.
D)subtracted from Pirate's book balance.

Question 34

As part of the procedure to properly control cash payments received in the mail,after the mailroom employee opens the cash receipts,the checks then go to the:

A)bank.
B)Controller.
C)Treasurer.
D)accounting department.

Question 35

The bank recorded a $56 deposit as $65.On a bank reconciliation this error would be corrected by:

A)subtracting $9 from the bank balance.
B)adding $9 to the bank balance.
C)adding $9 to the book balance.
D)subtracting $9 from the book balance.

Question 36

Deposits in transit are:

A)subtracted from the book balance.
B)added to the book balance.
C)subtracted from the bank balance.
D)added to the bank balance.

Question 37

Before signing a check to pay for a purchase,the ________ should examine the documents supporting the purchase.

A)Controller
B)purchasing agent
C)Treasurer
D)manager

Question 38

On a bank reconciliation,outstanding checks are:

A)added to the book balance.
B)added to the bank balance.
C)subtracted from the book balance.
D)subtracted from the bank balance.

Question 39

Which of the following situations would cause Acme Company to have an NSF check amount on its bank reconciliation?

A)Acme writes a check to a supplier that bounces.
B)A customer writes a check to pay Acme and that check bounces.
C)Both situations A and B will cause Acme to have an NSF check on its' bank reconciliation.
D)Neither situation A nor B will cause Acme to have an NSF check on its' bank reconciliation.

Question 40

A retailer has 5% credit/debit card service fees deducted from the business's bank account on a monthly basis.The retailer has $43,500 in sales for the month.The journal entry to record these sales would be to:

A)debit Sales for $43,500 and credit Cash for $43,500.
B)debit Cash for $43,500 and credit Sales for $43,500.
C)debit Cash for $41,325,debit Service Fee Expense for $2,175 and credit Sales for $43,500.
D)debit Cash for $43,500,credit Sales for $41,325 and credit Service Fee Expense for $2,175.

Question 41

During a bank reconciliation,S & C Inc.discovered a NSF check from their customer,Marla Hicks for $35.The journal entry required to update the cash balance would be:

A)Debit cash,credit Accounts Receivable
B)Debit Accounts Receivable,credit Cash
C)Debit Accounts Receivable - M.Hicks,credit Cash
D)No journal entry is required.

Question 42

Cash on the Balance Sheet includes:

A)checks on hand.
B)traveler's checks.
C)Petty Cash.
D)all of the above.

Question 43

Cesario Auto's bank statement shows a bank balance of $43,267.The statement shows a bank service charge of $50 and a note collection of $760 on Cesario Auto's behalf.Cesario Auto's book balance should be adjusted by a total of:

A)+$810.
B)+$760.
C)+$710.
D)-$710.

Question 44

U)S.Treasury notes must mature within ________ days of the Balance Sheet date in order to be considered cash equivalents.

A)60
B)90
C)120
D)180

Question 45

Cash equivalents may include money orders and traveler's checks.

Question 46

Accounts Receivable are classified as Current Assets.

Question 47

Cash consists of anything that a bank will take as a deposit.

Question 48

Each cash account is listed separately on the Balance Sheet.

Question 49

Which of the following is NOT true concerning NSF checks:

A)NSF checks represent customer checks that the business previously deposited but have turned out to be worthless.
B)The amount of the NSF check will need to be subtracted from the book balance.
C)The amount of the NSF check will need to be added to the book balance.
D)NSF stands for nonsufficient funds.

Question 50

Which of the following would NOT be considered a 90-day cash equivalent?

A)Time deposits
B)Coin
C)Treasury notes
D)Certificates of deposits

Question 51

Cash is listed first on the Balance Sheet because it is the least liquid asset.

Question 52

Which of the following would NOT be considered cash?

A)Currency
B)Money market funds
C)Money orders
D)Checking accounts

Question 53

Cash equivalents are:

A)very liquid and carry high risk.
B)not liquid and carry little risk.
C)very liquid and carry little risk.
D)not liquid and carry high risk.

Question 54

A company may have receivables such as loans to employees and interest receivable.

Question 55

Which of the following would be considered a cash equivalent?

A)Currency
B)Time deposits
C)Checks
D)Money orders

Question 56

Which of the following would indicate poor internal control over Accounts Receivable?

A)The person handling cash receipts passes the receipts to someone who enters them into Accounts Receivable.
B)The same person handling cash receipts also records the Accounts Receivable transactions.
C)The mailroom employees open the mail and give the cash receipts to another employee.
D)The person who handles Accounts Receivable would not write off accounts as uncollectible.

Question 57

Notes receivable generally include a charge for interest.

Question 58

Accounts Receivable are more formal and usually longer in terms than notes receivable.

Question 59

Ninety-day U.S.Treasury notes are considered cash equivalents.

Question 60

A fund that contains a small amount of cash and is used to pay for minor expenditures is known as:

A)the emergency fund.
B)the checking account.
C)the petty cash fund.
D)the cash account.

Question 61

What type of account is Allowance for Doubtful Accounts?

A)A contra-asset account
B)An expense account
C)A contra-liability account
D)A revenue account

Question 62

GAAP generally allows the direct write-off method for accounting for bad debts.

Question 63

There are two methods for accounting for uncollectible receivables.

Question 64

Which of the following is TRUE?

A)The allowance method requires a business to estimate bad debt expense.
B)The allowance method requires a business to record only actual bad debt expense.
C)The allowance method allows a business to choose between recording actual or estimated bad debt expense.
D)The allowance method does not relate to bad debts expense.It is a method used to prepare a bank reconciliation.

Question 65

Which is NOT a benefit to extending credit to customers?

A)Bad debt expenses
B)Increased revenues
C)Increased profits
D)Wider range of customers

Question 66

Companies who sell on account expect:

A)the benefit to outweigh the cost.
B)to incur bad debt expense.
C)to reach a wider range of customers.
D)all of the above.

Question 67

Once an Account Receivable is written off,can a business ever collect that money?

A)No,GAAP does not allow a company to collect any amounts from a customer who has had an account written off.
B)Only when using the direct write-off method can a company collect from a customer who has had an account written off.
C)Only when using the allowance method can a company collect from a customer who has had an account written off.
D)Both the allowance and direct write-off methods permit a company to collect from a customer who has had an account written off.

Question 68

The allowance method of accounting for bad debts is required by GAAP because of the materiality principle.

Question 69

When a customer fails to pay on their account,it creates a(n):

A)note receivable.
B)uncollectible account.
C)account receivable.
D)decrease in revenue.

Question 70

The materiality principle allows companies with low amounts of uncollectible accounts to use the direct write-off method.

Question 71

The direct write-off method always adheres to the matching principle.

Question 72

The contra-account,Allowance for Doubtful Accounts,is credited when journal entries are made for estimates of bad debts.

Question 73

The percent of sales method is the only method allowed by GAAP to estimate the amount of uncollectible accounts.

Question 74

An example of good internal control over Accounts Receivable is:

A)the employee who handles the daily cash receipts also records Accounts Receivable transactions.
B)the employee who opens the mail is also in charge of recording Accounts Receivable.
C)there are separate employees for cash-handling and cash-accounting duties.
D)All of the above are examples of good internal controls.

Question 75

When using the aging method,the amount calculated to be the uncollectible accounts is always the amount used for the adjusting entry at the end of the period.

Question 76

The net realizable value of Accounts Receivable is computed by subtracting the allowance for doubtful accounts from the amount in the Accounts Receivable control account.

Question 77

Receivables of a company CANNOT be long-term assets.

Question 78

When writing off an account using the direct write-off method,the journal entry would include a debit to Bad Debt Expense.

Question 79

The period end adjusting entry for bad debt expense under the direct write-off method is:

A)Bad Debt Expense,debit;Allowance for Uncollectible Accounts,credit.
B)not required.
C)Cash,debit;Accounts Receivable/customer name,credit.
D)Bad Debt Expense,debit;Accounts Receivable/customer name,credit.

Question 80

The simplest way to account for an uncollectible account is to use the allowance method.