Question 1

Cash equivalents are investments that are readily convertible to a known amount of cash,where readily means six months or less.

Accepted Answer

Cash equivalents are investments that are readily convertible to a known amount of cash and have original maturities of three months or less.

Question 2

On a bank reconciliation,bank charges for the month are added to the cash balance per the books.

Accepted Answer

Bank charges for the month are deducted from the cash balance per the books because they represent amounts that the bank has taken out of the account, reducing the company's book balance.

Question 3

In a sound internal control system,all cash receipts should be deposited intact in the bank on a daily basis.

Accepted Answer

This ensures that all cash received is recorded, reduces the risk of loss or theft, and provides a clear audit trail of all transactions.

Question 4

Coin and currency on hand and cash on deposit in the form of checking and savings accounts are the most obvious forms of cash.

Accepted Answer

Coin and currency on hand and cash on deposit in checking and savings accounts are commonly considered to be the most straightforward and easily accessible forms of cash.

Question 5

On a bank reconciliation,outstanding checks are added to the cash balance per the bank statement.

Accepted Answer

Outstanding checks are subtracted from the cash balance per the bank statement because they represent amounts that the bank has not yet paid out from the account.

Question 6

Treasury notes with a maturity of six months or less that are issued by the federal government are cash equivalents.

Accepted Answer

Treasury notes have maturities ranging from 2 to 10 years. Treasury bills, not notes, are the short-term securities with maturities of one year or less and can be considered cash equivalents.

Question 7

A bank does not have the legal right to demand that a customer notify it before making a withdrawal from a savings account.

Accepted Answer

The answer of A bank does not have the legal...

Question 8

When reconciling a bank account,the company must prepare an adjusting entry for deposits in transit.

Accepted Answer

Deposits in transit are already recorded in the company's cash account but not yet reflected in the bank statement; thus, no adjusting entry is needed for them in the company's records.

Question 9

When a bank pays interest or collects an amount owed to a company by one of the bank's customers,the bank issues a debit memorandum.

Accepted Answer

When a bank collects an amount owed to a company by one of the bank's customers or pays interest, it issues a credit memorandum, not a debit memorandum. A debit memorandum is issued for charges or fees, reducing the company's bank account balance.

Question 10

For a buyer,a purchase order is not the basis for recording a purchase and an account payable.

Accepted Answer

A purchase order is a request for goods or services, not a record of a purchase. The purchase order is used to create a purchase requisition, which is then used to create a purchase order. The purchase order is then used to create a receiving report, which is then used to create an invoice. The invoice is then used to create a payment.

Question 11

When a bank pays interest or collects an amount owed to a company by one of the bank's customers,the bank issues a credit memorandum.

Accepted Answer

A credit memorandum is issued by a bank when it pays interest or collects an amount owed to a company by one of its customers. This memorandum serves as proof of the transaction and records the amount credited to the account.

Question 12

Checks received from customers are considered to be cash in the company's books.

Accepted Answer

Checks received from customers are considered as cash because they can easily be deposited into a bank account and can be used to make payments or withdrawals.

Question 13

A bank informs a customer that a service charge has been assessed on its account by including a credit memorandum on the monthly bank statement.

Accepted Answer

A bank informs a customer about a service charge by including a debit memorandum, not a credit memorandum, on the monthly bank statement.

Question 14

A check written by a company but not yet presented to the bank for payment is called a check in transit.

Accepted Answer

A check written by a company but not yet presented to the bank for payment is referred to as an outstanding check. A check in transit typically refers to a check that has been sent out but not yet received and processed by the recipient.

Question 15

On a bank reconciliation,interest earned for the month is added to the cash balance per the books.

Accepted Answer

Interest earned for the month is a source of income and should be added to the cash balance per the books.

Question 16

The key to the classification of an amount as cash is that it be readily available to pay debts.

Accepted Answer

Cash refers to funds that are immediately available in the form of currency, coins, or balances in bank accounts that are rapidly convertible to known amounts of cash. The primary characteristic of cash is that it can be used to pay debts immediately or in the near future, making it a highly liquid asset.

Question 17

When reconciling a bank account,the company does not have to prepare an adjusting entry for outstanding checks.

Accepted Answer

Outstanding checks are checks that have been written and recorded in the company's cash account but have not yet cleared the bank. They do not require an adjusting entry because they are already reflected in the company's cash balance; the reconciliation process simply accounts for the timing difference between the company's records and the bank's records.

Question 18

Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.

Accepted Answer

Petty cash is a small fund of cash that is usually composed of coins and currency that is kept on hand in a business to make minor disbursements, such as for office supplies or postage.

Question 19

A six-month bank certificate of deposit would be classified as a cash equivalent.

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. A six-month certificate of deposit exceeds this maturity period.

Question 20

The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of time.

Accepted Answer

The key to the classification of an amount as cash is its availability to pay debts without restriction, not the specific timeframe of three months. Cash includes currency on hand and demand deposits with banks or financial institutions.

Quiz 6: Cash and Internal Control