Question 1

The acid-test ratio:
A) Is also called the quick ratio.
B) Measures profitability.
C) Measures liquidity.
D) Is also called the quick ratio and measures liquidity.
E) All of these answers are correct.

Accepted Answer

The acid-test ratio is also known as the quick ratio and it is a liquidity ratio. It measures a company's ability to meet short-term obligations with its most liquid assets. Therefore, choice D, which states that the acid-test ratio is also called the quick ratio and measures liquidity, is the best answer. Choices A, B, and C are all partially correct, but only choice D captures the full meaning of the acid-test ratio.

Question 2

A credit memorandum from the bank may be used as:
A) An explanation for a payment by cheque.
B) A bank statement.
C) A voucher.
D) An EFT.
E) A cancelled cheque.

Accepted Answer

The answer of A credit memorandum from the bank may...

Question 3

A bank statement includes:
A) A list of outstanding cheques.
B) A list of petty cash amounts.
C) The beginning and ending balance of the depositor's chequing account.
D) A list of outstanding cheques and a list of petty cash amounts.
E) All of these answers are correct.

Accepted Answer

The beginning and ending balance of the depositor's chequing account are essential components of a bank statement. The other options, such as outstanding cheques and petty cash amounts, may also be included, but they are not always present and not as critical as the balance information.

Question 4

A bank issues a debit memorandum:
A) To notify a depositor of all increases to the depositor's account.
B) To notify a depositor of a deduction from a depositor's account.
C) To notify a depositor of an NSF cheque.
D) To notify a depositor of an EFT.
E) To notify a depositor of a deduction from a depositor's account and to notify a depositor of an NSF cheque.

Accepted Answer

A debit memorandum is issued by a bank to notify a depositor of deductions from their account, which can include deductions for various reasons such as NSF (Non-Sufficient Funds) cheques. This means both parts of option E are correct.

Question 5

Banking activities include:
A) Bank accounts.
B) Bank deposits.
C) Chequing.
D) Electronic funds transfer.
E) All of these answers are correct.

Accepted Answer

All of these options are examples of banking activities. Bank accounts, deposits, chequing, and electronic funds transfer are all services provided by banks to their customers.

Question 6

In reimbursing the petty cash fund:
A) Cash is debited.
B) Petty Cash is credited.
C) Petty Cash is debited.
D) Expense accounts are debited.
E) Petty Cash is credited and expense accounts are debited.

Accepted Answer

When reimbursing the petty cash fund, the expense accounts that the petty cash was used for are debited to reflect the increase in expenses.

Question 7

Outstanding cheques are cheques that:
A) Have been written,recorded,sent to the payees,received,and paid by the bank.
B) Have been written and not yet recorded in the company books.
C) Are blank cheques.
D) Have been written,recorded on the company books,and sent to the payees,but have not yet been paid by the bank.
E) Have been issued by the bank.

Accepted Answer

Outstanding cheques are those that have been recorded on the company books and sent to the payee but have not been paid by the bank yet. Option A describes a paid cheque, option B describes a cheque that hasn't been recorded yet, option C describes a blank cheque, and option E describes a cheque issued by the bank.

Question 8

The quick assets are:
A) Cash,short-term investments,prepaid expenses.
B) Cash,short-term investments,accounts receivable.
C) Cash,inventory,accounts receivable.
D) Cash,accounts receivable,prepaid expenses.
E) Accounts receivable,inventory,prepaid expenses.

Accepted Answer

Quick assets are assets that can be quickly converted into cash without losing value. These include cash, short-term investments, and accounts receivable, but not inventory or prepaid expenses, which are not as liquid or may not be directly convertible to cash in the short term.

Question 9

Bank debit cards get their name from:
A) The fact that a debit is made to Cash by the business receiving the money.
B) Banks debit your account when they take the money out of it.
C) It is the opposite of a credit card.
D) The fact that a debit is made to Cash by the business receiving the money and banks debit your account when they take the money out of it.
E) None of these answers is correct.

Accepted Answer

Banks debit your account when they take the money out of it, which is why they are called debit cards.

Question 10

Credit card expense may be classified as:
A) A discount deducted from sales to get net sales.
B) A selling expense.
C) An administrative expense.
D) All of these answers are correct.
E) A selling expense and an administrative expense.

Accepted Answer

Credit card expense is an expense incurred by a business when customers use credit cards to make purchases. It is typically classified as a selling expense or an administrative expense, depending on the nature of the business. For example, if a business sells products online, credit card expense would be classified as a selling expense. If a business provides services, credit card expense would be classified as an administrative expense.

Question 11

The custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month.The entry to replenish the petty cash fund will include:
A) A debit to Miscellaneous Expenses for $377.50.
B) A credit to Cash Over and Short for $5.00.
C) A debit to Petty Cash for $382.50.
D) A credit to Cash for $387.50.
E) A debit to Cash for $387.50.

Accepted Answer

The answer of The custodian of a $450 petty cash...

Question 12

A cheque:
A) Involves the writer,the signers,the casher,and the bank.
B) Involves the maker,the payee,and the bank.
C) Involves the maker and the payee.
D) Involves the bookkeeper,the payee,and the bank.
E) Involves the signer,the casher,and the company.

Accepted Answer

A cheque involves the maker (the person who writes the cheque), the payee (the person or entity receiving the payment), and the bank where the maker has an account. The bank acts as an intermediary to ensure that the payment is made from the maker's account to the payee.

Question 13

The fees charged businesses by banks on credit card transactions can be shown on the income statement as:
A) A discount from revenue used in determining net sales.
B) A selling expense.
C) An administrative expense
D) All of these answers are correct.
E) None of these answers is correct.

Accepted Answer

The fees charged by banks on credit card transactions can be considered as a discount from revenue, a selling expense, or an administrative expense, depending on how the business chooses to classify them in their financial statements.

Question 14

A cheque that was outstanding on last month's bank reconciliation was not among the cancelled cheques returned by the bank this month.As a result,in preparing this month's reconciliation,the amount of this cheque should be:
A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Added to the bank balance of cash.
D) Deducted from the bank balance of cash.
E) Noted as a memo.

Accepted Answer

The answer of A cheque that was outstanding on last...

Question 15

Z-Mart plans to eliminate a $200 petty cash fund.The current balance in the account includes $45 in receipts and $165 in currency.The entry to eliminate the fund will include a:
A) Debit to Cash Short and Over for $10.
B) Debit to Cash for $165.
C) Debit to Miscellaneous Expenses for $35.
D) Credit to Petty Cash for $165.
E) Credit to Cash for $165.

Accepted Answer

The answer of Z-Mart plans to eliminate a $200 petty...

Question 16

When a petty cash fund is in use:
A) Expenses paid with petty cash are recorded when the fund is replenished.
B) Petty Cash is debited when funds are replenished.
C) Petty Cash is credited when funds are replenished.
D) Expenses paid with petty cash are recorded when the fund is replenished and petty cash is debited when funds are replenished.
E) Expenses paid with petty cash are recorded when the fund is replenished and petty cash is credited when funds are replenished.

Accepted Answer

The answer of When a petty cash fund is in...

Question 17

In reconciling the bank balance,an unrecorded debit memorandum for printing cheques should be:
A) Noted as a memo.
B) Added to the book balance of cash.
C) Deducted from the book balance of cash.
D) Added to the bank balance of cash.
E) Deducted from the bank balance of cash.

Accepted Answer

An unrecorded debit memorandum means that the bank has deducted an amount from the company's account without the company's knowledge. Therefore, this amount should be deducted from the book balance of cash to reconcile the bank balance with the book balance.

Question 18

In reconciling the bank balance,the amount of an unrecorded bank service charge should be:
A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Added to the bank balance of cash.
D) Deducted from the bank balance of cash.
E) Noted as a memo.

Accepted Answer

Bank service charges are expenses that have been deducted by the bank but not yet recorded in the company's book. Therefore, to reconcile the bank balance, these charges should be deducted from the book balance of cash to reflect the actual available cash balance.

Question 19

Z-Mart made a bank deposit on September 30 that did not appear on September's bank statement.In preparing September's bank reconciliation,the company should:
A) Deduct the deposit from the bank statement balance.
B) Send the bank a debit memorandum.
C) Deduct the deposit from September's book balance and add it to October's book balance.
D) Add the deposit to the book balance of cash.
E) Add the deposit to the bank statement balance.

Accepted Answer

The answer of Z-Mart made a bank deposit on September...

Question 20

An analysis that explains the difference between the balance of a chequing account shown in the depositor's records and the balance shown on the bank statement is a(n):
A) Internal audit.
B) Bank reconciliation.
C) Bank audit.
D) Trial reconciliation.
E) Analysis of debits and credits.

Accepted Answer

The difference between the balance of a chequing account in the depositor's records and the balance shown on the bank statement is known as a bank reconciliation. This process involves comparing the transactions recorded in the depositor's records with the transactions recorded by the bank on the statement. Any discrepancies are identified and explained, such as outstanding cheques or deposits that have not yet cleared. The purpose of a bank reconciliation is to ensure the accuracy of the account balance and identify any errors or fraud.

Quiz 8: Internal Control and Cash

The acid-test ratio:

A credit memorandum from the bank may be used as:

A bank statement includes:

A bank issues a debit memorandum:

Banking activities include:

In reimbursing the petty cash fund:

Outstanding cheques are cheques that:

The quick assets are:

Bank debit cards get their name from:

Credit card expense may be classified as:

The custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month.The entry to replenish the petty cash fund will include:

A cheque:

The fees charged businesses by banks on credit card transactions can be shown on the income statement as:

A cheque that was outstanding on last month's bank reconciliation was not among the cancelled cheques returned by the bank this month.As a result,in preparing this month's reconciliation,the amount of this cheque should be:

Z-Mart plans to eliminate a $200 petty cash fund.The current balance in the account includes $45 in receipts and $165 in currency.The entry to eliminate the fund will include a:

When a petty cash fund is in use:

In reconciling the bank balance,an unrecorded debit memorandum for printing cheques should be:

In reconciling the bank balance,the amount of an unrecorded bank service charge should be:

Z-Mart made a bank deposit on September 30 that did not appear on September's bank statement.In preparing September's bank reconciliation,the company should:

An analysis that explains the difference between the balance of a chequing account shown in the depositor's records and the balance shown on the bank statement is a(n) :