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CPA Financial Accounting and Reporting Far Quiz

CPA Financial Accounting and Reporting Far Quiz: Account For Cash And Cash Equivalents

Practice Account For Cash And Cash Equivalents in CPA Financial Accounting and Reporting Far with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

Question 1 / 20

0 of 20 answered

A bank reconciliation reveals that a customer's 3,000checkwasreturnedNSF(non−sufficientfunds)andthebankchargeda3,000 check was returned NSF (non-sufficient funds) and the bank charged a 3,000checkwasreturnedNSF(non−sufficientfunds)andthebankchargeda25 NSF fee. Both items appear on the bank statement but have not been recorded by the company. What journal entry should the company record?

Select an answer to continue

What this quiz covers

This quiz focuses on Account For Cash And Cash Equivalents, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Financial Accounting and Reporting Far.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A bank reconciliation reveals that a customer's 3,000checkwasreturnedNSF(non−sufficientfunds)andthebankchargeda3,000 check was returned NSF (non-sufficient funds) and the bank charged a 3,000checkwasreturnedNSF(non−sufficientfunds)andthebankchargeda25 NSF fee. Both items appear on the bank statement but have not been recorded by the company. What journal entry should the company record?

  1. Debit Accounts Receivable 3,000;CreditCash3,000; Credit Cash 3,000;CreditCash3,000.
  2. Debit Accounts Receivable 3,025;CreditCash3,025; Credit Cash 3,025;CreditCash3,025. (correct answer)
  3. Debit Bad Debt Expense 3,025;CreditCash3,025; Credit Cash 3,025;CreditCash3,025.
  4. Debit Bank Charges 25;CreditCash25; Credit Cash 25;CreditCash25.

Explanation: When a customer's check is returned NSF, the company must reverse the original cash receipt and reinstate the receivable. The NSF fee charged by the bank also reduces the company's cash. Total reduction to cash = 3,000+3,000 + 3,000+25 = $3,025, reinstated as accounts receivable. Answer B is correct. Answer A omits the NSF fee. Answer C debits bad debt expense prematurely - the amount is still owed by the customer and should be a receivable. Answer D records only the fee, omitting the NSF check reversal.

Question 2

A bank statement shows a balance of 18,600.Thefollowingreconcilingitemsareidentified:depositsintransitof18,600. The following reconciling items are identified: deposits in transit of 18,600.Thefollowingreconcilingitemsareidentified:depositsintransitof4,200, outstanding checks of 6,500,andabankerrorinwhichthebankincorrectlychargedthecompany′saccount6,500, and a bank error in which the bank incorrectly charged the company's account 6,500,andabankerrorinwhichthebankincorrectlychargedthecompany′saccount800 for another customer's check. What is the adjusted bank balance?

  1. $16,300
  2. $15,500
  3. $17,100 (correct answer)
  4. $18,600

Explanation: Adjusted bank balance = 18,600+depositsintransit18,600 + deposits in transit 18,600+depositsintransit4,200 - outstanding checks 6,500+bankerrorcorrection6,500 + bank error correction 6,500+bankerrorcorrection800 = 17,100.Thebankerrorunderstatedthecompany′sbalance,soitisaddedback.AnswerCiscorrect.AnswerAomitsthebankerrorcorrection(17,100. The bank error understated the company's balance, so it is added back. Answer C is correct. Answer A omits the bank error correction (17,100.Thebankerrorunderstatedthecompany′sbalance,soitisaddedback.AnswerCiscorrect.AnswerAomitsthebankerrorcorrection(18,600 + 4,200−4,200 - 4,200−6,500 = 16,300).AnswerBsubtractsthebankerrorratherthanaddingit(16,300). Answer B subtracts the bank error rather than adding it (16,300).AnswerBsubtractsthebankerrorratherthanaddingit(18,600 + 4,200−4,200 - 4,200−6,500 - 800=800 = 800=15,500). Answer D uses the unadjusted bank balance.

Question 3

A company's bank reconciliation shows the following book-side adjustments: interest earned on the account of 250,anotecollectedbythebankof250, a note collected by the bank of 250,anotecollectedbythebankof2,000 (plus 120interest),andanNSFcheckof120 interest), and an NSF check of 120interest),andanNSFcheckof680. What is the net adjustment to the book cash balance?

  1. Increase of $1,570
  2. Increase of $1,690 (correct answer)
  3. Increase of $2,370
  4. Decrease of $430

Explanation: Book adjustments: Add interest earned 250+notecollected250 + note collected 250+notecollected2,000 + note interest 120=120 = 120=2,370 increase. Deduct NSF check 680.Netadjustment=680. Net adjustment = 680.Netadjustment=2,370 - 680=680 = 680=1,690 increase. Answer B is correct. Answer C counts only the additions without subtracting the NSF check. Answer D considers only the NSF check without the additions.

Question 4

Which of the following correctly describes the presentation of restricted cash on the balance sheet under ASC 230?

  1. Restricted cash is always classified as a long-term asset regardless of the restriction period.
  2. Restricted cash is presented separately from cash and cash equivalents, classified as current or noncurrent based on the nature and expected term of the restriction. (correct answer)
  3. Restricted cash is netted against the related debt obligation and not presented separately.
  4. Restricted cash is included in cash and cash equivalents with footnote disclosure of the restriction.

Explanation: Under ASC 230, restricted cash is excluded from the cash and cash equivalents line and presented separately on the balance sheet. Its classification as current or noncurrent depends on when the restriction will lapse and how the cash will be used. Answer B is correct. Answer A mandates long-term classification without regard to the restriction period, which is incorrect - classification should follow the expected term of the restriction. Answer C nets restricted cash against the related debt obligation, which violates GAAP rules prohibiting the offsetting of assets and liabilities. Answer D includes restricted cash with unrestricted cash and cash equivalents, which is not permitted under ASC 230.

Question 5

A company writes a check for $10,000 on December 30 but does not mail it until January 5 of the following year. How should this item be treated at December 31?

  1. The $10,000 should remain in the cash balance; the liability should also remain on the books. (correct answer)
  2. The $10,000 should be removed from cash and the liability reduced, since the check was written.
  3. The item should be disclosed as a subsequent event since it was mailed in January.
  4. The $10,000 should be reclassified as a deposit in transit on the bank reconciliation.

Explanation: When a check is written but not mailed, the company still controls the funds. Since the payee has not received the check and cannot negotiate it, the cash has not constructively left the company. The cash balance should not be reduced, and the liability remains. Answer A is correct. Answer B reduces cash prematurely before the payee has control. Answer C misapplies subsequent event treatment to a routine cash management practice. Answer D confuses unmailed checks with deposits in transit, which are deposits sent to the bank but not yet reflected on the bank statement.

Question 6

A company's petty cash fund has an imprest balance of 500.Atmonth−end,thefundcontains500. At month-end, the fund contains 500.Atmonth−end,thefundcontains87 in cash and $418 in receipts. What journal entry should be recorded to replenish the fund?

  1. Debit Petty Cash 413;CreditCash413; Credit Cash 413;CreditCash413.
  2. Debit Various Expenses 418;CreditCashOverandShort418; Credit Cash Over and Short 418;CreditCashOverandShort5; Credit Cash $413. (correct answer)
  3. Debit Various Expenses 413;CreditCash413; Credit Cash 413;CreditCash413.
  4. Debit Petty Cash 500;CreditCash500; Credit Cash 500;CreditCash500.

Explanation: The fund should contain 500total.Cashonhandis500 total. Cash on hand is 500total.Cashonhandis87 and receipts are 418,totaling418, totaling 418,totaling505. The fund is over by 5(5 (5(505 - 500).Toreplenish,thecheckwritten=500). To replenish, the check written = 500).Toreplenish,thecheckwritten=500 - 87=87 = 87=413. Expenses per receipts = 418.The418. The 418.The5 discrepancy represents a fund overage: more was documented in receipts than cash was disbursed, so Cash Over and Short is credited (a gain). Entry: Debit Expenses 418,CreditCashOverandShort418, Credit Cash Over and Short 418,CreditCashOverandShort5, Credit Cash 413.AnswerBiscorrect.AnswerAdebitsPettyCashratherthanexpenses,whichwouldincreasethefundbalance.AnswerComitstheoverageandusesthewrongexpenseamount.AnswerDre−establishesthefull413. Answer B is correct. Answer A debits Petty Cash rather than expenses, which would increase the fund balance. Answer C omits the overage and uses the wrong expense amount. Answer D re-establishes the full 413.AnswerBiscorrect.AnswerAdebitsPettyCashratherthanexpenses,whichwouldincreasethefundbalance.AnswerComitstheoverageandusesthewrongexpenseamount.AnswerDre−establishesthefull500 rather than replenishing only the amount spent.

Question 7

A company receives a check from a customer dated January 15 of next year. It is currently December 20. How should this postdated check be classified at December 31?

  1. Cash and cash equivalents, since a check has been received.
  2. Short-term investments, since it will be deposited within one year.
  3. Cash equivalents, since it matures within three months.
  4. Accounts receivable, since it cannot yet be deposited or negotiated. (correct answer)

Explanation: A postdated check cannot be deposited or negotiated until the date on the check. At December 31, the check dated January 15 is not yet a valid claim on the bank. It should be classified as a receivable until it can be deposited. Answer D is correct. Answers A and C incorrectly classify it as cash or a cash equivalent - cash must be immediately available. Answer B misclassifies it as a short-term investment; it is a receivable from the customer, not an investment instrument.

Question 8

A company maintains a checking account and a savings account at the same bank. The checking account has a balance of 15,000andthesavingsaccounthasabalanceof15,000 and the savings account has a balance of 15,000andthesavingsaccounthasabalanceof8,000. Under what circumstances would the company be required to report both balances together as a single cash figure?

  1. When both accounts are unrestricted and available for general use, they may be combined and reported as cash. (correct answer)
  2. They must always be reported separately regardless of restrictions.
  3. They may only be combined if both accounts are interest-bearing.
  4. They may only be combined if both accounts are at the same branch location.

Explanation: Cash includes all demand deposits and unrestricted balances immediately available for use. When both a checking and savings account are unrestricted and available for general use, they may be combined and reported as cash on the balance sheet. Answer A is correct. Answer B imposes a separation requirement that does not exist under GAAP. Answer C and D create conditions (interest-bearing, same branch) that have no basis in the definition of cash under ASC 305.

Question 9

During a year-end bank reconciliation, the accountant finds that a 4,500checkreceivedfromacustomerwasrecordedbythecompanyas4,500 check received from a customer was recorded by the company as 4,500checkreceivedfromacustomerwasrecordedbythecompanyas4,050. How should this transposition error be corrected?

  1. Deduct $450 from the bank balance.
  2. Add $4,050 to the book balance.
  3. Deduct $450 from the book balance.
  4. Add $450 to the book balance. (correct answer)

Explanation: The company recorded the receipt as 4,050butthecorrectamountis4,050 but the correct amount is 4,050butthecorrectamountis4,500. The book balance is understated by 450(450 (450(4,500 - 4,050).Thecorrectionistoadd4,050). The correction is to add 4,050).Thecorrectionistoadd450 to the book balance (Debit Cash 450,CreditAccountsReceivable450, Credit Accounts Receivable 450,CreditAccountsReceivable450 or the appropriate account). Answer D is correct. Answer A adjusts the bank balance, but this is a book error - the bank correctly recorded $4,500. Answer B adds the full amount rather than the correction amount. Answer C deducts rather than adds.

Question 10

Which of the following best describes the purpose of an imprest petty cash system?

  1. To eliminate the need for a bank reconciliation for small expenditures.
  2. To allow employees to spend cash without requiring receipts.
  3. To maintain a fixed fund balance by replenishing it to its established amount after documenting all expenditures. (correct answer)
  4. To provide a revolving credit facility for operational expenses.

Explanation: An imprest petty cash system maintains a fixed fund at an established amount. When funds are disbursed, receipts are collected. The fund is periodically replenished to its original balance by exchanging receipts for a check, which records the expenses. Answer C is correct. Answer A is incorrect - bank reconciliations are still required for the main cash account. Answer B is the opposite of the imprest system's control purpose. Answer D describes a credit facility, not a petty cash system.

Question 11

A company has cash on hand of 5,000,acheckingaccountbalanceof5,000, a checking account balance of 5,000,acheckingaccountbalanceof48,000, a savings account balance of 12,000,a2−monthTreasurybillof12,000, a 2-month Treasury bill of 12,000,a2−monthTreasurybillof20,000, and a 6-month certificate of deposit of $15,000. What total amount should be reported as cash and cash equivalents?

  1. $65,000
  2. $80,000
  3. $70,000
  4. $85,000 (correct answer)

Explanation: Cash and cash equivalents include: cash on hand 5,000+checking5,000 + checking 5,000+checking48,000 + savings 12,000+2−monthT−bill12,000 + 2-month T-bill 12,000+2−monthT−bill20,000 = $85,000. The 2-month Treasury bill qualifies as a cash equivalent (original maturity of 3 months or less). The 6-month CD does not qualify (original maturity exceeds 3 months). Answer D is correct. Answer A omits the T-bill and savings. Answer B omits the T-bill. Answer C omits the savings account.

Question 12

A company's December 31 bank statement shows a balance of 25,000.Thecompany′sgeneralledgershowsacashbalanceof25,000. The company's general ledger shows a cash balance of 25,000.Thecompany′sgeneralledgershowsacashbalanceof27,500. The reconciliation reveals: outstanding checks of 3,800,depositsintransitof3,800, deposits in transit of 3,800,depositsintransitof6,200, and a bank service charge of $100 not yet recorded by the company. What is the correct adjusted cash balance?

  1. $25,400
  2. $25,000
  3. $27,400 (correct answer)
  4. $26,900

Explanation: Bank side: 25,000+depositsintransit25,000 + deposits in transit 25,000+depositsintransit6,200 - outstanding checks 3,800=3,800 = 3,800=27,400. Book side: 27,500−bankservicecharge27,500 - bank service charge 27,500−bankservicecharge100 = 27,400.Bothsidesreconcileto27,400. Both sides reconcile to 27,400.Bothsidesreconcileto27,400. Answer C is correct. Answer A (25,400)usestheoriginaldepositintransitof25,400) uses the original deposit in transit of 25,400)usestheoriginaldepositintransitof4,200 rather than $6,200. Answer B is the unadjusted bank balance. Answer D results from an arithmetic error in the reconciliation.

Question 13

During a bank reconciliation, a company discovers that it recorded a 540checkas540 check as 540checkas450 in its cash disbursements journal. The check was for a utility bill. What adjustment is required to the book balance?

  1. Add $90 to the book balance.
  2. Deduct $540 from the book balance.
  3. No adjustment is needed; the bank statement is the correct record.
  4. Deduct $90 from the book balance. (correct answer)

Explanation: The company recorded the check as 450butthecorrectamountis450 but the correct amount is 450butthecorrectamountis540. The book balance is overstated by 90(90 (90(540 - 450).Theadjustmentistodeduct450). The adjustment is to deduct 450).Theadjustmentistodeduct90 from the book balance (Debit Utility Expense 90,CreditCash90, Credit Cash 90,CreditCash90). Answer D is correct. Answer A adds rather than deducts. Answer B deducts the full check amount rather than the correction amount. Answer C is incorrect - book errors require book adjustments, not reliance on the bank statement.

Question 14

For purposes of the statement of cash flows, which of the following correctly describes the treatment of bank overdrafts?

  1. Bank overdrafts are always classified as investing activities.
  2. Bank overdrafts reduce the cash and cash equivalents balance only when they are at a different bank.
  3. Bank overdrafts are disclosed in the notes but not reflected in the cash balance.
  4. Bank overdrafts at the same bank where positive balances exist are netted against cash; overdrafts at a different bank are classified as current liabilities. (correct answer)

Explanation: Under ASC 230, if a bank overdraft occurs at the same institution where the company maintains other positive cash balances, it is offset against those balances for cash flow purposes. If the overdraft is at a different bank, it represents a current liability and is not netted against cash. Answer D is correct. Answer A incorrectly classifies overdrafts as investing activities. Answer B reverses the treatment - netting applies when overdrafts and positive balances are at the same bank. Answer C requires balance sheet recognition, not merely disclosure.

Question 15

Which of the following items is correctly excluded from cash and cash equivalents on the balance sheet?

  1. Demand deposits at commercial banks.
  2. A U.S. Treasury bill purchased when it had 95 days remaining to maturity. (correct answer)
  3. Coins and currency on hand.
  4. A money market fund with next-day redemption and no withdrawal restrictions.

Explanation: Cash equivalents require an original maturity of three months or less at the time of purchase. A Treasury bill with 95 days remaining to maturity at the time of purchase does not qualify - the investor's remaining term exceeds three months. Answer B is correctly excluded. Demand deposits (A), coins and currency (C), and unrestricted next-day money market funds (D) all qualify as cash or cash equivalents and should be included.

Question 16

A compensating balance requirement is in place as part of a short-term borrowing arrangement. Which of the following is the correct disclosure treatment?

  1. The compensating balance is netted against the short-term borrowing on the balance sheet.
  2. The compensating balance is included in cash and cash equivalents without disclosure.
  3. The compensating balance is disclosed in the notes to the financial statements, and if legally restricted, is excluded from cash and cash equivalents. (correct answer)
  4. The compensating balance is always reclassified as a long-term asset.

Explanation: Compensating balances required by lending agreements must be disclosed in the notes. If the balance is legally restricted (i.e., the company cannot use it), it must be excluded from cash and cash equivalents and presented separately. If not legally restricted, it may remain in cash but should still be disclosed. Answer C is correct. Answer A nets against borrowings, violating the prohibition on offsetting. Answer B includes it in cash without disclosure, which is insufficient. Answer D always reclassifying as long-term is incorrect - classification depends on the term of the restriction.

Question 17

Which of the following items should be classified as restricted cash and presented separately from cash and cash equivalents on the balance sheet?

  1. Cash held in escrow required by a loan covenant that restricts its use. (correct answer)
  2. A money market account used for daily operating disbursements.
  3. Petty cash funds held at various company locations.
  4. Checks written but not yet mailed to vendors.

Explanation: Restricted cash is cash that is not available for general use due to legal, contractual, or regulatory restrictions. Cash held in escrow under a loan covenant that prohibits its use for general operations must be classified as restricted and presented separately on the balance sheet. Answer A is correct. A money market account used for daily operating disbursements (B) is unrestricted and qualifies as cash. Petty cash funds at various locations (C) are unrestricted operating cash included in the cash balance. Checks written but not yet mailed (D) remain in the cash balance because the payee has not received them and the company still controls the funds.

Question 18

A company holds the following items. Which should be included in the cash and cash equivalents balance reported on the balance sheet?

  1. A commercial paper investment purchased with 45 days remaining to maturity. (correct answer)
  2. A 180-day certificate of deposit.
  3. Postdated checks received from customers.
  4. Compensating balances required under a bank loan agreement.

Explanation: Commercial paper with 45 days remaining to maturity at purchase qualifies as a cash equivalent (original maturity of three months or less, highly liquid). Answer A is correct. A 180-day CD (B) has an original maturity exceeding three months. Postdated checks (C) are not yet negotiable and cannot be deposited until the date on the check - they are receivables, not cash. Compensating balances (D) required by a loan agreement are restricted and must be disclosed separately, not included in unrestricted cash.

Question 19

A company discovers during a bank reconciliation that the bank erroneously credited $1,500 to the company's account that belongs to another customer. How should this item be treated on the bank reconciliation?

  1. Added to the book balance since the bank credited the account.
  2. Added to the bank balance to correct the bank's records.
  3. No adjustment is needed; the bank will correct it automatically.
  4. Deducted from the bank balance, and the company should notify the bank of the error. (correct answer)

Explanation: A bank error that incorrectly credited the company's account overstates the bank balance. On the bank reconciliation, the $1,500 erroneous credit is deducted from the bank balance to arrive at the correct adjusted balance. The company should also notify the bank to correct the error. Answer D is correct. Answer A adjusts the book balance, which is incorrect - the company did not actually receive these funds and its books are unaffected. Answer B adds to the bank balance rather than deducting, which would further overstate it. Answer C assumes the bank will automatically correct the error without any reconciliation treatment, which does not satisfy the requirement to present an adjusted balance.

Question 20

A company records a 900journalentrydebitingCashandcreditingacustomer′sAccountsReceivable.Thebankstatementreflectsadepositof900 journal entry debiting Cash and crediting a customer's Accounts Receivable. The bank statement reflects a deposit of 900journalentrydebitingCashandcreditingacustomer′sAccountsReceivable.Thebankstatementreflectsadepositof900. Which of the following items would NOT appear on the bank reconciliation as a reconciling item?

  1. An outstanding check for $450.
  2. The $900 deposit, since it is recorded on both the books and the bank statement. (correct answer)
  3. A deposit in transit for $1,200.
  4. A bank service charge of $15.

Explanation: Reconciling items are transactions recorded on one side (book or bank) but not yet on the other. The $900 deposit has been recorded by both the company and the bank - it is not a reconciling item. Answer B is correct. Outstanding checks (A) appear on the books but not the bank statement. Deposits in transit (C) appear on the books but not the bank. Bank service charges (D) appear on the bank statement but not yet on the books.