CPA Financial Accounting and Reporting Far Quiz: Account For Cash And Cash Equivalents
20 questions · exam conditions
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Account For Cash And Cash EquivalentsQuestion 1 of 20

A bank reconciliation reveals that a customer's $3,000 check was returned NSF (non-sufficient funds) and the bank charged a $25 NSF fee. Both items appear on the bank statement but have not been recorded by the company. What journal entry should the company record?

Debit Accounts Receivable $3,000; Credit Cash $3,000.
Debit Accounts Receivable $3,025; Credit Cash $3,025.
Debit Bad Debt Expense $3,025; Credit Cash $3,025.
Debit Bank Charges $25; Credit Cash $25.
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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.

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.

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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 $3,000 check was returned NSF (non-sufficient funds) and the bank charged a $25 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; Credit Cash $3,000.
  2. Debit Accounts Receivable $3,025; Credit Cash $3,025. (correct answer)
  3. Debit Bad Debt Expense $3,025; Credit Cash $3,025.
  4. Debit Bank Charges $25; Credit Cash $25.

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 + $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. The following reconciling items are identified: deposits in transit of $4,200, outstanding checks of $6,500, and a bank error in which the bank incorrectly charged the company's account $800 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 + deposits in transit $4,200 - outstanding checks $6,500 + bank error correction $800 = 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 (18,600 + $4,200 - $6,500 = 16,300).AnswerBsubtractsthebankerrorratherthanaddingit(16,300). Answer B subtracts the bank error rather than adding it (18,600 + $4,200 - $6,500 - $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, a note collected by the bank of $2,000 (plus $120 interest), and an NSF check of $680. 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 + note collected $2,000 + note interest $120 = $2,370 increase. Deduct NSF check $680. Net adjustment = $2,370 - $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

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 5

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 6

A company maintains a checking account and a savings account at the same bank. The checking account has a balance of $15,000 and the savings account has a balance of $8,000. 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 7

During a year-end bank reconciliation, the accountant finds that a $4,500 check received from a customer was recorded by the company as $4,050. 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 $4,050 but the correct amount is $4,500. The book balance is understated by 450(450 (4,500 - $4,050). The correction is to add $450 to the book balance (Debit Cash $450, Credit Accounts Receivable $450 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 8

A company has cash on hand of $5,000, a checking account balance of $48,000, a savings account balance of $12,000, a 2-month Treasury bill of $20,000, 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 + checking $48,000 + savings $12,000 + 2-month T-bill $20,000 = $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 9

A company's December 31 bank statement shows a balance of $25,000. The company's general ledger shows a cash balance of $27,500. The reconciliation reveals: outstanding checks of $3,800, deposits in transit of $6,200, 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 + deposits in transit $6,200 - outstanding checks $3,800 = $27,400. Book side: $27,500 - bank service charge $100 = $27,400. Both sides reconcile to 27,400.AnswerCiscorrect.AnswerA(27,400. Answer C is correct. Answer A (25,400) uses the original deposit in transit of $4,200 rather than $6,200. Answer B is the unadjusted bank balance. Answer D results from an arithmetic error in the reconciliation.

Question 10

During a bank reconciliation, a company discovers that it recorded a $540 check as $450 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 $450 but the correct amount is $540. The book balance is overstated by 90(90 (540 - $450). The adjustment is to deduct $90 from the book balance (Debit Utility Expense $90, Credit Cash $90). 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 11

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 12

A company records a $900 journal entry debiting Cash and crediting a customer's Accounts Receivable. The bank statement reflects a deposit of $900. 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.

Question 13

A company discovers that a check for $1,800 written to a supplier was recorded correctly in the cash disbursements journal but was never presented to the bank for payment. After two years, the check is considered stale and unlikely to be cashed. How should this be recorded?

  1. Reverse the original entry and credit Accounts Payable $1,800.
  2. No adjustment is needed; the outstanding check remains on the bank reconciliation indefinitely.
  3. Debit Cash $1,800 and credit Miscellaneous Income (or Accounts Payable, pending escheatment review) $1,800. (correct answer)
  4. Write off the outstanding check by debiting Accounts Payable $1,800 and crediting Bad Debt Expense $1,800.

Explanation: When an outstanding check becomes stale and is unlikely to be presented, the company restores the cash balance. The credit depends on circumstances: if the obligation has lapsed (no escheatment requirement), it may be recognized as income. If subject to state unclaimed property laws, the credit is to a liability pending remittance. The debit is always to Cash. Answer C is correct. Answer A credits Accounts Payable, implying the obligation to the vendor still exists. Answer B leaves a stale check on the reconciliation indefinitely, which is improper. Answer D debits Accounts Payable against Bad Debt Expense, which is not appropriate for a cash disbursement reversal.

Question 14

A company's general ledger shows a cash balance of $42,500. The bank statement shows a balance of $39,800. Outstanding checks total $4,500, deposits in transit total $7,100, and the bank charged a $100 service fee not yet recorded by the company. What is the adjusted (reconciled) cash balance?

  1. $41,700
  2. $41,500
  3. $42,400 (correct answer)
  4. $39,800

Explanation: Bank balance: $39,800 + deposits in transit $7,100 - outstanding checks $4,500 = $42,400. Book balance: $42,500 - bank service fee $100 = $42,400. Both sides reconcile to 42,400.AnswerCiscorrect.AnswerA(42,400. Answer C is correct. Answer A (41,700) uses the incorrect outstanding check figure of $5,200. Answer B results from an arithmetic error in the reconciliation. Answer D is the unadjusted bank balance.

Question 15

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 16

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 17

Under ASC 230, how should a change in restricted cash be presented on the statement of cash flows?

  1. Included in the beginning and ending totals of cash, cash equivalents, and restricted cash on the statement of cash flows; the net change in the combined balance reconciles to the balance sheet without separately classifying changes in restricted cash as operating, investing, or financing activities. (correct answer)
  2. Always as an operating activity, since it represents a change in working capital.
  3. Always as a financing activity, since restrictions typically relate to debt covenants.
  4. Excluded from the statement of cash flows since restricted cash is not available for use.

Explanation: Under ASU 2016-18 (ASC 230), restricted cash is included in the beginning and ending cash totals presented on the statement of cash flows. The statement reconciles the change in the combined balance of cash, cash equivalents, and restricted cash, and companies provide a reconciliation of these totals to the balance sheet. Changes in restricted cash are therefore embedded in the overall net change and are not separately classified as operating, investing, or financing activities. Answer A is correct. Answers B and C incorrectly mandate a single activity classification for all changes in restricted cash, which misapplies the standard. Answer D incorrectly excludes restricted cash from the statement of cash flows entirely.

Question 18

Which of the following would appear as an addition to the bank balance side of a bank reconciliation?

  1. A note receivable collected by the bank on the company's behalf.
  2. Interest credited by the bank to the company's account.
  3. Outstanding checks.
  4. Deposits in transit. (correct answer)

Explanation: Deposits in transit are cash receipts recorded on the company's books but not yet reflected on the bank statement. They are added to the bank balance to arrive at the adjusted balance. Answer D is correct. Notes collected by the bank (A) and interest credited (B) have already been recorded by the bank - they appear as additions to the book balance, not the bank balance. Outstanding checks (C) are subtracted from the bank balance, not added.

Question 19

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 20

A company's petty cash fund has an imprest balance of $500. At month-end, the fund contains $87 in cash and $418 in receipts. What journal entry should be recorded to replenish the fund?

  1. Debit Petty Cash $413; Credit Cash $413.
  2. Debit Various Expenses $418; Credit Cash Over and Short $5; Credit Cash $413. (correct answer)
  3. Debit Various Expenses $413; Credit Cash $413.
  4. Debit Petty Cash $500; Credit Cash $500.

Explanation: The fund should contain $500 total. Cash on hand is $87 and receipts are $418, totaling $505. The fund is over by 5(5 (505 - $500). To replenish, the check written = $500 - $87 = $413. Expenses per receipts = $418. The $5 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, Credit Cash Over and Short $5, Credit Cash $413. 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 $500 rather than replenishing only the amount spent.