Current Liabilities and Cash Management
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Current Liabilities and Cash Management

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Questions and Answers

What are credit memos typically categorized as in bank reconciliation?

  • Errors committed by the bank
  • Adjustments due to outstanding checks
  • Additions made to the depositor's account (correct)
  • Deductions made by the bank

    • Which item is NOT a typical example of a debit memo?

  • Collections made by the bank (correct)
  • Payment of loans
  • NSF/DAIF checks
  • Bank service charges

    • How would you categorize errors caused by the depositor in bank reconciliation?

  • Credit memos
  • Bank errors
  • Debit memos
  • Book errors (correct)

    • Which of the following statements is true regarding outstanding checks?

    <p>They are subtracted from the unadjusted cash balance.</p> Signup and view all the answers

    What does the term 'balance per books, end' refer to in the reconciliation process?

    <p>The unadjusted cash balance in the depositor's accounting records</p> Signup and view all the answers

    Under what condition can an overdraft be offset against another account?

    <p>If the overdraft account is unrestricted and in the same bank.</p> Signup and view all the answers

    How should cash in foreign currency be measured for accounting purposes?

    <p>At the closing rate at the reporting date.</p> Signup and view all the answers

    What is the accounting entry when there is a cash shortage due to employee fault?

    <p>Debit 'Cash Short or Over' and the close to 'Receivable'.</p> Signup and view all the answers

    Which statement is true regarding cash in closed banks?

    <p>It is measured at estimated realizable value if recoverable amount is lower than face value.</p> Signup and view all the answers

    What are unreplenished vouchers classified as?

    <p>Expenses</p> Signup and view all the answers

    What is the purpose of the 'Petty Cash Fund' establishment entry in an imprest system?

    <p>To set aside cash for minor expenses.</p> Signup and view all the answers

    In a fluctuating fund system, what is the entry for replenishing petty cash?

    <p>Debit 'Expenses' and credit 'Petty cash fund'.</p> Signup and view all the answers

    Which of the following is NOT counted as petty cash impurities?

    <p>Cash collections of accounts receivable</p> Signup and view all the answers

    What should be included in the computation of petty cash accountabilities?

    <p>Stale checks along with unclaimed salary</p> Signup and view all the answers

    How should excess amounts in the cash account be treated?

    <p>Credited to 'Cash Short or Over' and closed to 'Payable' if due to employee cash.</p> Signup and view all the answers

    What is the recommended treatment when cash in a bankrupt bank remains unreplenished in petty cash?

    <p>No entry is required.</p> Signup and view all the answers

    What is the purpose of the adjusted petty cash fund balance computation?

    <p>To account for any discrepancies in cash availability</p> Signup and view all the answers

    Which of the following is NOT considered an item in the varied petty cash entries?

    <p>Inventory purchases</p> Signup and view all the answers

    What does a pro forma bank reconciliation statement compare?

    <p>Balances per books with balances per bank statement</p> Signup and view all the answers

    Which of these items is included when computing the adjusted PCF balance?

    <p>Check payments for liabilities</p> Signup and view all the answers

    What represents petty cash impurities?

    <p>Items that should not be in the petty cash fund</p> Signup and view all the answers

    What is the purpose of a proof of cash?

    <p>To reconcile differences between bank statements and company records</p> Signup and view all the answers

    Which item indicates cash transactions that have been credited to the book but not yet to the bank?

    <p>DIT</p> Signup and view all the answers

    What does an overstatement of cash receipts (CR) imply in a proof of cash?

    <p>The cash recorded exceeds the actual cash received</p> Signup and view all the answers

    If an NSF (Non-Sufficient Funds) check is recorded, what does it signify?

    <p>The check cannot be honored due to insufficient funds in the payer's account</p> Signup and view all the answers

    What does the adjusted balance reflect in the context of cash and cash equivalents?

    <p>The final, correct cash balance accounting for all receipts and disbursements</p> Signup and view all the answers

    Which of the following is not included in cash and cash equivalents?

    <p>Accounts receivable</p> Signup and view all the answers

    What action should be taken if there is a recorded understatement of cash disbursements (CD)?

    <p>Correct the cash disbursements to reflect the true amount</p> Signup and view all the answers

    Which of the following best describes a debit memo in the context of banking?

    <p>A deduction made by the bank for various fees or charges</p> Signup and view all the answers

    What is the first step in computing petty cash shortage or overage?

    <p>Subtract petty cash accountabilities from petty cash as accounted for</p> Signup and view all the answers

    Which item is NOT considered part of petty cash accountabilities?

    <p>Coins and currencies</p> Signup and view all the answers

    Which type of check is dated after the reporting date and cash count date?

    <p>Post-dated check</p> Signup and view all the answers

    What does the term 'unexpended employees’ contributions' refer to in petty cash accounting?

    <p>Donations collected for company events that are yet to be spent</p> Signup and view all the answers

    Which of the following is included in the computation of petty cash as accounted for?

    <p>Post-dated checks</p> Signup and view all the answers

    How is a petty cash fund replenished according to the provided information?

    <p>Through checks issued by the company to the petty cash custodian</p> Signup and view all the answers

    Which of the following best describes stale checks?

    <p>Checks that have not been cashed for an extensive period</p> Signup and view all the answers

    What would be classified as a cash collection of accounts receivable?

    <p>Funds received from customer payments on outstanding debts</p> Signup and view all the answers

    Study Notes

    Current Liabilities and Cash Management

    • Current liabilities generally include bank overdrafts unless specific criteria for offsetting are met.
    • Overdrafts can be offset if multiple accounts are maintained in the same bank and the other accounts are unrestricted.
    • Overdrafts can also be offset if associated with cash management practices, such as in a zero-balance checking account.

    Measurement of Cash

    • Cash is recorded at face value, reflecting its nominal value.
    • Foreign currency cash must be translated to Philippine Peso at the reporting date using the closing or spot rate.
    • Cash in closed banks or those in bankruptcy is measured at estimated realizable value and included as noncurrent assets if recoverable amounts are below face value.

    Accounting for Cash Shortages and Overages

    • Cash shortages are recorded as debits to "Cash Short or Over," eventually closed to "Receivable" or "Loss" based on investigation results.
    • Cash overages are credited to "Cash Short or Over," then closed to "Payable" or "Loss," depending on the related investigation.

    Petty Cash Fund Management

    • The Imprest Fund System requires specific journal entries for establishing, paying expenses, replenishment, adjusting unreplenished expenses, increasing, or decreasing the fund.
    • Memo entries for expenses paid from the petty cash fund do not affect the financial statements directly.

    Computation of Petty Cash Balances

    • Petty cash shortages and overages are calculated based on accounted petty cash minus accountabilities.
    • Items such as coins, unexpended employee contributions, checks for deposit, and stale checks contribute to the computation of petty cash accountabilities.

    Bank Reconciliation Process

    • The bank reconciliation statement reflects discrepancies between the book balance and bank balance, addressing credit memos, debit memos, and errors from both sides.
    • Reconciling items include transactions not recorded by either the depositor or the bank, which can affect cash balances at month-end.

    Proof of Cash

    • The proof of cash summarizes cash movement, adjusting for credit and debit memos to reconcile the adjusted cash balance between the bank and the books.
    • It highlights any errors, such as overstatements or understatements of cash receipts (CR) and cash disbursements (CD).

    Handling NSF Checks

    • NSF (Non-Sufficient Funds) checks must be tracked as they represent payments that could not be processed due to insufficient balances, affecting cash flow and financial statements.

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    Description

    This quiz covers the general rules regarding current liabilities, with a focus on cash management practices, exceptions for offsetting accounts, and the measurement of cash and foreign currency. Understand the nuances of managing financial accounts effectively in various scenarios.

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