Expert Company Proof of Cash Quiz

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What are cash equivalents?

Investments with high risk and uncertain maturity

Short-term, highly liquid investments (correct)

Long-term, illiquid investments

Investments with significant changes in value due to interest rates

What is the purpose of disclosing cash equivalents in financial statements?

To complicate the financial reports

To ensure transparency and accuracy (correct)

To hide the true cash position of the company

To mislead stakeholders

Which factor determines if an investment can be classified as a cash equivalent?

Potential for high returns

Complexity of the investment

Long-term growth potential

Ease of conversion and low risk (correct)

What is the significance of reporting cash equivalents separately from cash?

To present a more accurate picture of total liquidity Signup and view all the answers

When are investments considered too risky to be classified as cash equivalents?

When they present a significant risk of value changes Signup and view all the answers

What would happen if a company misclassified a risky investment as a cash equivalent?

It would make the company appear more liquid than it actually is Signup and view all the answers

What is the purpose of having designated personnel handle cash receipts?

To ensure accountability and reduce the risk of theft Signup and view all the answers

Which document should be maintained to provide evidence of cash receipt transactions?

Deposit slips Signup and view all the answers

Why are cash registers recommended for executing over-the-counter receipts?

To provide assurance on the accuracy of total receipts Signup and view all the answers

What does a voucher system provide assurance about in terms of payments?

That payments were properly ordered, received, and billed by the supplier Signup and view all the answers

Why are payments usually preferred to be made by cheque/check instead of cash?

To reduce the risk of unauthorized transactions Signup and view all the answers

What is the primary purpose of a bank account in internal control over cash receipts and payments?

To control cash inflows and outflows and ensure accountability Signup and view all the answers

Which aspect involves determining the length of time each receivable will be outstanding?

Classification Signup and view all the answers

How do companies classify receivables intended to be collected within a year or the operating cycle?

As current Signup and view all the answers

What do companies value and report short-term receivables at?

Cash realizable value Signup and view all the answers

How do companies record credit losses in relation to bad debt expense?

As debits to Bad Debt Expense Signup and view all the answers

What is considered a normal and necessary risk of doing business on a credit basis?

Credit losses Signup and view all the answers

Which method involves charging the loss to Bad Debt Expense when a company determines a particular account to be uncollectible?

Direct write-off method Signup and view all the answers

What is the purpose of companies using trade discounts?

To alter prices based on quantities purchased Signup and view all the answers

How do companies generally record sales and related sales discount transactions?

At the gross amount Signup and view all the answers

Which method of recording sales discounts involves recognizing discounts only upon receiving payment within the discount period?

Gross method Signup and view all the answers

What happens if a company does not take the available cash discount under the net method of recording?

It will be recorded as 'other income' Signup and view all the answers

How should a company ideally measure receivables in relation to the due date of payments?

In terms of present value, discounted value of future cash to be received Signup and view all the answers

What is the purpose of offering cash discounts (sales discounts) by companies?

To encourage prompt payment Signup and view all the answers

Why does a business usually use checks to make all cash payments except for very small amounts?

To simplify the process of recording cash payments. Signup and view all the answers

What is the purpose of reconciling the cash balance according to the bank with the per depositor balance?

To agree upon the actual cash balance between the bank and the depositor. Signup and view all the answers

What is the primary function of a bank in minimizing the currency kept on hand by a business?

To reduce the risk of theft and improve internal control over cash. Signup and view all the answers

Why are outstanding checks one of the reasons for disagreements between the balance per bank and balance per books?

Because they represent checks that have not yet cleared the bank. Signup and view all the answers

What is one of the common reasons leading to disagreements between the balance per bank and balance per books?

Errors in recording transactions by both parties. Signup and view all the answers

What does a four-column bank reconciliation aim to achieve?

Provide a detailed listing of items causing discrepancies in cash balances. Signup and view all the answers

Expert Company Proof of Cash Quiz

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Questions and Answers

What are cash equivalents?

What is the purpose of disclosing cash equivalents in financial statements?

Which factor determines if an investment can be classified as a cash equivalent?

What is the significance of reporting cash equivalents separately from cash?

When are investments considered too risky to be classified as cash equivalents?

What would happen if a company misclassified a risky investment as a cash equivalent?

What is the purpose of having designated personnel handle cash receipts?

Which document should be maintained to provide evidence of cash receipt transactions?

Why are cash registers recommended for executing over-the-counter receipts?

What does a voucher system provide assurance about in terms of payments?

Why are payments usually preferred to be made by cheque/check instead of cash?

What is the primary purpose of a bank account in internal control over cash receipts and payments?

Which aspect involves determining the length of time each receivable will be outstanding?

How do companies classify receivables intended to be collected within a year or the operating cycle?

What do companies value and report short-term receivables at?

How do companies record credit losses in relation to bad debt expense?

What is considered a normal and necessary risk of doing business on a credit basis?

Which method involves charging the loss to Bad Debt Expense when a company determines a particular account to be uncollectible?

What is the purpose of companies using trade discounts?

How do companies generally record sales and related sales discount transactions?

Which method of recording sales discounts involves recognizing discounts only upon receiving payment within the discount period?

What happens if a company does not take the available cash discount under the net method of recording?

How should a company ideally measure receivables in relation to the due date of payments?

What is the purpose of offering cash discounts (sales discounts) by companies?

Why does a business usually use checks to make all cash payments except for very small amounts?

What is the purpose of reconciling the cash balance according to the bank with the per depositor balance?

What is the primary function of a bank in minimizing the currency kept on hand by a business?

Why are outstanding checks one of the reasons for disagreements between the balance per bank and balance per books?

What is one of the common reasons leading to disagreements between the balance per bank and balance per books?

What does a four-column bank reconciliation aim to achieve?

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