Ch10 TB Hoggetta8e

Testbank
to accompany
Accounting
8th Edition
by
John Hoggett, Lew Edwards,
John Medlin, Matthew Tilling
& Evelyn Hogg
Prepared by
Barbara Burns
John Wiley & Sons Australia, Ltd 2012

Testbank to accompany Accounting 8e
John Wiley and Sons Australia, Ltd 2012 10.2

Chapter 9: Cost accounting systems
Chapter 10: Cash management and internal control
Multiple Choice
1. Which of these does not represent proper internal control of cash receipts?
a. Daily banking of receipts
b. Two people opening the mail
c. Paying accounts directly out of the cash register
d. Balancing the cash register after each employees' shift
ANSWER C
Section 10.2
2. How many of these are features of good internal control of cash payments?
1. separation of record-keeping and the authority to sign cheques
2. the use of pre-numbered cheques
3. preparing regular bank reconciliation statements
4. one person having responsibility for all aspects of a cash payment
a. One
b. Two
c. Three
d. Four
ANSWER C
(All except the last item)
Section 10.2
3. Which of these is not a good internal control practice?

a. The use of the periodic inventory system for stock control
b. The use of passwords for computer access
c. The pre-numbering of documents
d. Taking out a trial balance
ANSWER A
(The perpetual system has a greater number of built-in controls)
Section 10.2
4. The Cash Short and Over ledger account, which records the difference between the total
of the cash register tape and the actual cash counted from the register, is:
a. Closed to the Profit and Loss Summary account
b. Included in the bank reconciliation
c. Deducted from the Bank account balance in the ledger
d. Appears on the Balance Sheet as liability
ANSWER A
Section 10.2

5. Which of these is not a principle of internal control?

a. Separation of record keeping and custody of assets
b. Division of responsibility for related transactions
c. Appointing an external auditor
d. Placing excess cash on fixed deposit to earn interest
ANSWER D
Section 10.2
6. The cornerstone of the internal control of cash is:

a. The bank reconciliation
b. A strong safe
c. A petty cash system
d. The double entry accounting system
ANSWER A
Section 10.3
7. Which statement relating to dishonoured cheques is true?

a. They are cheques from debtors deposited into the firm's bank account but not paid by the
drawer's bank due to lack of funds or for other reasons
b. They can be adjusted for by making a negative entry in the sales journal
c. They must be listed in the bank reconciliation
d. They appear as credits on the bank statement
ANSWER A
Section 10.3
8. The correct order in which the steps in the bank reconciliation process occur is:
1. Tick off the items in the prior reconciliation with the bank statement
2. Prepare the bank reconciliation
3. Tick off the cash journals with the bank statement
4. Update the cash journals with unticked items from the bank statement
a. 1, 2, 3, 4
b. 4, 3, 2, 1
c. 1, 3, 4, 2
d. 1, 4, 3, 2
ANSWER C
Section 10.3

9. When reconciling a bank account with a positive balance, bank fees and interest charged
by the bank are:
a. Added to the bank statement balance in the reconciliation
b. Deducted from the bank statement balance in the reconciliation
c. Deducted from the general ledger bank balance
d. Added to the general ledger bank balance
ANSWER C
Section 10.3
10. While preparing the bank reconciliation Sara discovered that the bank had incorrectly
paid one cheque for a larger amount than was written by the company (bank error). The
bank account has a positive balance. The proper procedure is to:
a. Add the error to the bank balance in the general ledger
b. Deduct the error from the bank balance in the general ledger and notify the bank
c. Add the error to the bank statement balance in the reconciliation and notify the bank
d. Deduct the error from the bank statement balance in the reconciliation
ANSWER C
Section 10.3
11. When reconciling the ledger with the bank statement (assuming a positive bank balance)
a returned (dishonoured) cheque should be:
a. Added to the bank statement balance in the reconciliation
b. Subtracted from the general ledger bank balance
c. Subtracted from the bank statement balance
ANSWER B
Section 10.3
12. The deposit column of Jeremy Companys bank statement shows a direct credit of
$1,000. Assuming the account is not in overdraft, when reconciling the bank account,
this amount will be:
a. Deducted from the bank statement balance in the reconciliation
b. Added to the bank statement balance in the reconciliation
c. Deducted from the general ledger bank balance
ANSWER D
Section 10.3

13. Assuming the account is not in overdraft, when reconciling the ledger with the bank
statement a deposit in transit should be:
a. Subtracted from the general ledger bank balance
b. Added to the general ledger bank balance
c. Subtracted form the bank statement balance in the reconciliation
d. Added to the bank statement balance in the reconciliation
ANSWER D
Section 10.3
14. The municipality of Greenvale received its monthly bank statement showing a balance
of $27,629 Cr at 31 January. On this date cash received from ratepayers and not yet
deposited at the bank totalled $857 and outstanding cheques were $4,321. The amount to
appear as cash at bank on the 31 January balance sheet is:
a. $22,451
b. $28,486
c. $31,093
d. $24,165
ANSWER D
Section 10.3
15. Storyboard Ltd had an unadjusted bank account ledger balance at 31 May of $800 Dr.
The bank statement at the same date showed a balance of $1090 Cr. Bank service
charges for the month were $10 and outstanding cheques totalled $400. The bank
statement revealed that the bank had collected dividends for the firm of $50 and a
deposit of $150 is not yet recorded on the statement. What is the corrected bank account
ledger balance at 31 May?
a. $440
b. $840
c. $990
d. $1090
ANSWER B
($800 - $10 + $50)
Section 10.3

16. The municipality of Stonybank had an unadjusted ledger bank balance at 31 March of
$28 000 Dr. The bank statement for the month shows a balance of $16 300 Cr. It also
shows bank charges of $255 and dividends directly paid into the bank of $500.
Deposits not yet credited are $14 545 and unpresented cheques are
$2 600. What is the cash at bank ledger balance at 31 March?
a. $28 245
b. $40 190
c. $39 945
d. $23 045
ANSWER A
($28 245 = $$28,000 - $255 + $500)
Section 10.3
17. The bank statement of a business shows an overdraft of $10 000 at 31 March. In
reconciling the account at that date indicate the treatment you would give to Cheque No.
461 for $30 that was drawn on 25 March but had not yet been presented for payment.
a. Record in the cash receipts journal
b. Record in the cash payments journal
c. Add to the bank statement balance in the bank reconciliation
d. Subtract from the bank statement balance in the bank reconciliation
ANSWER C
Section 10.3
18. Kathryns account is not in overdraft. When preparing the bank reconciliation she
found that the bank had incorrectly debited her account with $120. The proper
procedure is to:
a. Deduct $120 from the bank balance in the general ledger and notify the bank
b. Deduct $120 from the bank balance in the general ledger
c. Add $120 to the bank statement balance in the bank reconciliation and notify the bank
d. Do nothing as the bank will adjust the error when it balances.
ANSWER C
Section 10.3

19. The 30 April bank reconciliation of M Co was prepared using the information below:
Outstanding deposit $1 000
Ledger bank balance $2 700 Dr (adjusted)
Unpresented cheques $620
What was the bank statement balance at 30 April?
a. $3 080 Dr
b. $2 320 Cr
c. $4 320 Cr
d. $2 320 Dr
ANSWER B
($2 320 Cr = $2 700 - $1 000 + $620)
Section 10.3
20. Which of these is not an essential feature of the imprest petty cash system?
a. Deciding on a fixed sum that becomes the imprest amount or 'float'
b. Several people being authorised to reimburse expenses
c. Cash in the fund together with vouchers always equalling the imprest amount
d. Replenishment of the fund for the exact amount spent in the period
ANSWER B
Section 10.4
21. If the petty cash fund was not reimbursed at the time the financial statements were
prepared:
a. Expenses would be understated and equity overstated
b. Petty cash asset would be overstated and expenses understated
c. Petty cash expenses would be overstated and bank would be understated
d. Expenses would be overstated and petty cash asset would be understated
ANSWER A
Section 10.4
22. The petty cash account is what type of account?

a. Asset
b. Expense
c. Income
d. Liability
ANSWER A
Section 10.4

23. A cash budget measures?

a. Estimated liquidity
b. Estimated profitability
c. Estimated working capital
d. Estimated financial position
ANSWER A
Section 10.5
24. The entry at the end of the month to reimburse the petty cash for the amount spent is:
a. Debit petty cash expenses; credit bank
b. Debit petty cash asset; credit petty cash expenses
c. Debit petty cash asset; credit bank
d. Debit bank; credit petty cash asset
ANSWER A
Section 10.4
25. Which of these is not an advantage of cash budgeting?

a. It helps to maintain the credit standing of the business
b. It encourages careful assessment of all proposed expenditures
c. It keeps to a minimum idle cash funds
d. It increases sales
ANSWER D
Section 10.5
26. The statement relating to a cash budget that is true is:

a. It is a statement of expected income and expenses
b. Non-cash items such as depreciation are included
c. It is usually prepared on a weekly basis
d. The shorter the time period involved the easier it is to predict future cash flows
ANSWER D
Section 10.5

27. Becker Carpets makes all sales on credit with 50% of the payment received in the month
of sale, 40% in the month following the sale and the remaining 10% in the subsequent
month.
Budgeted sales are as follows:
January $100 000
February $140 000
March $120 000
The budgeted receipts from debtors during March are:
a. $96 000
b. $116 000
c. $126 000
d. $120 000
ANSWER C
($100 000 10%) + ($140 000 40%) + ($120 000 50%)
Section 10.5
28. Becker Carpets makes all sales on credit with 50% of the payment being received in the
month of sale, 40% in the month following sale and the remaining 10% in the
subsequent month.
Budgeted sales are as follows
January $100 000
February $140 000
March $120 000
The budgeted balance of debtors at 31 March is:
a. $14 000
b. $60 000
c. $74 000
d. $120,000
ANSWER C
($120 000 50% + $140 000 10%)
Section 10.5
29. Malaysian Carpets makes all sales on credit, with 60% of the payment received in the
month of sale and 40% in the month following sale. Budgeted sales are
February $100 000
March $120 000
What is the estimated amount received from debtors in March?
a. $220 000
b. $120 000
c. $112 000
d. $108 000
ANSWER C
($112 000 = 60% x $120 000 + 40% x $100 000)
Section 10.5

30. Chong Inc makes all of its purchases on credit; 50% are paid in the month of purchase;
30% during the month following the purchase and 20% in the second month following
the purchase. Given the following data, determine the cash paid to creditors during
month three.
Month 1 2 3
Credit Purchases $70 000 $50 000 $80 000
a. $69 000
b. $80 000
c. $55 000
d. $50 000
ANSWER A
($70 000 20%) + ($50 000 30%) + ($80 000 50%)
Section 10.5
31. Which of these is not a broad principle of cash management that helps ensure that a
business remains solvent?
a. Collect cash owing from accounts receivable as quickly as possible
b. Pay accounts payable just before the due date rather than when the statement is first
received
c. Buy all capital equipment on hire purchase
d. Invest any cash that is surplus to requirements to earn a return for the business
ANSWER C
Section 10.6
32. Which of these principles of cash managements is untrue?

a. There are disadvantages for a business in holding very low levels of inventory
b. The longer the operating cycle the longer it takes to pay creditors
c. It is generally a mistake to delay paying creditors if it means discounts on offer are lost
d. Generally cash surplus to requirements should be used to acquire necessary non-current
assets rather than being kept on fixed deposit.
ANSWER B
Section 10.6
33. The ratio that measures solvency by relating cash flows from operating activities to
total liabilities is the:
a. gearing ratio
b. short-term cash flow adequacy ratio
c. cash flow adequacy ratio
d. turnover of cash flow ratio
ANSWER C
Section 10.7

34. The ability of a firm to pay its debts as they fall due is known as:
a. cash management
b. being in surplus
c. solvency
d. the acid test
ANSWER C
Section 10.7
35. Which of these is not included in the definition of cash?

a. Bills receivable
b. EFTPOS transactions
c. Petty cash
d. Cheque
ANSWER A
Section 10.1

Fill in the blanks
1. The statement listing the differences between the ledger bank balance and the balance on
the bank statement is called the b_______ r__________________ statement.
ANSWER bank reconciliation

Section 10.3
2. Cheques banked but unpaid because of lack of funds in the drawer's account are called
d__________________ cheques.
ANSWER dishonoured
Section 10.3
3. A deposit entered in the firms books but not yet recorded on the bank statement is
referred to as an o______________ deposit.
ANSWER outstanding
Section 10.3
4. When preparing the bank reconciliation, where the bank is not in overdraft, unpresented
cheques are (deducted/added) _____________ (from/to)______ the bank statement
credit balance.
ANSWER deducted, from

Section 10.3
5. If the cash register tape at the end of the shift shows that the total sales recorded are
$1,499 but the cash in the register is $1,425 the Cash Short and Over account is
debited/credited with the difference of $74.
ANSWER debited
Section 10.2
6. The _________ __________ fund is used to make cash payments for minor expenditures
such as postage stamps, coffee and fares.
ANSWER petty cash

Section 10.4

7. The entry to replenish the petty cash fund at the end of the period is to (debit/credit)
_________ each of the various expense accounts and to (debit/credit) _________ the
bank account.
ANSWER debit; credit

Section 10.4
8. A petty cash system where the cash in the fund, together with vouchers for the amounts
spent always equals the float, is known as the ____________ system.
ANSWER imprest
Section 10.4
9. A c____________ b_____________ is a report which projects future cash receipts and

payments over time.
ANSWER cash budget

Section 10.5
10. The ability of an entity to pay its debts as and when they fall due is known as
s________________.
ANSWER solvency
Section 10.7

Exam Type Questions
QUESTION 10.1
The following information is available for Darrens Surfboards for the month ended 30 June
2011:
Unadjusted ledger bank balance $9,232.28 Dr.
Balance as per bank statement $8,779.54 Cr.
Cheque 599 was correctly recorded on the bank statement for $420 but incorrectly
recorded in the cash payments journal for $240.
Unpresented cheques:
608 $1,940.52
612 $1,688.00
A deposit of $5,562.26 had not yet been recorded by the bank.
Included on the bank statement was a dishonoured cheque written by T. Rafter to Darrens
Surfboards for $279.
A bank statement credit on 21 June indicated an electronic transfer of $1,975 for a loan
repayment (includes interest revenue of $75).
The bank statement showed account fees of $35.
REQUIRED:
a) Set up the ledger cash at bank account, enter the necessary adjustments to update the
account to 30 June 2011 and balance the account.
b) Prepare a bank reconciliation statement at 30 June 2011 to reconcile the adjusted ledger
bank balance with the bank statement balance.
QUESTION 10.2
On 1 September 2011 the records of Thai Enterprises showed that the cash at bank ledger
account had a balance of $4,300 credit. The bank reconciliation at the 31 August contained
only one difference between the bank statement balance and the ledger balance, cheque
number 170 for $400 which was listed as unpresented. The following information is available
for September 2011.
CASH RECEIPTS JOURNAL

Date Particulars Amount Cash at bank
2011 $ $
Sept 4 Sales 300
Accounts receivable 3,720 4,020
17 Accounts receivable 3,000 3,000
28 Interest 600
29 Sundry 3,240 3,840
10,860 $10,860
CASH PAYMENTS JOURNAL
Date Particulars Cheque Cash at bank
2011 Number $
Sept 4 Lease expenses 239 900

7 BMT Ltd 240 440

10 Electricity 241 480
12 Wages 242 120
17 Internet service provider 243 340
Accounts payable 244 3,680
21 Telephone 245 440
23 Wages 246 80
$6,480
Thai Enterprises ABC Bank A/c No 1222344

BANK STATEMENT
Date Particulars Debits Credits Balance
2011 $ $ $
Sept 1 Balance forward 3,900 Dr
1 Cash and cheques 4,020 120 Cr
11 Fee 10
12 Cheque 241 480
12 Cheque 239 900 1,270 Dr
17 Rent collected 160 1,110 Dr
19 Cash and cheques 3,000 1,890 Cr
20 Cheque 240 440 1,450 Cr
20 Dishonoured cheque 80 1,370 Cr
29 Cheque 246 80 1,290 Cr
29 Cheque 244 3,680 2,390 Dr
30 Interest on debentures 400 1,990 Dr
30 Interest on overdraft 240 2,230 Dr
REQUIRED:
a) Set up the ledger bank account and post the unadjusted cash journal totals to the
account. Record the necessary adjustments up to the 30 September and balance the
account.
b) Prepare a bank reconciliation statement at 30 September 2011 to reconcile the
adjusted ledger cash at bank balance with the bank statement balance.
Solutions exam type questions
SOLUTION QUESTION 10.1
DARRENS SURFBOARDS
a) Cash at bank
2011 $ 2011 $
June 30 Unadjusted balance 9,232.28 June 30 Adjustment chq 599 180.00
30 Loan 1,900.00 Dishonoured chq 279.00
Interest revenue 75.00 Bank fees 35.00
________ Balance 10,713.28
$11,207.28 $11,207.28
30 Balance 10,713.28

b)
Bank Reconciliation Statement as at 30 June 2011
Balance as per bank statement $8,779.54 Cr

Add: Outstanding deposit 5,562.26
$14,341.80
Less: Unpresented cheques:

608 $1,940.52
612 1,688.00 3,628.52
Balance as per cash at bank account $10,713.28 Dr
SOLUTION QUESTION 10.2
a) THAI ENTERPRISES
Cash at bank
2011 $ 2011 $
Sept 30 Unadjusted receipts 10,860 Sept 1 Balance 4,300
Rent 160 30 Unadjusted payments 6,480
Interest debentures 400 Fee 10
Dishonoured cheque 80
Interest paid 240
______ Balance 310
$11,420 $11,420
30 Balance 310
b)
Bank Reconciliation Statement as at 30 September 2011
Balance as per bank statement $$2,230 Dr

Add: Unpresented cheques:
170 $400
242 120
243 340
245 440 1,300
3,530
Less: Outstanding deposit 3,840
Balance as per Cash at bank account $310 Dr

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Testbank

John Wiley & Sons Australia, Ltd 2012

John Wiley and Sons Australia, Ltd 2012 10.2

Chapter 10: Cash management and internal control

3. Which of these is not a good internal control practice?

John Wiley and Sons Australia, Ltd 2012 10.3

5. Which of these is not a principle of internal control?

6. The cornerstone of the internal control of cash is:

7. Which statement relating to dishonoured cheques is true?

John Wiley and Sons Australia, Ltd 2012 10.4

John Wiley and Sons Australia, Ltd 2012 10.5

John Wiley and Sons Australia, Ltd 2012 10.6

John Wiley and Sons Australia, Ltd 2012 10.7

22. The petty cash account is what type of account?

John Wiley and Sons Australia, Ltd 2012 10.8

23. A cash budget measures?

25. Which of these is not an advantage of cash budgeting?

26. The statement relating to a cash budget that is true is:

John Wiley and Sons Australia, Ltd 2012 10.9

John Wiley and Sons Australia, Ltd 2012 10.10

32. Which of these principles of cash managements is untrue?

John Wiley and Sons Australia, Ltd 2012 10.11

35. Which of these is not included in the definition of cash?

John Wiley and Sons Australia, Ltd 2012 10.12

Fill in the blanks

ANSWER bank reconciliation

ANSWER deducted, from

ANSWER petty cash

John Wiley and Sons Australia, Ltd 2012 10.13

ANSWER debit; credit

9. A c____________ b_____________ is a report which projects future cash receipts and

ANSWER cash budget

John Wiley and Sons Australia, Ltd 2012 10.14

Exam Type Questions

CASH RECEIPTS JOURNAL

John Wiley and Sons Australia, Ltd 2012 10.15

7 BMT Ltd 240 440

Thai Enterprises ABC Bank A/c No 1222344

Solutions exam type questions

SOLUTION QUESTION 10.1

John Wiley and Sons Australia, Ltd 2012 10.16

Balance as per bank statement $8,779.54 Cr

Less: Unpresented cheques:

SOLUTION QUESTION 10.2

Balance as per bank statement $$2,230 Dr

John Wiley and Sons Australia, Ltd 2012 10.17

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9. A c b_ is a report which projects future cash receipts and