Deck 7: Reporting and Analysing Cash and Receivables

Question 1

Which of the following would be added to the balance per bank on a bank reconciliation?

A) Outstanding cheques.
B) Outstanding deposits.
C) Notes collected by the bank
D) Service charges.

Answer 1

Outstanding deposits.

Question 2

If a cheque correctly written and paid by the bank for $354 is incorrectly recorded on the company's books for $345, the appropriate treatment on the bank reconciliation would be to:

A) add $9 to the bank's balance.
B) add $9 to the cash at bank book balance.
C) deduct $9 from the bank's balance.
D) deduct $9 from the cash at bank book balance.

Answer 2

deduct $9 from the cash at bank book balance.

Question 3

A cheque for $157 is incorrectly recorded by a company as $175. On the bank reconciliation, the $18 error should be:

A) added to the balance per books.
B) deducted from the balance per books.
C) added to the balance per bank.
D) deducted from the balance per bank.

Answer 3

added to the balance per books.

Question 4

For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?

A) Cheque for $93 recorded as $39.
B) A returned $400 cheque recorded by bank as $40.
C) Cheque for $68 recorded as $86.
D) Deposit of $350 recorded by bank as $35.

Question 5

Management of cash is the responsibility of the company:

A) accountant.
B) finance director or finance manager.
C) president.
D) chief executive officer.

Question 6

The ratio of cash to daily cash expenses is calculated by dividing:

A) cash by total expenses.
B) cash and cash equivalents by average daily cash expenses.
C) cash and cash equivalents by total expenses.
D) cash by daily cash expenses.

Question 7

The following information is available for Chancellor Company: profit $3.600 million; net cash provided by operating activities $1,250 million; total expenses $2,500 million; depreciation expense $350 million; cash dividends $400 million; capital expenditures $650 million; and cash and cash equivalents $900 million. Chancellor's cash to daily cash expenses ratio is calculated as:

A) $1,250 ÷ ($2,500 ÷ 365)
B) $900 ÷ [($2,500 - $350) ÷ 365]
C) $900 ÷ ($2,500 ÷ 365)
D) $1,250 ÷ [($2,500 - $350) ÷ 365]

Question 8

The following information is available for Grosvenor Company: profit $2,200 million; net cash provided by operating activities $1,200 million; total expenses $1,700 million; depreciation expense $275 million; cash dividends $330 million; capital expenditures $750 million; and cash and cash equivalents $700 million. Grosvenor's cash to daily cash expenses ratio is calculated as:

A) $1,200 ÷ ($1,700 ÷ 365)
B) $700 ÷ ($1,700 ÷ 365)
C) $700 ÷ [($1,700 - $275) ÷ 365]
D) $1,200 ÷ [($1,700 - $275) ÷ 365]

Question 9

Receivables are claims that are expected to be met in:

A) cash.
B) inventory.
C) liabilities.
D) shares.

Question 10

Accounts receivable includes:

A) non-trade receivables.
B) amounts owed by customers on account.
C) interest receivable.
D) loans to company officers.

Question 11

Accounts receivable are reported on the statement of financial position as a/an:

A) liability.
B) equity.
C) asset.
D) revenue.

Question 12

Under the direct write-off method, when a particular account is considered to be uncollectible, the loss is charged to:

A) revenue.
B) accounts receivable.
C) allowance for doubtful debts.
D) bad debts expense.

Question 13

The method being used to determine the amount of the allowance for doubtful debts that relies on a schedule in which customers' balances are classified by the length of time they have been unpaid, is known as the:

A) direct write-off method.
B) net realisable method.
C) aged accounts receivable method.
D) conservatism method.

Question 14

Receivables that mature within the entity's operating cycle are classified in the statement of financial position as:

A) equity.
B) liabilities.
C) current assets.
D) non-current assets.

Question 15

The recoverable amount of trade receivables is shown in the:

A) income statement.
B) statement of financial position.
C) statement of changes in equity.
D) statement of cash flows.

Question 16

Managing accounts receivable involves five steps of which the following occurs first:

A) determine to whom to extend credit.
B) accelerate cash receipts from receivables.
C) establish a payment period.
D) monitor the collections.

Question 17

The credit risk ratio is calculated by dividing the allowance for doubtful debts by:

A) total sales.
B) total assets.
C) accounts receivable.
D) 365 days.

Question 18

Receivables turnover is used to assess the liquidity of the:

A) customer.
B) receivables.
C) business.
D) assets.

Question 19

Which of the following will not help minimise potential losses resulting from credit customers?

A) Letters of credit/bank guarantees
B) Cash on delivery
C) Bank/supplier references
D) Extended payment period

Question 20

A factor is used to:

A) borrow money.
B) apply for credit.
C) accelerate cash receipts.
D) increase sales.

Question 21

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 22

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-A small fire destroys 3 days of cash receipts.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 23

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-The official designated to sign cheques is able to steal blank cheques and issue them without fear of detection.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 24

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-A sales person, when serving customers, often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 25

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 26

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-Each cashier counts their own register drawer each day and verbally reports the results to the supervisor.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 27

Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write 'None'. If you think more than one principle is appropriate, list all principles that apply.
Possible errors or problems:

-Cashiers with over 5-years' experience are not required to take holidays.

A) Establishment of responsibility
B) Segregation of duties
C) Physical, mechanical and electronic control devices
D) Documentation procedures
E) Independent internal verification
F) Other controls

Question 28

Using the following information, prepare a bank reconciliation for Everest Ltd for 31 July.
a. The bank statement balance is $2,306.
b. The cash account balance is $2,930
c. Outstanding cheques totalled $585.
d. Outstanding deposit $1,175.
e. The bank service charge is $25.
f. A cheque for $98 for supplies was recorded as $89 in the ledger.

Question 29

Using the following information, prepare a bank reconciliation for Mont Blanc Ltd for 31 May.
a. The bank statement balance is $9,100.
b. The cash account balance is $7,412
c. Outstanding cheques totalled $1,600.
d. Outstanding deposit $300.
e. The bank service charge is $12.
f. Collection of a note receivable by bank, $400.

Question 30

Given the following information, determine the adjusted cash balance per books from the following information:
a. Balance per books as of 30 June, $7,600.
b. Outstanding cheques, $600.
c. NSF cheque returned with bank statement, $120.
d. Deposit mailed the afternoon of 30 June, $300.
e. Cheque printing charges, $15.
f. Interest earned on cheque account, $40.

Question 31

The Tarragon Trading Company's bank statement for the month of November showed a balance per bank of $7,000. The company's Cash account in the general ledger had a balance of $5,659 at 30 November. Other information is as follows:
(1) Cash receipts for 30 November recorded on the company's books were $5,200 but this amount does not appear on the bank statement.
(2) The bank statement shows a debit memorandum for $40 for cheque printing charges.
(3) Cheque No. 119 payable to Burns Company was recorded in the cash payments journal and cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36 credit balance in the account of Burns Company and that the payment to them should have been for $284.
(4) The total amount of cheques still outstanding at 30 November amounted to $5,800.
(5) Cheque No. 138 was correctly written and paid by the bank for $409. The cash payment journal reflects an entry for Cheque No. 138 as a debit to Accounts Payable and a credit to Cash in Bank for $490.
(6) The bank returned a dishonoured cheque from a customer for $560.
(7) The bank included a credit memorandum for $1,260, which represents collection of a customer's note by the bank for the company; principal amount of the note was $1,200 and interest was $60. Interest has not been accrued.
Required:
(a) Prepare a bank reconciliation for the Tarragon Trading Company at 30 November.
(b) Prepare any adjusting entries necessary as a result of the bank reconciliation.

Question 32

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Outstanding cheques

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 33

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Bank service charge

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 34

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Cheque for $320 correctly written and paid by the bank but incorrectly entered in the cash payments journal for $230

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 35

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Outstanding deposit (deposit in transit)

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 36

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Bank returns deposited cheque marked NSF

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 37

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Bank collects notes receivable and interest for depositor

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 38

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Bank debit memorandum for cheque printing fees

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 39

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Petty cash custodian has $86 in paid petty cash vouchers that have not been reimbursed.

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 40

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-Bank charged a cheque against the company, which should have been charged to another company.

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 41

Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

-A cheque for $236 was correctly paid by the bank but was incorrectly entered in the cash payments journal for $263

A) Add to cash balance per books
B) Deduct from cash balance per books
C)Add to cash balance per bank
D) Deduct from cash balance per bank
E) Does not affect the bank reconciliation

Question 42

K2 Limited received a notice with its bank statement that the bank had collected a note receivable for $8,000 plus $400 of interest. The bank had credited these amounts to K2's account less a collection fee of $10. K2 Ltd had already accrued the interest for this note on its books.
(a) How will these items affect K2's bank reconciliation?
(b) Prepare the journal entry that K2 Ltd will make to record this information on its books.

Question 43

The cash records of the Kilimanjaro Ltd show the following:
1. The 30 June bank reconciliation indicated that deposits in transit totalled $390. During July the general ledger account, Cash shows deposits of $9,700, but the bank statement indicates that only $9,540 in deposits were received during the month.
2. The 30 June bank reconciliation also reported outstanding cheques of $800. During the month of July, Kilimanjaro's books show that $11,170 of cheques were issued, yet the bank statement showed that $11,500 of cheques cleared the bank in July.
There were no bank debit or credit memoranda and no errors were made by either the bank or Kilimanjaro Ltd.
Answer the following questions:
(a) What were the outstanding deposits (deposits in transit) at 31 July?
(b) What were the outstanding cheques at 31 July?

Question 44

Siew Lan uses the allowance method to record bad debts expense. When accounts receivable is aged at the end of December, it is estimated that 2% of Siew Lan's accounts receivable will be uncollectable.
Accounts receivable at 31 December are $300,000 and the Allowance for doubtful debts has a credit balance of $5,000.
Required:
(a) Prepare the adjusting journal entry to record bad debts expense for the year ended 31 December.
(b) Determine the amount of the bad debts expense if the balance in the Allowance account is a debit of $500 instead of a credit of $5,000.

Question 45

Please complete the following statements:
-A basic principle of cash management is to delay payment of _____________.

Question 46

Please complete the following statements:
-One method of accounting for ________ debts involves estimating uncollectible accounts at the end of each period and recognising an _____________ account as a contra account.

Question 47

Please complete the following statements:
-A(n) ______________ note is a written promise to pay a specified amount on a defined date.

Question 48

Match the items below by choosing the appropriate code letter :

-A measure that computes the allowance for doubtful debts.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 49

Match the items below by choosing the appropriate code letter :

-Cheques which have been returned by the maker's bank for lack of funds.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 50

Match the items below by choosing the appropriate code letter :

-Cheques which have been paid by the depositor's bank.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 51

Match the items below by choosing the appropriate code letter :

-A measure of the liquidity of receivables, calculated by dividing net credit sales by average net receivables.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 52

Match the items below by choosing the appropriate code letter :

-Anything that a bank will accept for deposit.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 53

Match the items below by choosing the appropriate code letter :

-A basic principle of cash management.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 54

Match the items below by choosing the appropriate code letter :

-A method of accounting for bad debts that involves expensing accounts receivable at the time they are determined to be uncollectible.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 55

Match the items below by choosing the appropriate code letter :

-Document indicating the purpose of a petty cash expenditure.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 56

Match the items below by choosing the appropriate code letter :

-Issued cheques that have not been paid by the bank.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 57

Match the items below by choosing the appropriate code letter :

-Highly liquid investments.

A) Direct write-off method
B) Cash
C) Receivables turnover
D) Aged accounts receivable
E) Invest idle cash
F) Cancelled cheques
G) NSF cheques
H) Outstanding cheques
I) Petty cash receipt
J) Cash equivalents

Question 58

Comparative analysis problem: Computershare's financial statements can be accessed via the investor relations link on the website www.computershare.com.au. Data3's financial statements can be accessed via the investor relations link on the website www.data3.com.au.
Required:
(a) Based on the information contained in the most recent financial statements, calculate the following ratios for each company:
(1) accounts receivable turnover ratio
(2) average collection period for receivables.
(b) What conclusions concerning the management of accounts receivable can be drawn from these data?

Question 59

Interpreting financial statements - a global focus: NAB saw its share price fall by more than 12% after it announced provisions for a potential loss of $830 million on debt-related investments due to the global credit crisis and fall in the US housing market. The $830 million was in addition to the $181 million NAB had already provided for to cover risky investments. NAB chief executive John Stewart said that the losses were likely due to rapidly increasing mortgage defaults, stating, 'Unfortunately the behaviour of the housing market in the US leads us to believe that the worst case scenario may not be too far away from the most likely scenario'. Numbers indicating US home sales have fallen to a 10-year low and Ford booking a record loss of $US9.1 billion in its latest quarterly results sparked a steep decline on the US share market.
Required:
(a) Viewing the most recent annual report available on its website (www.nab.com.au), identify how NAB determines impaired receivables.
(b) Compare NAB's policy with Barclays'. (You can access Barclays' most recent annual report via www.barclays.com.)

Question 60

Exploring the web: To learn more about factoring from the website of a business that provides factoring services.
Address: www.tradedebtorfinance.com.au
Steps: Go to the website and answer the following questions.
Required:
(a) What are some of the benefits of factoring?
(b) What is the range of the percentages of the typical discount rate?
(c) If a business factors its receivables, what percentage of the value of the receivables can it expect to receive from the factor in the form of cash, and how quickly will it receive the cash?

Question 61

Ethics case: The financial officer of Suit Ltd believes that the yearly allowance for impaired receivables for Shirt Ltd should be $185 000. The CEO of Suit Ltd, nervous that the shareholders might expect the business to sustain its 10% growth rate, suggests that the financial controller increase the allowance for impairment to $285 000. The CEO thinks that the lower profit, which reflects a 7% growth rate, will be a more sustainable rate for Suit Ltd.
Required:
(a) Who are the stakeholders in this case?
(b) Does the CEO's request pose an ethical dilemma for the controller?
(c) Should the financial controller be concerned with Suit Ltd's growth rate in estimating the allowance? Explain your answer.