General Accounting Chapter 9 Review

When the Cash Short or Over account has a credit balance it is treated as:

• an asset account

• a liability account

• a revenue account

• an expense account

Answer explanation

When the Cash Short or Over account has a credit balance, it indicates excess cash, which is recognized as revenue. Therefore, it is treated as a revenue account.

Checks that are returned to the depositor unpaid are called:

• NSF Checks

• canceled checks

• postdated checks

• outstanding checks

Answer explanation

Checks returned unpaid due to insufficient funds in the account are called NSF (Non-Sufficient Funds) checks. This distinguishes them from canceled, postdated, or outstanding checks, which have different meanings.

The entry to establish the petty cash fund includes:

• a debit to the Accounts Payable account and a credit to the Petty Cash account.

• 
  a debit to the Petty Cash account and a credit to the Accounts Payable account.

• a debit to the Cash account and a credit to the Petty Cash account.

• a debit to the Petty Cash account and a credit to the Cash account.

Answer explanation

To establish a petty cash fund, you debit the Petty Cash account to increase it and credit the Cash account to decrease it, reflecting the transfer of cash into the petty cash fund.

To arrive at the accurate balance on a bank reconciliation statement, it is necessary to:

• add outstanding checks to the company’s bank statement balance.

• deduct outstanding checks from the company’s bank statement balance.

• add outstanding checks to the company’s book balance.

• deduct outstanding checks from the company’s book balance.

Answer explanation

To reconcile the bank statement, outstanding checks must be deducted from the bank statement balance, as they represent amounts that have been issued but not yet cleared by the bank.

If the amount of cash available for deposit is less than the amount listed on the audit tape taken from the cash register, the:

• Cash Short or Over account is debited.

• Cash Short or Over account is credited.

• Petty Cash account is debited.

• Petty Cash account is credited.

Answer explanation

When cash available is less than the audit tape amount, it indicates a cash shortage. To record this, the Cash Short or Over account is debited, reflecting the loss in cash.

The entry to record the receipt of a check in settlement of an interest-bearing promissory note includes a debit to Cash, a credit to Notes Receivable, and a credit to:

• Accounts Receivable.

• Interest Expense.

• Interest Income.

• Cash Short or Over.

Answer explanation

The entry includes a debit to Cash and a credit to Notes Receivable for the principal amount. The additional credit is to Interest Income, reflecting the interest earned on the promissory note.

The Petty Cash account:

• is an asset account with a normal debit balance.

• is an asset account with a normal credit balance.

• is an expense account with a normal debit balance.

• is an expense account with a normal credit balance.

Answer explanation

The Petty Cash account is classified as an asset because it represents cash on hand. It has a normal debit balance, meaning increases are recorded as debits, which is typical for asset accounts.

To transfer ownership of a check from one party to another, it is necessary to

• restrict the check.

• endorse the check.

• dishonor the check.

• cancel the check.

Answer explanation

To transfer ownership of a check, the holder must endorse it by signing the back. This endorsement allows the check to be cashed or deposited by the new owner, making 'endorse the check' the correct choice.

Checks issued by a firm and entered in its records that have not yet been paid by the bank are called:

• NSF checks.

• dishonored checks.

• canceled checks.

• outstanding checks.

Answer explanation

Outstanding checks are those that a firm has issued and recorded but have not yet been cleared by the bank. This distinguishes them from NSF, dishonored, and canceled checks, which refer to different situations.

The process of determining why a difference exists between a firm’s records and the bank’s records and bringing the two sets of records into balance is known as:

• reconciling the bank statement.

• drawing the bank statement.

• endorsing the bank statement.

• bonding the bank statement.

Answer explanation

The correct choice is 'reconciling the bank statement' because it refers to the process of identifying and correcting discrepancies between a firm's records and the bank's records to ensure they match.