WorksheetsTHEORY OF ACCOUNTS
Total questions: 95
Worksheet time: 2hrs 35mins
Which of the following should not be considered as cash?
a. Petty cash fund
b. Money order
c. Coin and currency
d. IOU
Which of the following is usually considered cash?
a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated check
Which of the following should not be included in cash?
a. Travel cash advance
b. Certified check
c. Personal check
d. Manager check
All of the following may be included in cash, except
a. Currency
b. Money market instrument
c. Checking account balance
d. Saving account balance
Which statement is not true about reporting bank overdraft under IFRS?
a. Overdraft typically cannot be offset against positive balance in other cash accounts but reported as current liability.
b. Generally, cash overdraft is not allowed.
c. Overdraft can be offset against other bank accounts when payable on demand and often fluctuates from positive to overdrawn as an integral part of cash management.
d. Bank overdraft can never be included as a component of cash and cash equivalents.
Technically, the caption cash and cash equivalents may not include
a. Foreign currency
b. Money order
c. Restricted cash
d. Undeposited customer check
Restricted deposits in foreign banks are classified as
a. Current asset with appropriate disclosure.
b. Noncurrent asset with appropriate disclosure.
c. Be written off as a loss.
d. As part of cash and cash equivalents.
What is a compensating balance?
a. Saving account balance
b. Demand deposit account balance
c. Temporary investment as collateral for loan
d. Minimum deposit required to be maintained in connection with a borrowing arrangement
Compensating balance represents
a. Fund in a bank account that cannot be spent
b. Balance in a payroll checking account
c. Account that is subject to bank service charge
d. Account on which a bank pays interest
A compensating balance
a. Must be included in cash and cash equivalent.
b. Which is legally restricted and related to a long-term loan is classified as a current asset.
c. Which is legally restricted and related to a short-term loan is classified separately as current asset.
d. Which is not legally restricted as to withdrawal is classified separately as current asset.
A cash equivalent is a short-term, highly liquid investment readily convertible into known amount of cash and
a. Is acceptable as a means to pay current liability
b. Has a greater current market value
c. Bears a prime interest rate
d. Is so near maturity that it presents insignificant risk of change in interest rate
Highly liquid investments are cash equivalents if the maturity is 90 days or less
a. From the date the investments are acquired
b. From the end of reporting period
c.From the date of issue of financial statements
d. From the beginning of reporting period
All can be classified as cash and cash equivalents, except
a. Redeemable preference shares due in 60 days
b. Commercial papers due for repayment in 90 days
c. Equity investments
d. A bank overdraft
Cash equivalents do not include
a. Money market funds
b. Treasury bonds
c. BSP treasury bills
d. Commercial papers
Cash equivalents are
a. Treasury bills and money market instruments.
b. Investments with original maturity of three months or less.
c. Readily convertible into known amounts of cash.
d. All of these are features of cash equivalents.
The internal control feature specific to petty cash is
a. Separation of duties
b. Assignment of responsibility
c. Proper authorization
d. Imprest system
What is the major purpose of an imprest petty cash fund?
a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the petty cashier
d. To effectively control cash disbursements
The petty cash fund account is debited
a. Only when the fund is created.
b. When the fund is created and everytime it is replenished
c. When the fund is created and when the size of the fund is increased.
d. When the fund is decreased.
In reimbursing the imprest petty cash fund, which of the following statements is true?
a. Cash in debited
b. Petty cash is debited
c. Petty cash is credited
d. Expense accounts are debited
Petty cash fund is
a. Separately classified as current asset
b. Money kept on hand for making minor disbursements of coin and currency rather than by writing checks
c. Set aside for the payment of payroll
d. Restricted cash
A cash short and over account
a. Is not generally accepted.
b. Is debited when the petty cash fund proves out over.
c. Is debited when the petty cash fund proves out short.
d. Is a contra account to cash.
Which statement in relation to petty cash fund is false?
a. Each disbursement from petty cash should be supported by a petty cash voucher.
b. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of the general cash account.
c. At any time, the sum of the cash in the petty cash fund and the total of petty cash vouchers should equal the amount for which the imprest petty cash fund was established.
d. With the establishment of an imprest petty cash fund, one person is given the authority and responsibility for issuing checks to cover minor disbursements.
Which statement in relation to the cash short or over account is true?
a. It would be impossible to have cash shortage or overage if employees were paid in cash rather than by check.
b. The entry to account for daily cash sales for which a small amount of cash shortage existed would include a debit to cash short or over account.
c. If the cash short or over account has a debit balance at the end of the period it must be debited to an expense account.
d. A credit balance in a cash short or over account shall be considered a liability because the short changed customer will demand return of this amount.
Which statement in relation to an imprest petty cash is incorrect?
a. The imprest petty cash system in effect adheres to the rule of disbursement by check.
b. Entries are made to the petty cash account only to increase or decrease the size of the fund or to adjust the balance if not replenished at year-end.
c. The petty cash account is debited when the fund is replenished.
d. The petty cash fund is reported as part of cash and cash equivalents under current assets.
When an imprest petty cash fund is used, which statement is true?
a. The balance of the petty cash fund should be reported in the statement of financial position as a long-term investment.
b. The petty cashier's summary of petty cash payments serves as a journal entry that is posted to the appropriate general ledger account.
c. The reimbursement of the petty cash fund should be credited to the cash account.
d. Entries that include a credit to the cash account should be recorded at the time the payments from the petty cash fund are made.
A bank reconciliation is
a. A formal financial statement that lists all of the bank account balances of an entity.
b. A merger of two banks that previously were competitors.
c. A statement sent by the bank to depositor on a monthly basis.
d. A schedule that accounts for the differences between cash balance shown on the bank statement and the cash balance shown on the general ledger.
Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with adjusted cash balance?
a. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor.
b. NSF customer check
c. Service charge
d. Erroneous bank debit
Which of the following would be added to the balance per bank statement to arrive at the correct cash balance?
a. Outstanding check
b. Bank service charge
c. Deposit in transit
d. A customer note collected by the bank on behalf of the depositor
Which of the following must be deducted from the bank statement balance in preparing a bank reconciliation which ends with adjusted cash balance?
a. Deposit in transit
b. Outstanding check
c. Reduction of loan charged to the account of the depositor
d. Certified check
If the balance shown in the bank statement is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the depositor
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the depositor
If the cash balance shown in the accounting records is lesa than the correct cash balance and neither the entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the depositor
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the depositor
Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors. Adjustments on the part of the depositor should be recorded for
a. Bank errors, outstanding checks and deposits in transit.
b. All items except bank errors, outstanding checks and deposits in transit.
c. Book errors, bank errors, deposits in transit and outstanding checks.
d. Outstanding checks and deposits in transit.
Bank statements provide information about all of the following, except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
Which statement in relation to a certified check is not true?
a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise accept a personal check.
c. A certified check is one drawn by a bank upon itself.
d. A certified check should not be included in the outstanding checks.
Which statement in relation to bank reconciliation is true?
a. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank, all other things being equal.
b. Credit memos will cause the cash balance per ledger to be higher than that reported by the bank, all other things being equal.
c. Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the bank, all other things being equal.
d. The cash amount reported in the statement of financial position must be the balance reported in the bank statement.
Trade receivables are classified as current assets if reasonably expected to be collected
a. Within one year.
b. Within the normal operating cycle.
c. Within one year or within the operating cycle, whichever is shorter.
d. Within one year or within the operating cycle, whichever is longer.
Nontrade receivables are classified as current assets only if reasonably expected to be realized in cash
a. Within one year or within the operating cycle, whichever is shorter.
b. Within one year or within the operating cycle, whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle notwithstanding.
Credit balances in accounts receivable are classified as
a. Current liabilities
b. Part of accounts payable
c. Long term. liabilities
d. Deduction from accounts receivable
Where the operating cycle extends beyond one year because of normal credit terms as in the case of installment sales
a. The entire receivables are classified as current with disclosure of the amount not realizable within one year.
b. The entire receivables are shown as noncurrent.
c. The portion due in one year is shown as current.
d. The entire receivables are not recognized.
In the case of long-term real estate installment sales
a. The entire receivables are shown as current.
b. The entire receivables are shown as noncurrent.
c. Only the portion currently due is shown as current and the balance as noncurrent.
d. The entire receivables are not recorded.
Which accounting principle primarily supports the use of allowance for doubtful accounts?
a. Continuity principle
b. Full disclosure principle
c. Matching principle
d. Conservatism
Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?
a. Allowance method is used for tax purposes
b. Estimates are used
c. Determining worthless accounts under direct writeoff method is difficult to do
d. Improved matching of bad debt expense with revenue
The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when
a. A customer pays an account balance.
b. A customer defaults on the account.
c. A previously defaulted customer pays the balance.
d. Estimated uncollectible accounts are too low.
In recording cash discounts related to accounts receivable, which is more theoretically correct?
a. Net method
b. Gross method
c. Allowance method
d. Direct writeoff method
All of the following are problems associated with the measurement of accounts receivable, except
a. Uncollectible accounts
b. Returns
c. Cash discounts under the net method
d. Allowances granted
Which method of recording bad debt loss is consistent with accrual accounting?
a. Allowance method
b. Direct writeoff method
c. Percent of sales method
d. Percent of accounts receivable method
When the allowance method is used, the entry to record the writeoff of a specific account would
a. Decrease both accounts receivable and the allowance
b. Decrease accounts receivable and increase allowance
c. Increase both accounts receivable and the allowance
d. Increase accounts receivable and decrease the allowance
Under the allowance method, the journal entry to record the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
Under the allowance method, the entries at the time of collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income
The collection of accounts receivable previously written off results in an increase in cash and an increase in
a. Accounts receivable
b. Allowance for doubtful accounts
c. Bad debt expense
d. Retained earnings
A method of estimating bad debts that focuses on the income statement rather than the statement of financial position is the allowance method based on
a. Direct writeoff
b. Aging the trade accounts receivable
c. Credit sales
d. Trade accounts receivable
A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on
a. Aging of accounts receivable
b. Direct writeoff
c. Gross sales
d. Credit sales less returns and allowances
The advantage of relating the bad debt experience to accounts receivable is that this approach
a. Gives a reasonably accurate measurement of receivables in the statement of financial position.
b. Relates bad debt expense to the period of sale.
c. Is the only generally accepted method for measuring accounts receivable.
d. Makes estimates of uncollectible accounts unnecessary.
When a specific customer account receivable is written off as uncollectible, what will be the effect on net income under the allowance and direct writeoff method?
a. No effect under both allowance method and direct writeoff method
b. Decrease under both allowance method and direct writeoff method
c. No effect under allowance method and decrease under direct writeoff method
d. Decrease under allowance method and no effect under direct writeoff method
An entity uses the allowance method to recognize doubtful accounts expense. What is the effect of a collection of an account previously written off?
a. No effect on both allowance for doubtful accounts and doubtful accounts expense.
b. No effect on allowance for doubtful accounts and decrease in doubtful accounts expense
c. Increase in allowance for doubtful accounts and no effect on doubtful accounts expense
d. Increase in allowance for doubtful accounts and decrease in doubtful accounts expense
When an accounts receivable aging schedule is prepared, a series of computations is made to determine the estimated uncollectible accounts. The resulting amount from this aging schedule
a. When added to the total accounts written off during the year is the desired credit balance of the allowance for doubtful accounts at year-end.
b. Is the amount of doubtful accounts expense for the year.
c. Is the amount that should be added to the beginning allowance for doubtful accounts to get the doubtful accounts expense for the year.
d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year-end.
When an aging approach is used for estimating uncollectible accounts
a. Bad debt expense is measured indirectly and the allowance for uncollectible accounts is measured directly.
b. Bad debt expense is measured indirectly and the allowance for uncollectible accounts is measured indirectly.
c. Bad debt expense is measured directly and the allowance for uncollectible accounts is measured directly.
d. Bad debt expense is measured directly and the allowance for uncollectible accounts is measured indirectly.
Which is an accurate method of determining the amount of the adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of accounts receivable not adjusted for the balance in the allowance.
d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance.
A debit balance in the allowance for doubtful accounts
a. Should never occur.
b. Is always the result of management not providing a large enough allowance in order to manage earnings.
c. May occur before the year-end adjustment for uncollectible accounts.
d. May exist even after the year-end adjustment for uncollectible accounts.
Which is not permitted in accounting for uncollectible accounts receivable?
a. Percentage of accounts receivable
b. Percentage of sales
c. Direct writeoff method
d. Aging of accounts receivable
Which method of determining bad debt expense does not match expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with a percentage of accounts receivable under the allowance method.
c. Charging bad debts with an amount derived from aging the accounts receivable under the allowance method.
d. Charging bad debts as accounts are written off as uncollectible.
Which method of determining bad debt expense most closely matches expense to revenue?
a. Charging bad debts only as accounts are written off as uncollectible.
b. Charging bad debts with a percentage of sales for that period.
c. Estimating the allowance for doubtful accounts as a percentage of accounts receivable.
d. Estimating the allowance for doubtful accounts by aging the accounts receivable.
Which concept relates to the allowance method in accounting for uncollectible accounts receivable?
a. Bad debt expense is an estimate based on historical and prospective information.
b. Bad debt expense is the actual amount determined to be uncollectible.
c. Bad debt expense is an estimate based only on aging of accounts receivable.
d. Bad debt expense is management determination of which accounts are considered doubtful.
Which of the following is not acceptable in estimating uncollectible accounts receivable?
a. The estimate of uncollectible accounts is based on a percentage of sales for the period.
b. The estimate of uncollectible accounts is based on a percentage of the accounts receivable at the end of a period.
c. The estimate of uncollectible accounts is based on an aging schedule.
d. No estimate of uncollectible accounts is made but accounts are written off when it is determined that the accounts cannot be collected.
The estimate of uncollectible accounts receivable based on a percentage of sales
a. Emphasizes measurement of the net realizable value of accounts receivable.
b. Emphasizes measurement of bad debt expense.
c. Emphasizes measurement of total assets.
d. Is only acceptable for tax purposes.
Which of the following should not be taken into account when determining the cost of inventory?
a. Storage costs of part-finished goods
b. Trade discounts
c. Recoverable purchase taxes
d. Import duties on shipping of inventory inward
The cost of inventory does not include
a. Compensation of factory staff.
b. Storage cost necessary in the production process before a further production stage.
c. Abnormal amount of wasted material.
d. Irrecoverable purchase tax.
Which of the following costs of conversion cannot be included in the cost of inventory?
a. Cost of direct labor
b. Factory rent and utilities
c. Salaries of sales staff
d. Factory overhead based on normal capacity
Which of the following should be taken into account when determining the cost of inventory?
a. Storage cost of part-finished goods
b. Abnormal freight in
c. Recoverable purchase tax
d. Interest on inventory loan
Costs incurred in bringing the inventory to the present location and condition include
a. Cost of designing product for specific customers
b. Abnormal amount of wasted material
c. Storage cost not necessary in the production process before a further production stage
d. Distribution cost
Inventories encompass all of the following, except
a. Merchandise purchased by a retailer
b. Land and other property not held for sale
c. Finished goods produced
d. Materials and supplies for use in production
A property developer must classify properties that it holds for sale in the ordinary course of business as
a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property
Factory supplies to be consumed in the production process are reported as
a. Inventory
b. Property, plant and equipment
c. Investment property
d. Intangible asset
Which of the following should not be reported as inventory?
a. Land acquired for resale by a real estate firm.
b. Shares and bonds held for resale by a brokerage firm.
c. Partially completed goods held by a manufacturing entity.
d. Machinery acquired by a manufacturing entity.
When determining the cost of an inventory, which of the following should not be included?
a. Interest on loan obtained to purchase the inventory.
b. Commission paid when inventory is purchased.
c. Labor cost of the inventory when manufactured.
d. Depreciation of plant equipment used in manufacturing.
Theoretically, cash discounts permitted should be
a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
Which of the following generally would not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases
b. Cash discounts taken
c. Purchase returns and allowances
d. Cost of transportation for merchandise purchased
The use of purchase discount account implies that the recorded cost of a purchased inventory is
a. Invoice price
b. Invoice price plus any purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase, discount allowable whether taken or not
The use of a discount lost account implies that cost of a purchased inventory is
a. Invoice price
b. List price
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether or not taken
The valuation of inventory on a prime cost basis
a. Would achieve the same results as direct costing
b. Would exclude all overhead from inventory cost
c. Is always achieved when standard costing is adopted
d. Is always achieved when the FIFO is adopted
Which term represents the deduction from the invoice price of purchased goods granted for early payment?
a. Sales discount
b. Purchase discount
c. Trade discount
d. Purchase return and allowance
A discount given to a customer for purchasing a large volume of merchandise is typically referred to as
a. Trade discount
b. Quantity discount
c. Size discount
d. Cash discount
The purchase is recorded as a credit to accounts payable
a. As if the discount is to be taken, if using the gross method
b. Without regard for the discount, if using the not method
c. As if the discount is to be taken, if using the net method
d. As if the discount is to be taken, using either the gross or net method
When recording accounts payable, a purchase discount is recorded
a. If using the net method
b. If using the gross method, but only if the payment is made during the discount period
c. If using the net method, provided the payment is made during the discount period
d. If using the gross method, but the purchase discount isreduced by any purchase discount lost
Using the gross method, purchase discount lost is
a. Included in purchases
b. Added to accounts payable
c. Included in interest expense
d. Deducted from interest income
Why is inventory included in the computation of net income?
a. To determine cost of goods sold
b. To determine sales revenue
c. To determine merchandise returns
d. Inventory is not included in the computation of net income
Which of the following is a characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in inventory.
Which of the following is incorrect about the perpetual inventory method?
a. Purchases are recorded as debit to the inventory account.
b. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory.
c. After a physical inventory count, inventory is credited for any missing inventory.
d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns.
An entry debiting inventory and crediting cost of goods sold would be made when
a. Merchandise is sold using the periodic system.
b. Merchandise is sold using the perpetual system.
c. Merchandise is returned using the perpetual system.
d. Merchandise is returned using the periodic system.
In a periodic system, the beginning inventory is
a. Net purchases minus cost of goods sold
b. Net purchases minus ending inventory
c. Total goods available for sale minus net purchases
d. Total goods available for sale minus cost of goods sold
Which is not acceptable for valuation of inventory?
a. Historical cost
b. Current replacement cost
c. Prime cost
d. Estimated selling price less cost of disposal
Entities must allocate the cost of all goods available for sale between
a. The cost of goods on hand at the beginning and the cost of goods purchased during the period.
b. The cost of goods on hand at the end and the cost of goods purchased during the period.
c. The income statement and the statement of financial position.
d. The cost of goods on hand at the beginning and the cost of goods sold during the period.
An exception to the general rule that costs should be charged to expense in the period incurred is
a. Factory overhead cost incurred on a product manufactured but not sold during the current period.
b. Interest cost for financing of inventory.
c. General and administrative overhead.
d. Sales commission.
What is consigned inventory?
a. Goods shipped and title transfers to the consignee.
b. Goods sold but payment is not required until the goods are sold
c. Goods shipped but title remains with the consignor.
d. Goods segregated for shipment to a customer.
Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are
a. Expense on the part of the consignor
b. Expense on the part of the consignee
c. Inventoriable by the consignor
d. Inventoriable by the consignee
