INTACC Practice Quiz 3 exam with correct answers 2024.

Money - answer-Standard medium of exchange in business transactions Currency and coins - answer-Form of money Cash - answer-Money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit PAS 1, paragraph 66 - answer-An entity shall classify an asset as current when the asset in cash or a cash equivalent UNLESS it is restricted from being exchange or used to settle a liability for at least twelve months after the end of the reporting period unrestricted in use (current asset) TO SIMPLIFY: Cash is a current asset when there is no restriction as to its withdrawal or use. - answer-This means that the cash must be readily available in the payment of current obligation and not subject to any restriction, contractual or otherwise Cash on hand Cash in bank Cash fund - answer-Cash items included in cash (3) Cash on hand - answer-Includes undeposited cash collections and other cash items awaiting deposit customers' check cashier's check manager's check traveler's check bank drafts money orders - answer-examples of cash on hand Cash in bank - answer-Includes unrestricted as to withdrawal savings deposit and demand deposit demand deposit and saving deposit which are unrestricted as to withdrawal - answer-cash in bank includes: cash fund - answer-cash item which is set aside for a specific purpose (current or non-current) cash fund for current purposes are reported as CASH while cash fund for non-current purposes should be shown as LONG TERM INVESTMENTS under non-current assets - answer-Differentiate where cash fund for current purposes and cash fund for non current purposes should be shown petty cash fund payroll fund dividend fund travel fund interest fund tax fund - answer-examples of cash fund set aside for current purposes / short term long term investment (non-current asset) - answer-If the cash fund is set aside for non-current purposes or payment of non-current obligations (long term) they are shown as sinking fund preference share redemption fund contingent fund insurance fund fund for acquisition / construction of property, plant & equipment - answer-examples of cash fund set aside for non-current purposes / long term cash equivalents - answer-Short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes. PAS 7, paragraph 6 - answer-Defines cash equivalents as short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents. three months before maturity - answer-Only highly liquid investments that are acquired (how many months) before maturity can qualify as cash equivalents BSP Treasury bill Time deposit Money market Instrument Commercial paper - answer-examples of Cash Equivalents FALSE. Equity securities do not have maturity date, therefore cannot be classified as cash equivalents. - answer-True/False: Equity securities can also be qualified as cash equivalents. They should be INVESTED in time deposits, money market instruments and treasury bills. - answer-For the purpose of earning interest income, what should be done to any cash accumulated in excess? classified as CASH EQUIVALENTS and included in CASH AND CASH EQUIVALENTS - answer-If the term is 3 MONTHS OR LESS, investments in time deposits, money market instruments and treasury bills should be classified as SHORT TERM FINANCIAL ASSETS/TEMPORARY INVETSMENTS and presented separately as CURRENT ASSETS - answer-If the term is MORE THAN 3 MONTHS BUT WITHIN 1 YEAR, investments in time deposits, money market instruments and treasury bills should be classified as NON CURRENT OR LONG TERM INVESTMENTS and included in NON CURRENT ASSETS - answer-If the term is MORE THAN ONE YEAR, investments in time deposits, money market instruments and treasury bills should be Face Value - answer-Cash is measured at _____________ Current exchange rate - answer-Cash in foreign currency is measured at the _______________ Cash and Cash equivalents - answer-It should be shown as the first item along the current assets Notes to financial statements - answer-Details comprising the "cash and cash equivalents" should be disclosed in the __________________________________ Parallel the classification of related liability - answer-The classification of fund as current or non current should ____________________________________________ Bank overdraft - answer-Occurs when the cash in bank account has a credit balance Bank overdraft - answer-It is classified as a current liability and should not be offset against other bank accounts with debit balances current liability - answer-A bank overdraft is classfied as a False. SHOULD NOT BE OFFSET!!! - answer-True/False: A bank overdraft should be offset against other bank accounts with debit balance because an overdraft has a credit balance. 1. when an entity has 2 or more accounts in ONE bank and 1 account results in an overdraft example: ABC Company * CIB - Bank A 3,000,000 debit balanc * 20,000 credit balance [overdraft] - because ABC Company has 2 accounts in 1 bank, the overdraft can be offset to the 1st account, therefore: Cash In Bank = 2,980,000 2. if the amount is not material - answer-What are the exemption to the rule on overdraft? Compensating balance - answer-It generally takes form of minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank Not legally restricted compensating balance - answer-This is an informal compensating balance agreement therefore this balance is part of cash Legally restricted compensating balance - answer-This is a formal compensating balance agreement therefore this balance is classified separately as "cash held as compensating balance" under current asset if the related loan is short-term; if the related loan is long-term the compensating balance is classified as non-current asset part of CASH - answer-If deposit is not legally restricted, the compensating balance is presented separately as "cash held as compensating balance" under current assets - answer-If deposit is legally restricted and related loan is short term, the compensating balance is classified as non-current investment under non-current assets. - answer-If deposit is legally restricted and related loan is long term, the compensating balance is Undelivered or unreleased check - answer-Checks that are drawn and recorded but not given to the payee before the end of reporting period; and is still subject to the entity's control for it can be canceled anytime before delivery 1. dated check 2. yes - answer-1. check dated today (on or before) 2. does this type of check considered as cash Postdated check - answer-Checks that are drawn, recorded and already given to the payee but it bears a date subsequent to the end of reporting period; and still subject to the entity's control for there is no payment until the check can be presented to the bank for encashment or deposit True. Postdated checks are in the liability account, ACCOUNTS RECEIVABLE. - answer-True/False: Postdated checks cannot be considered as cash yet because these checks are unacceptable by bank for deposit and immediate credit. Stale check - answer-A check not encashed by the payee within a relatively long period of time. check long outstanding - answer-stale check is also called usually, six months (but always a matter of policy) - answer-In banking practice, a check becomes stale if not encashed within (how many months) from the time of issuance. Petty cash fund - answer-Is a money set aside to pay aside to pay small expenses which cannot be paid conveniently by means of check Imprest system - answer-A system to control cash; which requires that all cash receipts should be deposited intact and all cash disbursement should be made by means of check Imprest fund system - answer-Is the one usually followed in handling petty cash transaction. Replenishment of petty cash payments usually equal the petty cash disbursement Fluctuating fund system - answer-In this system checks drawn to replenish the fun do not necessarily equal the petty cash disbursements Cash shortage - answer-A situation where there is not enough cash in the register to equal the amount reported in the register or it shows cash count less than the balance per book Cash overage - answer-an amount of cash in the cash register that is more than the amount indicated by the cash sales or it shows cash count more than the balance per book cash short or over account - answer-A special ledger account that is used to keep track of unexplained shortages and overages