CHAPTER 6
CASH AND RECEIVABLES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Savings accounts are usually classified as cash on the balance sheet.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
2. Certificates of deposit are usually classified as cash on the balance sheet.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. Companies include postdated checks and petty cash funds as cash.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Cash equivalents are investments with original maturities of six months or less.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
5. Bank overdrafts are always offset against the cash account in the balance sheet.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
6. Short-term, highly liquid investments may be included with cash on the balance sheet.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
7. All claims held against customers and others for money, goods, or services are reported as
current assets.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. Trade receivables include notes receivable and advances to officers and employees.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
9. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. In the gross method, sales discounts are reported as a deduction from sales.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
11. The net amount reported for short-term receivables is not affected when a specific account
receivable is determined to be uncollectible.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,6-2 Test Bank for Intermediate Accounting, Eighteenth Edition
12. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes
matching over valuation of accounts receivable.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. The percentage-of-receivables approach requires companies to set up an aging schedule of
accounts receivable.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. Companies value and report short-term receivables at the net amount expected to be
collected.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15 Companies use data analytics to look at both historical write-offs and forward-looking data
to estimate the total allowance for existing receivables.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. The percentage-of-receivables approach is used for impairment measurement and
reporting.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. Companies record and report long-term notes receivable at the present value of the cash
they expect to collect.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. When the stated rate of interest exceeds the effective rate, the present value of the notes
receivable will be less than its face value.
Ans: F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. Recognition of a recourse liability will make a loss on the sale of receivables larger than it
would otherwise have been.
Ans: T, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
20. When buying receivables with recourse, the purchaser assumes the risk of collectability and
absorbs any credit loss.
Ans: F, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
21. For receivables sold with recourse, the seller guarantees payment to the purchaser if the
debtor fails to pay.
Ans: T, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
22. The accounts receivable turnover is computed by dividing net sales by the ending net
receivables.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, Cash and Receivables 6-3
*23. The Sarbanes-Oxley Act encourages companies to increase the quality of their internal
controls for cash and other assets.
Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*24. For large companies that operate in multiple locations, the location of bank accounts is not
important.
Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*25. For a loan receivable, an impairment loss is calculated as the difference between the
investment in the loan and the expected future cash flows discounted at the loan’s historical
effective interest rate.
Ans: T, LO: 7, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*26. Companies must measure the loss on impairment at an undiscounted amount, not at a
present-value amount when it records the loss.
Ans: F, LO: 7, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, 6-4 Test Bank for Intermediate Accounting, Eighteenth Edition
MULTIPLE CHOICE—Conceptual
27. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds on deposit
d. Postdated checks and I. O. U.'s
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
28. Which of the following is not considered a cash or cash equivalent?
a. Certificates of deposit (CDs)
b. Money market checking accounts
c. Money market savings certificates
d. Postdated checks
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
29. Travel advances should be reported as
a. supplies.
b. cash because they represent the equivalent of money.
c. investments.
d. receivables.
Ans: d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
P
30. Which of the following items should not be included in the Cash caption on the balance
sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
Ans: d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
31. All of the following may be included under the heading of "cash" except
a. currency.
b. money market funds.
c. checking account balance.
d. savings account balance.
Ans: b, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
32. Post-dated checks which have been received are classified as
a. receivables.
b. prepaid expenses.
c. cash.
d. payables.
Ans: a, LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. Postage stamps are classified as
a. cash.
b. office supplies.
CASH AND RECEIVABLES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Savings accounts are usually classified as cash on the balance sheet.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
2. Certificates of deposit are usually classified as cash on the balance sheet.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. Companies include postdated checks and petty cash funds as cash.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Cash equivalents are investments with original maturities of six months or less.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
5. Bank overdrafts are always offset against the cash account in the balance sheet.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
6. Short-term, highly liquid investments may be included with cash on the balance sheet.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
7. All claims held against customers and others for money, goods, or services are reported as
current assets.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. Trade receivables include notes receivable and advances to officers and employees.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
9. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. In the gross method, sales discounts are reported as a deduction from sales.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
11. The net amount reported for short-term receivables is not affected when a specific account
receivable is determined to be uncollectible.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,6-2 Test Bank for Intermediate Accounting, Eighteenth Edition
12. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes
matching over valuation of accounts receivable.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. The percentage-of-receivables approach requires companies to set up an aging schedule of
accounts receivable.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. Companies value and report short-term receivables at the net amount expected to be
collected.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15 Companies use data analytics to look at both historical write-offs and forward-looking data
to estimate the total allowance for existing receivables.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. The percentage-of-receivables approach is used for impairment measurement and
reporting.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. Companies record and report long-term notes receivable at the present value of the cash
they expect to collect.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. When the stated rate of interest exceeds the effective rate, the present value of the notes
receivable will be less than its face value.
Ans: F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. Recognition of a recourse liability will make a loss on the sale of receivables larger than it
would otherwise have been.
Ans: T, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
20. When buying receivables with recourse, the purchaser assumes the risk of collectability and
absorbs any credit loss.
Ans: F, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
21. For receivables sold with recourse, the seller guarantees payment to the purchaser if the
debtor fails to pay.
Ans: T, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
22. The accounts receivable turnover is computed by dividing net sales by the ending net
receivables.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, Cash and Receivables 6-3
*23. The Sarbanes-Oxley Act encourages companies to increase the quality of their internal
controls for cash and other assets.
Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*24. For large companies that operate in multiple locations, the location of bank accounts is not
important.
Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*25. For a loan receivable, an impairment loss is calculated as the difference between the
investment in the loan and the expected future cash flows discounted at the loan’s historical
effective interest rate.
Ans: T, LO: 7, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*26. Companies must measure the loss on impairment at an undiscounted amount, not at a
present-value amount when it records the loss.
Ans: F, LO: 7, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, 6-4 Test Bank for Intermediate Accounting, Eighteenth Edition
MULTIPLE CHOICE—Conceptual
27. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds on deposit
d. Postdated checks and I. O. U.'s
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
28. Which of the following is not considered a cash or cash equivalent?
a. Certificates of deposit (CDs)
b. Money market checking accounts
c. Money market savings certificates
d. Postdated checks
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
29. Travel advances should be reported as
a. supplies.
b. cash because they represent the equivalent of money.
c. investments.
d. receivables.
Ans: d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
P
30. Which of the following items should not be included in the Cash caption on the balance
sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
Ans: d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
31. All of the following may be included under the heading of "cash" except
a. currency.
b. money market funds.
c. checking account balance.
d. savings account balance.
Ans: b, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
32. Post-dated checks which have been received are classified as
a. receivables.
b. prepaid expenses.
c. cash.
d. payables.
Ans: a, LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. Postage stamps are classified as
a. cash.
b. office supplies.
