1. Business
2. Accounting
3. Financial Accounting & Bookkeeping
4. The Financial Statements
5. Statement of Cash Flows
6. 27054

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Practice Quiz

1. The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:
A. determine the amount of cash in the account actually available to the entity.
B. satisfy generally accepted accounting principles.
C. verify the amount of petty cash on hand.
D. determine whether or not the entity has issued an NSF check.

2. For which of the following reconciling items would an adjusting entry be necessary?
A. A deposit in transit.
B. An error by the bank.
C. Outstanding checks.
D. A bank service charge.

3. The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?
A. The investing activities and financing activities sections.
B. The investing activities section only.
C. The operating activities and financing activities sections.
D. The operating activities section only.

4. Which of the following is an accurate statement regarding a statement of cash flows?
A. Only cash items that affect the income statement are included.
B. Only material cash items that affect the income statement are included.
C. Material noncash transactions are included.
D. Immaterial financing activities that affect cash do not need to be included.
E. None of the above.

5. In the statement of cash flows, the amount of depreciation and amortization expense is added back to net income because:
A. these expenses do not affect cash, but were subtracted in the determination of net income.
B. these expenses affect investing activities, not operating activities.
C. the cash disbursements for these accrued expenses will be made in a future period.
D. these expenses are recognized for accounting purposes, but they do not represent economic costs.

6. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
A. be added to net income because this represents earned revenues that have not been collected.
B. be subtracted from net income because this represents earned revenue provided by operating earnings.
C. be added to net income because this means that revenues were less than cash collected.
D. be subtracted from net income because this means that revenues were more than cash collected.

7. The amount of cash related to a particular bank checking account that is shown on the balance sheet at December 31 is:
A. The cash balance shown on the bank's records at the close of business on December 31.
B. The cash balance shown in the company's general ledger account for this checking account at the close of business on December 31.
C. The cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any outstanding checks and/or deposits in transit from the December 31 bank account reconciliation.
D. The cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any bank service charges and/or interest income from the December 31 bank account reconciliation.

8. A cash equivalent is a current asset that:
A. Will be converted to cash within one year.
B. Will be converted to cash within one month.
C. Is readily convertible into cash with a minimal risk.
D. Is readily convertible into cash with a substantial risk.

9. Which of the following would not cause a difference between the bank balance and book balance?
A. Bank errors
B. Deposits in transit
C. Credit sales not yet received
D. Interest

10. A Not Sufficient Funds (NSF) check will cause:
A. The bank balance to be larger than the company's book balance
B. The book balance to be larger than the company's bank balance
C. No change to either balance
D. None of the above

11. Outstanding checks will cause:
A. The bank balance to be larger than the company's book balance
B. The book balance to be larger than the company's bank balance
C. No change to either balance
D. None of the above

12. Which of the following is not a method to control cash?
A. Using electronic funds transfers
B. Using bank accounts
C. Using a petty cash fund
D. Performing surprise cash counts

13. Which of the following is not a section of the Statement of Cash Flows?
A. Investing activities
B. Operating activities
C. Equity activities
D. Financing activities

14. Paying interest on a loan is considered a(n):
A. Investing activity
B. Operating activity
C. Equity activity
D. Financing activity

15. Collecting on a loan is considered a(n):
A. Investing activity
B. Operating activity
C. Equity activity
D. Financing activity