Accounting 201 - Chapter 4 Review Test Quiz
Welcome to chapter 4 of the Accounting 201 quiz. There are some rules that every accountant should follow when preparing financial statements and are laid down in form of concepts. Are you familiar with the basic accounting concepts you covered in the class? Take up this quiz and see which one you did not grasp fully. All the best!
- 1.
When preparing a bank reconciliation, which of the following items should be subtracted from the bank balance?
- A.
Deposits in transit
- B.
Bank service charges
- C.
EFT cash receipts
- D.
Outstanding checks
Correct Answer
D. Outstanding checksExplanation
When preparing a bank reconciliation, outstanding checks should be subtracted from the bank balance. Outstanding checks are checks that have been written by the company but have not yet been cleared by the bank. Therefore, they have not yet been deducted from the bank balance. By subtracting outstanding checks from the bank balance, the company can reconcile its own records with the bank's records and ensure that the two balances match.Rate this question:
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- 2.
When preparing a bank reconciliation, which of the following items should be added to the book balance?
- A.
EFT receipts
- B.
Deposits in transit
- C.
Collection items
- D.
Both EFT receipts and collection items
Correct Answer
D. Both EFT receipts and collection itemsExplanation
When preparing a bank reconciliation, both EFT receipts and collection items should be added to the book balance. EFT receipts are electronic funds transfers received by the company but not yet recorded in the books. Adding them to the book balance ensures that the company's records reflect the actual funds received. Collection items refer to checks or other forms of payment received by the bank on behalf of the company. These items may not have been deposited yet, so adding them to the book balance ensures that the company's records reflect the funds that will soon be available.Rate this question:
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- 3.
The checks that have been paid by the bank on behalf of the depositor, which are included with the bank statement, are called:
- A.
Outstanding checks
- B.
Canceled checks
- C.
Checks in transit
- D.
NSF checks
Correct Answer
B. Canceled checksExplanation
Canceled checks refer to the checks that have been paid by the bank on behalf of the depositor and are included with the bank statement. These checks have already been processed and cleared by the bank, indicating that the funds have been deducted from the depositor's account and transferred to the payee.Rate this question:
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- 4.
Differences between the amount of cash reported on a company’s bank statement and the balance in the company’s Cash account before the bank reconciliation are primarily due to:
- A.
Errors in the accounting process by the company
- B.
Errors made by the bank
- C.
Differences between the cash basis and accrual basis of accounting
- D.
The timing difference in recording transactions
Correct Answer
D. The timing difference in recording transactionsExplanation
The correct answer is the timing difference in recording transactions. This means that the cash reported on the bank statement may not match the balance in the company's Cash account because there could be a delay in recording certain transactions. For example, a company may have deposited cash into its bank account at the end of the month, but the bank statement may not reflect this deposit until the beginning of the next month. Similarly, checks written by the company may not be processed by the bank immediately, leading to a difference in the reported cash balances.Rate this question:
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- 5.
Which of the following items will cause a difference between the book balance and the bank balance
- A.
Timing deposits
- B.
Bank collections
- C.
Canceled checks
- D.
Outstanding voided checks
Correct Answer
B. Bank collectionsExplanation
Bank collections will cause a difference between the book balance and the bank balance. When the bank collects payments on behalf of the company, the amount collected may not be immediately reflected in the company's books. This can result in a higher bank balance than the book balance until the company records the collection in their books.Rate this question:
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- 6.
A bank charge of $40 for imprinting checks would appear on the bank reconciliation as a(n) __________ to (or from) the _____ balance.
- A.
Addition; bank
- B.
Deduction; bank
- C.
Addition; book
- D.
Deduction; book
Correct Answer
D. Deduction; bookExplanation
The bank charge of $40 for imprinting checks would be considered a deduction from the book balance on the bank reconciliation. This is because the bank charge reduces the amount of money available in the account, resulting in a lower book balance.Rate this question:
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- 7.
Herbert Company deposited $25,000 in its bank on the same day as—but after—the bank prepared Herbert Company’s bank statement. The deposit should appear on the bank reconciliation as a(n) __________ and is called a(n) __________.
- A.
Addition to the bank balance; outstanding deposit
- B.
Addition to the bank balance; deposit in transit
- C.
Deduction to the bank balance; deposit in transit
- D.
Deduction to the bank balance; outstanding deposit
Correct Answer
B. Addition to the bank balance; deposit in transitExplanation
When the bank statement was prepared, the $25,000 deposit made by Herbert Company had not yet been recorded by the bank. Therefore, it should be added to the bank balance in the bank reconciliation. This type of deposit is called a "deposit in transit" because it is in the process of being recorded by the bank.Rate this question:
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- 8.
Checks written by a company, but not yet paid by the bank, appear on the bank reconciliation as __________ and are called __________.
- A.
Deductions from the bank balance; checks in transit
- B.
Deductions from the bank balance; outstanding checks
- C.
Additions to the bank balance; checks in transit
- D.
Additions to the bank balance; check items
Correct Answer
B. Deductions from the bank balance; outstanding checksExplanation
Checks written by a company that have not been paid by the bank yet are considered as deductions from the bank balance because they have not been subtracted from the company's account. These checks are referred to as outstanding checks because they are still in transit and have not been cleared by the bank.Rate this question:
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- 9.
In a bank reconciliation, a NSF check is
- A.
Added to the bank balance
- B.
Added to the book balance
- C.
Deducted from the book balance
- D.
Deducted from the bank balance
Correct Answer
C. Deducted from the book balanceExplanation
A NSF check refers to a check that has been returned by the bank due to insufficient funds in the account of the issuer. When reconciling the bank statement with the company's books, this NSF check should be deducted from the book balance. This is because the company had initially recorded the check as a deposit or credit in its books, but since the check bounced, it is no longer considered as a valid transaction. Therefore, deducting the NSF check from the book balance helps to reconcile the actual balance with the bank's balance.Rate this question:
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- 10.
In a bank reconciliation, an EFT cash receipt is
- A.
Added to the bank balance
- B.
Added to the book balance
- C.
Deducted from the book balance
- D.
Deducted from the bank balance
Correct Answer
B. Added to the book balanceExplanation
When performing a bank reconciliation, an EFT cash receipt is added to the book balance. This is because the EFT cash receipt represents funds that have been received by the company but have not yet been recorded in the bank statement. By adding the EFT cash receipt to the book balance, the company ensures that the book balance reflects the correct amount of funds that it has received.Rate this question:
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- 11.
In a bank reconciliation, an EFT cash payment is
- A.
Added to the bank balance
- B.
Added to the book balance
- C.
Deducted from the book balance
- D.
Deducted from the bank balance
Correct Answer
C. Deducted from the book balanceExplanation
In a bank reconciliation, an EFT cash payment is deducted from the book balance. This is because an EFT cash payment represents a payment made electronically from the bank account, which has not yet been recorded in the company's books. Therefore, to reconcile the bank statement with the company's books, the EFT cash payment needs to be deducted from the book balance to account for the payment that has already been made.Rate this question:
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- 12.
Interest paid by the bank to a company’s account should appear on the bank reconciliation as
- A.
Added to the bank balance
- B.
Added to the book balance
- C.
Deducted from the book balance
- D.
Having no impact on the book balance
Correct Answer
B. Added to the book balanceExplanation
When the bank pays interest to a company's account, it increases the balance in the company's bank account. This interest income should be recorded in the company's books and added to the book balance. Therefore, the correct answer is "added to the book balance." This transaction has no impact on the bank balance, as it is already reflected in the bank statement.Rate this question:
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- 13.
A bank collected $200 on behalf of its customer. The $200 should appear on the bank reconciliation as
- A.
Added to the bank balance
- B.
Added to the book balance
- C.
Deducted from the book balance
- D.
Having no impact on the book balance
Correct Answer
B. Added to the book balanceExplanation
When the bank collects $200 on behalf of its customer, it means that the bank has received $200 from someone and has added it to the customer's account. This amount should be reflected in the customer's book balance, as it is an increase in their funds. Therefore, the $200 should be added to the book balance on the bank reconciliation.Rate this question:
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- 14.
In a bank reconciliation, items recorded by the company, but not yet been recorded by the bank, include
- A.
Interest
- B.
Outstanding checks
- C.
NSF checks
- D.
Bank service charges
Correct Answer
B. Outstanding checksExplanation
Outstanding checks are items recorded by the company but have not yet been recorded by the bank. This means that the company has issued checks that have not yet been cashed or processed by the bank. These checks are still considered as part of the company's outstanding liabilities until they are cleared by the bank. Therefore, outstanding checks need to be included in a bank reconciliation to ensure that the company's records match the bank's records.Rate this question:
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- 15.
In a bank reconciliation, items recorded by the bank, but not yet recorded by the company, include
- A.
Deposits in transit
- B.
Bank collections
- C.
Outstanding checks
- D.
Both deposits in transit and outstanding checks
Correct Answer
B. Bank collectionsExplanation
In a bank reconciliation, items recorded by the bank but not yet recorded by the company refer to transactions that the bank has processed but the company has not yet accounted for. This can include bank collections, which are funds received by the bank on behalf of the company but have not been recorded in the company's books. Therefore, the correct answer is bank collections.Rate this question:
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- 16.
The person who prepares the bank reconciliation
- A.
Should also be responsible for cash receipts
- B.
Should also be responsible for cash disbursements
- C.
Should be responsible for both cash receipts and cash disbursements.
- D.
Should have no other cash duties
Correct Answer
D. Should have no other cash dutiesExplanation
The person who prepares the bank reconciliation should have no other cash duties because it is important to maintain separation of duties in order to prevent fraud or errors. By having one person solely responsible for bank reconciliation, it reduces the risk of any mishandling or misappropriation of cash. This ensures that the process is carried out accurately and independently, providing a reliable and trustworthy record of the company's cash transactions.Rate this question:
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- 17.
If a bookkeeper mistakenly records a disbursement as $810 instead of the correct amount of $180, the error should be shown on the bank reconciliation as a(n):
- A.
$180 addition to the books
- B.
$180 deduction from the books
- C.
$630 addition to the books
- D.
$630 deduction from the books
Correct Answer
C. $630 addition to the booksExplanation
The error should be shown as a $630 addition to the books because the bookkeeper mistakenly recorded the disbursement as $810 instead of $180. This means that $630 ($810 - $180) was incorrectly added to the books.Rate this question:
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- 18.
If the bank records a deposit of $1,500 as $150, the error should be shown on a bank reconciliation as a(n):
- A.
Deduction from the book balance of $1,350
- B.
Deduction from the bank balance of $1,350
- C.
Addition to the bank balance of $1,350
- D.
Addition to the book balance of $1,350
Correct Answer
C. Addition to the bank balance of $1,350Explanation
If the bank records a deposit of $1,500 as $150, the error should be shown on a bank reconciliation as an addition to the bank balance of $1,350. This is because the bank has incorrectly recorded a lower amount for the deposit, so the true amount of $1,350 needs to be added to the bank balance to correct the error.Rate this question:
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- 19.
There are two records of a business’s cash—the
- A.
Cash account in the general ledger and the petty cash box
- B.
Cash account in the general ledger and the journal entries from the bank reconciliation.
- C.
Bank statement and the cash account in the general ledger
- D.
Bank statement and the cash in petty cash
Correct Answer
C. Bank statement and the cash account in the general ledgerExplanation
The correct answer is the bank statement and the cash account in the general ledger. The bank statement provides a record of all the transactions made by the business through the bank, including deposits, withdrawals, and any fees or charges. The cash account in the general ledger, on the other hand, tracks all the cash transactions made by the business, including cash received from customers, cash payments made to suppliers, and any other cash inflows or outflows. By comparing the bank statement with the cash account in the general ledger, discrepancies can be identified and reconciled to ensure the accuracy of the business's cash records.Rate this question:
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- 20.
The bank statement showed a NSF check of $300. In a bank reconciliation, this would be shown as a
- A.
$300 deduction from the bank balance
- B.
$300 addition to the bank balance
- C.
$300 deduction from the book balance.
- D.
$300 addition to the book balance
Correct Answer
C. $300 deduction from the book balance.Explanation
When a bank statement shows a NSF (non-sufficient funds) check, it means that the check was returned unpaid due to insufficient funds in the account. In a bank reconciliation, this would be shown as a deduction from the book balance because the company's records had initially included the amount of the check as a receivable, but now it cannot be considered as such since it was not actually received. Therefore, the book balance needs to be adjusted by deducting the amount of the NSF check to reflect the actual amount of funds available.Rate this question:
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- 21.
A bank reconciliation included an outstanding check of $1,300 for the purchase of supplies. The journal entry to record this reconciling item
- A.
Should debit Supplies and credit Cash for $1,300
- B.
Should debit Cash and credit Supplies for $1,300
- C.
Should debit Accounts Receivable and credit Cash for $1,300
- D.
Is not required
Correct Answer
D. Is not requiredExplanation
The question states that the outstanding check is for the purchase of supplies. In a bank reconciliation, outstanding checks are checks that have been issued but have not yet cleared the bank. Since the check is for the purchase of supplies, it means that the supplies have already been recorded in the company's books. Therefore, there is no need for a journal entry to record this reconciling item as it has already been accounted for.Rate this question:
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- 22.
A bank statement included a NSF check from customer Kim Fields for $2,100. The journal entry to record this reconciling item should
- A.
Debit NSF and credit Cash for $2,100
- B.
Debit Cash and credit Accounts Receivable for $2,100
- C.
Debit Accounts Receivable and credit Cash for $2,100
- D.
Debit Cash and credit NSF for $2,100
Correct Answer
C. Debit Accounts Receivable and credit Cash for $2,100Explanation
The correct answer is to debit Accounts Receivable and credit Cash for $2,100. This is because the NSF check indicates that the customer's payment bounced, meaning that the amount owed by the customer should be reversed from the Accounts Receivable account. At the same time, Cash should be reduced by the same amount since the payment was not received.Rate this question:
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- 23.
If a bank statement included a bank collection and related interest revenue, the journal entry to record this reconciling item should include a:
- A.
Debit to Cash
- B.
Credit to Cash
- C.
Debit to Note Receivable
- D.
Debit to Note Payable
Correct Answer
A. Debit to CashExplanation
When a bank statement includes a bank collection and related interest revenue, the correct journal entry to record this reconciling item should include a debit to Cash. This is because a bank collection represents an increase in the cash balance of the company. By debiting Cash, we are recording the increase in the cash balance to reflect the collection.Rate this question:
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- 24.
If a bank reconciliation included deposits in transit amounting to $3,700, the journal entry to record this reconciling item:
- A.
Should debit Deposit in Transit and credit Cash for $3,700
- B.
Should debit Cash and credit Deposit in Transit for $3,700
- C.
Should debit Accounts Receivable and credit Cash for $3,700
- D.
Is not required
Correct Answer
D. Is not required -
- 25.
If a bank statement includes an EFT payment of $945 for insurance, the journal entry to record this reconciling item should include a:
- A.
Debit to Cash for $945
- B.
Debit to Accounts Payable for $945
- C.
Credit to Cash for $945
- D.
Credit to Prepaid Insurance for $945
Correct Answer
C. Credit to Cash for $945Explanation
The correct answer is a credit to Cash for $945. This is because an EFT payment means that money is being transferred out of the bank account, resulting in a decrease in cash. Therefore, the journal entry should show a credit to Cash.Rate this question:
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- 26.
The book side of a bank reconciliation includes
- A.
Deposits in transit, bank collections and NSF checks
- B.
NSF checks, bank collections and interest earned on the checking account
- C.
Outstanding checks and deposits in transit
- D.
Outstanding checks, NSF checks and cost of printed checks.
Correct Answer
B. NSF checks, bank collections and interest earned on the checking accountExplanation
The book side of a bank reconciliation includes NSF checks, bank collections, and interest earned on the checking account. This means that when reconciling the bank statement with the company's records, these items need to be taken into account. NSF checks are checks that were returned by the bank due to insufficient funds, bank collections are funds that the bank has collected on behalf of the company, and interest earned on the checking account is the interest that the company has earned on its account balance.Rate this question:
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- 27.
Which of the following would need to be journalized from the bank reconciliation
- A.
All items listed under the bank side
- B.
All items listed on the book side
- C.
All items on the book and bank side
- D.
None of the above
Correct Answer
B. All items listed on the book sideExplanation
From the given options, the correct answer is "All items listed on the book side." This means that any discrepancies or differences found between the bank statement and the company's books need to be recorded in the journal. These could include outstanding checks, deposits in transit, bank errors, or any other items that affect the balance in the company's books. By journalizing these items, the company ensures that its records are accurate and up to date.Rate this question:
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- 28.
Cash Sales from the cash register tapes totaled $882. There is a change fund of $100. The cash count indicates that $984 is in the cash drawer. What journal entry would be required?
- A.
Debit Miscellaneous Expense for $2; credit Cash Short and Over for $2
- B.
Debit Cash for $982, Cash* Short and Over for $2; credit Revenues for $984
- C.
Debit Cash Short and Over for $2; credit Miscellaneous Expense $2
- D.
Debit Cash for $884; credit Revenues for $882, and Cash Short and Over for $2
Correct Answer
D. Debit Cash for $884; credit Revenues for $882, and Cash Short and Over for $2Explanation
The journal entry would be to debit Cash for $884, which represents the total cash count of $984 in the cash drawer minus the change fund of $100. The credit would be to Revenues for $882, which represents the cash sales from the cash register tapes. Additionally, there would be a credit to Cash Short and Over for $2, which represents the difference between the actual cash count and the cash sales.Rate this question:
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- 29.
The entry to establish the change fund is: DEBIT CREDIT
- A.
Miscellaneous Expense Cash
- B.
Miscellaneous Expense Change Fund
- C.
Change Fund Cash
- D.
Cash Change Fund
Correct Answer
C. Change Fund CashExplanation
The correct entry to establish the change fund is to debit the Change Fund account and credit the Cash account. This means that the Change Fund account will increase, representing the amount of money set aside for the change fund, while the Cash account will decrease as the money is taken out to establish the fund.Rate this question:
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- 30.
A fund with a small amount of cash on hand for minor disbursements is called a
- A.
Petty cash fund.
- B.
Miscellaneous expense fund.
- C.
Slush fund
- D.
Cash fund
Correct Answer
A. Petty cash fund.Explanation
A fund with a small amount of cash on hand for minor disbursements is called a petty cash fund. This fund is typically used for small expenses such as office supplies, postage, or employee reimbursements. It allows for convenient and immediate payments without the need for formal approval or processing through regular accounts payable procedures. The petty cash fund is managed by a designated custodian who is responsible for maintaining the fund, recording transactions, and replenishing the cash as needed.Rate this question:
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- 31.
The entry to establish the petty cash fund is: DEBIT CREDIT
- A.
Miscellaneous Expense Cash
- B.
Miscellaneous Expense Petty Cash
- C.
Petty Cash Cash
- D.
Cash Petty Cash
Correct Answer
C. Petty Cash Cash -
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Current Version
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Mar 22, 2023Quiz Edited by
ProProfs Editorial Team -
Jun 22, 2012Quiz Created by
Jc173
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