Master Cash Transactions: A Comprehensive Guide for Accounting Professionals

Question 1

Which of the following is NOT a fundamental principle of cash accounting?

Accepted Answer

Assets are recorded at their fair value.

Answer

Transactions are recorded when cash is received or disbursed.

Answer

Expenses are recognized when they are paid.

Answer

Revenue is recognized when it is earned.

Question 2

When recording a cash receipt, which side(s) of the accounting equation increase(s)?

Accepted Answer

Both Assets and Equity

Answer

Assets only

Answer

Liabilities only

Answer

Equity only

Question 3

Which of the following is NOT a widely accepted payment method for business transactions?

Accepted Answer

Gift cards

Answer

Cash

Answer

Check

Answer

Credit card

Question 4

Which of the following is a defining characteristic of a cash transaction?

Accepted Answer

Involves a physical exchange of cash

Answer

Immediate transfer of funds

Answer

Recorded in the books of accounts

Answer

Requires the use of a credit card

Question 5

When recording a cash receipt, which account is credited?

Accepted Answer

Cash

Answer

Accounts Payable

Answer

Accounts Receivable

Answer

Sales Revenue

Question 6

Which document serves as the primary record of a cash payment?

Accepted Answer

Cheque

Answer

Purchase order

Answer

Bank statement

Answer

Invoice

Question 7

The double-entry accounting system requires that every transaction be recorded with:

Accepted Answer

One debit and one credit

Answer

Two debits and one credit

Answer

One credit and two debits

Answer

No debits or credits

Question 8

When preparing a bank reconciliation statement, any outstanding deposits should be:

Accepted Answer

Added to the bank balance

Answer

Deducted from the bank balance

Answer

Added to the cash book balance

Answer

Deducted from the cash book balance

Question 9

What is the main reason for creating a cash flow statement?

Accepted Answer

To see if a company can pay its bills in the short term.

Answer

To give a general idea of a company's financial results.

Answer

To decide if a company is a good long-term investment.

Question 10

Which of the following is NOT a characteristic of a cash transaction?

Accepted Answer

Involves the sale of goods or services

Answer

Payment is made in cash or cash equivalent

Answer

Transfer of ownership is simultaneous

Answer

Must be recorded in the accounting system

Question 11

What is the primary purpose of a cash receipt voucher?

Accepted Answer

To document and record the receipt of cash

Answer

To reconcile the bank statement

Answer

To authorize the payment of cash

Answer

To track cash disbursements

Question 12

What is the formula for calculating the adjusted cash balance?

Accepted Answer

Bank statement balance - Outstanding checks + Deposits in transit

Answer

Beginning cash balance + Cash receipts - Cash payments

Answer

Beginning cash balance + Deposits - Withdrawals

Answer

Bank statement balance + Outstanding checks - Deposits in transit

Question 13

What is the purpose of a general ledger control account?

Accepted Answer

Summarizes the balances of related subsidiary accounts

Answer

Stores detailed transactions for each asset, liability, and equity account

Answer

Tracks changes in specific account balances over time

Answer

Provides a comprehensive view of all business transactions

Question 14

What is the key difference between a cash budget and a cash flow statement?

Accepted Answer

A cash budget forecasts future cash flows, while a cash flow statement reports past cash flows

Answer

A cash flow statement forecasts future cash flows, while a cash budget reports past cash flows

Answer

A cash budget and a cash flow statement are the same document

Answer

There is no difference between a cash budget and a cash flow statement

Question 15

Which internal control procedure is primarily designed to prevent fraud in cash transactions?

Accepted Answer

Segregation of duties

Answer

Bank reconciliations

Answer

Physical inventory counts

Answer

Customer credit checks

Question 16

What is the key difference between a cash transaction and a non-cash transaction?

Accepted Answer

Cash transactions involve the direct exchange of physical money.

Answer

Non-cash transactions are always recorded in the company's accounting system.

Answer

Cash transactions do not require any supporting documentation.

Answer

Non-cash transactions only involve the use of a bank account.

Question 17

Which of the following is NOT a method of recording cash receipts?

Accepted Answer

Bank statement

Answer

Cash register

Answer

Cash receipt journal

Answer

Manual receipt book

Question 18

What is the primary purpose of a bank reconciliation statement?

Accepted Answer

To match the bank statement with the cash transactions recorded in the accounting system

Answer

To identify and correct errors in the cash balance

Answer

To forecast future cash flows

Answer

To record the transfer of funds between bank accounts

Question 19

What is the key difference between a cash budget and a cash flow statement?

Accepted Answer

A cash budget focuses on future cash flows, while a cash flow statement reports on past cash flows

Answer

A cash budget is prepared before the accounting period, while a cash flow statement is prepared after the period

Answer

A cash flow statement is more detailed than a cash budget

Answer

They are essentially the same document

Question 20

What is the term for a document that supports a payment transaction?

Accepted Answer

Voucher

Answer

Invoice

Answer

Receipt

Answer

Cheque

Question 21

What impact does recording a cash sale have on the accounting equation?

Accepted Answer

Assets increase, equity increases

Answer

Assets increase, liabilities decrease

Answer

Assets decrease, liabilities increase

Answer

Assets decrease, equity decreases

Question 22

How do cash transactions contribute to informed financial decision-making in businesses?

Accepted Answer

Cash transactions provide real-time data for businesses to make data-driven financial decisions.

Answer

Cash transactions have no impact on a business's financial decision-making.

Answer

Cash transactions mainly influence a business's long-term financial plans.

Question 23

What is the purpose of preparing a cash proof?

Accepted Answer

To ensure that the cash on hand matches the cash balance in the cash book

Answer

To identify any errors in the cash book

Answer

To calculate the amount of cash that should be in the bank

Question 24

Which of the following is an example of a petty cash payment?

Accepted Answer

Purchasing office supplies

Answer

Depositing cash in the bank

Answer

Paying a vendor invoice

Answer

Issuing a payroll check

Question 25

What is the main purpose of using a petty cash fund?

Accepted Answer

To cover small, everyday expenses that would be impractical to pay by check

Answer

To make change for customers

Answer

To hold large amounts of cash for emergencies

Question 26

Which of the following is the most secure method of handling cash?

Accepted Answer

Keeping cash in a locked safe

Answer

Carrying cash in a wallet or purse

Answer

Leaving cash in an unlocked drawer

Answer

Storing cash in a bank account

Question 27

Identify a type of cash receipt that requires recording in the cash book.

Accepted Answer

Sales of goods or services for cash.

Answer

Interest earned on savings.

Answer

Depreciation of equipment.

Question 28

What is the primary objective of preparing a cash flow statement?

Accepted Answer

To provide insights into a company's cash inflows and outflows.

Answer

To calculate the net income of a business.

Answer

To assess the financial stability of an organization.

Question 29

What is a key reason for implementing internal controls for cash transactions?

Accepted Answer

To minimize the risk of fraud and errors.

Answer

To increase the efficiency of the accounting system.

Answer

To ensure the accuracy of all recorded transactions.

Question 30

Which of the following is a potential consequence of inaccurate cash transactions?

Accepted Answer

Misstatement of financial results.

Answer

Improved customer satisfaction.

Answer

Increased cash flow.

Answer

Enhanced employee morale.

Question 31

What is the primary purpose of the principles of segregation of duties and proper authorization?

Accepted Answer

To mitigate the risk of unauthorized or fraudulent cash transactions.

Answer

To improve the efficiency of processing cash transactions.

Answer

To guarantee the accuracy of cash records.

Answer

To reduce the amount of paperwork associated with cash transactions.

Question 32

What is the term used to describe a business's ability to borrow money from its bank beyond its current account balance?

Accepted Answer

Overdraft facility.

Answer

Supplier credit.

Answer

Cash reserve.

Question 33

Which of the following is NOT a method of recording cash receipts in a business?

Accepted Answer

Posting to the cash disbursements journal

Answer

Writing a receipt

Answer

Using a cash register

Answer

Entering the transaction in the cash receipts journal

Question 34

What is the primary purpose of a bank reconciliation statement?

Accepted Answer

To ensure that the cash balance recorded in the company's financial records matches the balance reported on the bank statement

Answer

To identify and correct errors in the accounting records

Answer

To track all cash transactions processed by the bank

Question 35

What is the fundamental accounting equation?

Accepted Answer

Assets = Liabilities + Equity

Answer

Liabilities = Assets - Equity

Answer

Equity = Liabilities - Assets

Question 36

Which of the following is NOT considered a primary financial statement?

Accepted Answer

Retained earnings statement

Answer

Income statement

Answer

Cash flow statement

Answer

Balance sheet

Question 37

What is the key difference between a debit and a credit in double-entry accounting?

Accepted Answer

Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.

Answer

Debits decrease asset and expense accounts, while credits decrease liability, equity, and revenue accounts.

Answer

Debits increase liability and revenue accounts, while credits increase asset and expense accounts.

Question 38

What is the primary role of the Financial Accounting Standards Board (FASB)?

Accepted Answer

To establish accounting standards and principles for public companies in the United States

Answer

To regulate the financial services industry

Answer

To provide financial assistance to businesses

Question 39

Which characteristic is unique to a corporation?

Accepted Answer

Limited liability for its owners

Answer

Management by a single individual

Answer

Unlimited liability for its owners

Answer

Taxation as a partnership

Question 40

What is the distinction between a profit and a loss in accounting?

Accepted Answer

A profit occurs when revenues exceed expenses, while a loss occurs when expenses exceed revenues.

Answer

A profit always represents a positive financial outcome, while a loss always represents a negative outcome.

Answer

A profit is calculated by subtracting expenses from revenues, while a loss is calculated by subtracting revenues from expenses.

Question 41

Which document is not typically included in a cash receipt voucher?

Accepted Answer

Bank statement

Answer

Debit note

Answer

Customer invoice

Answer

Remittance advice

Question 42

What is the primary purpose of preparing a bank reconciliation statement?

Accepted Answer

To ensure that the cash balance reported on the bank statement corresponds with the cash balance recorded in the company's accounting records.

Answer

To identify and correct any errors in the bank statement.

Question 43

When recording a cash payment, which of the following accounts is debited?

Accepted Answer

Cash

Answer

Accounts Payable

Answer

Inventory

Question 44

What is the purpose of a petty cash float?

Accepted Answer

To maintain a fixed amount of cash on hand for making small, immediate expenses.

Answer

To record all cash receipts and payments.

Answer

To serve as a type of bank account.

Question 45

Which of the following is a potential disadvantage of using a lockbox system?

Accepted Answer

Increased bank fees

Answer

Reduced risk of theft or loss

Answer

Faster processing of customer payments

Answer

Improved cash flow

Question 46

What is the primary objective of a cash flow statement?

Accepted Answer

To provide information about the sources and uses of cash within a business during a specific period.

Answer

To show the financial performance of a business

Answer

To calculate the profit or loss of a business

Question 47

What is the primary function of a cash payment voucher?

Accepted Answer

To authorize the release of funds from the bank account

Answer

To prepare a bank reconciliation

Answer

To track petty cash expenses

Answer

To record a purchase on account

Question 48

Which of the following is a key difference between a cash sale and a credit sale?

Accepted Answer

Credit sales are recorded as accounts receivable while cash sales are recorded directly in the cash book.

Answer

Credit sales are typically larger in amount than cash sales.

Answer

Cash sales are more likely to result in bad debts.

Question 49

What is the main purpose of a bank reconciliation?

Accepted Answer

To ensure that the bank statement and the cash book balance agree

Answer

To identify errors in bank transactions

Answer

To track cash flow

Question 50

What is the primary purpose of a petty cash fund?

Accepted Answer

To facilitate small cash payments

Answer

To prepare financial statements

Answer

To record cash receipts

Answer

To track bank balances

Question 51

Which of the following is an advantage of using a computerized accounting system?

Accepted Answer

Reduced errors and improved accuracy

Answer

Increased risk of data loss

Answer

Limited customization options

Answer

Higher cost of implementation

Question 52

What is the primary difference between a cash basis accounting system and an accrual basis accounting system?

Accepted Answer

Under cash basis accounting, revenue is recognized when received and expenses when paid, while under accrual basis accounting, revenue is recognized when earned and expenses when incurred.

Answer

Cash basis accounting is more complex than accrual basis accounting.

Question 53

What is the primary purpose of an internal control system?

Accepted Answer

To safeguard assets, ensure accurate records, and promote compliance with regulations.

Answer

To improve efficiency

Answer

To increase profitability