CAP CAP Banking and Cash Management 2 — Questions and Answers
Question 1: Outstanding checks on a bank reconciliation are:
- Added to the bank balance
- Deducted from the bank balance (Correct answer)
- Added to the book balance
- Deducted from the book balance
Correct answer: Deducted from the bank balance
Outstanding checks have been recorded by the company as payments but have not yet cleared the bank, so they are deducted from the bank balance.
Question 2: A bank service charge on the bank statement that was NOT recorded in the company's books should be:
- Added to the bank balance
- Deducted from the book balance (Correct answer)
- Added to the book balance
- Ignored until next month
Correct answer: Deducted from the book balance
A bank service charge the company hasn't recorded reduces the company's actual cash, so it must be deducted from the book balance.
Question 3: Which internal control practice best safeguards cash receipts?
- Allowing one employee to receive, record, and deposit cash
- Separating the duties of receiving, recording, and depositing cash (Correct answer)
- Depositing cash once a week
- Using a single signature for all cash transactions
Correct answer: Separating the duties of receiving, recording, and depositing cash
Segregation of duties prevents any single employee from controlling all aspects of a cash transaction, reducing the risk of theft or error.
Question 4: A company receives a $200 interest credit on its bank statement that it has not yet recorded. This item should be:
- Deducted from the bank balance
- Added to the book balance (Correct answer)
- Deducted from the book balance
- Listed as an outstanding deposit
Correct answer: Added to the book balance
Interest earned is income the bank has credited but the company hasn't recorded, so it must be added to the book balance to reconcile.
Question 5: What is the purpose of a lock-box system in cash management?
- To store blank checks securely
- To accelerate collection of customer payments through a bank P.O. box (Correct answer)
- To prevent unauthorized access to the vault
- To delay outgoing payments for better cash flow
Correct answer: To accelerate collection of customer payments through a bank P.O. box
A lock-box system routes customer remittances directly to a bank P.O. box, allowing the bank to process deposits faster and reduce mail float.
Question 6: The adjusted book balance and the adjusted bank balance on a completed bank reconciliation must:
- Equal the prior month's ending balance
- Be equal to each other (Correct answer)
- Equal total cash disbursements for the month
- Both be zero
Correct answer: Be equal to each other
A properly completed bank reconciliation results in both the adjusted book balance and the adjusted bank balance equaling the same true cash balance.
CAP CAP Banking and Cash Management 2
Outstanding checks on a bank reconciliation are: