CAP CAP Banking and Cash Management 1 — Questions and Answers
Question 1: What is the primary purpose of a bank reconciliation?
- To calculate net income for the period
- To ensure the company's cash records agree with the bank statement (Correct answer)
- To prepare the income statement
- To verify vendor invoices are paid
Correct answer: To ensure the company's cash records agree with the bank statement
A bank reconciliation identifies and explains differences between the company's cash book balance and the bank statement balance.
Question 2: Which item would appear as an addition to the bank balance on a bank reconciliation?
- Outstanding checks
- Deposits in transit (Correct answer)
- NSF checks
- Bank service charges
Correct answer: Deposits in transit
Deposits in transit have been recorded by the company but not yet processed by the bank, so they are added to the bank balance.
Question 3: An NSF (Non-Sufficient Funds) check returned by the bank requires the company to:
- Add the amount to the bank balance
- Deduct the amount from the book balance (Correct answer)
- Add the amount to the book balance
- Ignore it until the next period
Correct answer: Deduct the amount from the book balance
An NSF check reduces the company's book balance because the previously recorded cash receipt is no longer collectible from the bank.
Question 4: Which of the following is an example of a deposit in transit?
- A check written but not yet cashed by the payee
- Cash deposited on Friday that the bank posts on Monday (Correct answer)
- A bank fee charged at month-end
- A wire transfer received and recorded by the bank only
Correct answer: Cash deposited on Friday that the bank posts on Monday
A deposit in transit is cash the company has recorded and submitted to the bank but that has not yet appeared on the bank statement.
Question 5: What does a petty cash fund reimburse?
- Large capital expenditures
- Small, routine business expenses paid in cash (Correct answer)
- Payroll advances over $500
- Monthly vendor invoices
Correct answer: Small, routine business expenses paid in cash
A petty cash fund is established to pay minor, routine expenses without writing a formal check for each transaction.
Question 6: When replenishing a petty cash fund, the journal entry debits:
- Petty Cash and credits Cash
- Various expense accounts and credits Cash (Correct answer)
- Cash and credits Various Expense accounts
- Accounts Payable and credits Petty Cash
Correct answer: Various expense accounts and credits Cash
Replenishing petty cash debits the appropriate expense accounts for the items purchased and credits Cash (checking account) for the amount reimbursed.
CAP CAP Banking and Cash Management 1
What is the primary purpose of a bank reconciliation?