Commerce Accountancy · General Awareness

Banking and Cash Transactions

1,011 Questions

This collection covers essential concepts related to banking and cash transactions. It includes questions on outstanding cheques, petty cash, bank reconciliations, and negotiable instruments. These topics are highly relevant for accounting exams and test practical financial knowledge.

Bank reconciliation statementsCheques and noting chargesPetty cash usageNegotiable Instruments ActCash book entriesStamp Duty Act

Banking and Cash Transactions Questions

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

Cheque is as _______________.

  1. Promissory note

  2. Bill of exchange

  3. Both a and b above

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A cheque is a specific type of bill of exchange drawn on a specified banker and is always payable on demand. It is not a promissory note, which is an unconditional promise to pay.

Multiple choice accountancy accounting for bills of exchange transaction nature, advantages and types of cheques meaning, definition and characteristics of promissory note promissory note

If the words "not negotiable' are used with special crossing in a cheque, the cheque is _______________.

  1. Not transferable

  2. Transferable

  3. Negotiable under certain circumstances

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The words 'not negotiable' on a crossed cheque do not restrict the transferability of the cheque; they merely prevent the holder from having a better title than the transferor. Therefore, the cheque remains transferable.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

The amount paid to the petty cashier at the beginning of a period is known as __________ amount.

  1. Imprest

  2. Credit

  3. Idle

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Imprest - It is a fund used by a business for small items of expenditure, and restored to a fixed amount periodically.
Hence, a petty cash book is kept on the imprest amount.
Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Which of the following statements is/are true ? 
(i) Cash book records all cash receipts and cash payments
(ii) Cash book records all sale and purchase transactions of goods both in cash and on credit.
(iii) Cash book records discount on cash payments
Select the correct answer from the options given below :-

  1. Only (i) of the above

  2. Only (ii) of the above

  3. Only (iii) of the above

  4. Both (i) and (iii) of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A cash book records all cash receipts and payments (i). It does not record credit transactions (ii). It records cash discounts, but usually in a separate column, not as a general rule for all cash payments (iii). Thus (i) and (iii) are generally accepted in accounting contexts.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Petty Cash Book may be treated as a ___________________.

  1. Part of the double entry system

  2. Merely as a memoranda book

  3. Either (A) or (B)

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A petty cash book can be viewed as a memorandum record for small expenses or as part of the formal double-entry system depending on the organization's accounting policy.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Which of the following statement is false?
The petty cash book  ____________. 

  1. is a book of prime entry

  2. records cheques paid and received

  3. is written up using petty cash receipts and petty cash vouchers

  4. records cash received and paid
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The petty cash book is used for small cash payments. It does not record cheques, which are handled in the main cash book or bank book.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Debiting the petty cash book with the exact amount spent in the previous period is an example of _______________.

  1. Contra entry

  2. Imprest system

  3. Going concern

  4. Prudence
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The imprest system is an accounting method where the petty cash balance is restored to a fixed amount at the start of each period by reimbursing the exact amount spent.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

When Petty Cash is advanced to the Petty Cashier, the main cashier will record it on the debit side of Cash Book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When the main cashier advances money to the petty cashier, it is a payment from the main cash book, so it is recorded on the credit side of the main cash book.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Which of the following transactions should be entered in petty cash book?

  1. Salary payments

  2. Stock issued

  3. Subscriptions

  4. Travelling expenses
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The petty cash book is a formal summarization of petty cash expenditures, sorted by date. In most cases, the petty cash book is an actual ledger book, rather than a computer record.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Petty cash may be used to pay _________.

  1. The expenses relating to postage and conveyance

  2. Salaries and wages to the final staff

  3. For the purchase of furniture and fittings

  4. Other recurring expenses
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

There are two kinds of cash book i.e. Main Cash Book and Petty Cash Book. Petty cash book is used to record small value expense items.

 A petty cash fund is a small amount of cash kept on hand to pay for minor expenses, such as office supplies or reimbursements. A petty cash fund will undergo periodic reconciliations, with transactions also recorded on the financial statements.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Cash book prepared on imprest system is_________.

  1. Two column cash book

  2. Cash book

  3. Petty cash book

  4. Purchase book
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A large number of small payments are recorded in separate cash book such a cash book is maintained by petty cashier is called as petty cash book. The petty cashier works on the "Imprest system" under this system a definite amount is given to petty cashier at the beginning of certain period. This amount is called "Imprest amount". The petty cashier makes small payments out of this imprest amount, when he spent substantial amount he gets reimbursement of amount spent from head cashier.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Imprest system of Petty Cash book is system in which head cashier first estimates the total petty expenses of a particular period say month or fortnight and estimated amount is given to petty cashier in advance to meet petty expenses of particular period.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under imprest system, a round sum of money estimated are necessary for the possible needs of the business to meet petty expenses for the week or fortnight is handed over to the Petty Cashier. At the end of the fixed period or earlier, when petty cashier needs further cash, he submits the petty cash book, along with vouchers.

The Chief Cashier examines the cash book with the vouchers. Then, Chief Cashier gives money/cheques for the exact amount, which he actually spent during the period. Thus, he starts for the next period with the same sum as held previously. That is, the petty cashier will have again the fixed sum in the beginning of the next period. This system is known as Imprest System of Petty Cash Book.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

A petty cash book which had many sub-columns on payment side for recording expenses which are repetitive in nature, e.g. postage and telegrams, printing & stationery, carriage & cartage, sundry expenses, etc. is called analytical/columnar petty cash book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In columnar /analytical cash book, various items of petty cash payments are analysed and separate analytical columns are provided for recording each and every item. The amount of cash received from the chief cashier for meeting out the petty expenses is recorded on the debit side and actual cash payments towards various petty items are recorded on the credit side in the total as well as analytical columns. The analytical column is provided for each usual head of expense like postage & telegrams, printing & stationary, carriage & cartage, traveling expenses, entertainment expenses, office expenses, sundry expenses, etc. Subsequently, the totals of these analytical columns are posted to the respective ledger accounts which save the labor used in posting each item of payment separately in the ledger. The balancing of petty cash book is done in the total payments column. Where the debit side (receipts) exceeds that of the credit side ( in the totals column -Payments), it represents the unspent balance of cash remaining with the petty cashier.