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Section 2 of 7

CSLB Cash Management Practice Questions

10 free practice questions on cash management, part of the Business Finances section (about 15% of the exam). Try each one, then open the answer: every choice is explained and the law is quoted.

Questions and answers

  1. Business Finances

    1. A contractor is starting a new business. According to IRS Publication 583, how should the contractor set up the business checking account?

    • A. Keep it separate from the personal checking account
    • B. Combine it with the personal account to save fees
    • C. Wait to open it until after the first year
    • D. Use it only for deposits and never for payments
    Show answer

    Correct answer: A

    • A. Keep it separate from the personal checking account

      Correct answer

      Publication 583 says opening a business checking account is one of the first things to do, and you should keep it separate from your personal checking account.

    • B. Combine it with the personal account to save fees

      Combining the accounts goes against the advice to keep business and personal accounts separate. Mixing the money makes it hard to show what is business income and expense.

    • C. Wait to open it until after the first year

      Publication 583 says opening a business checking account is one of the first things to do when you start a business, not something to put off for a year.

    • D. Use it only for deposits and never for payments

      Publication 583 says to make business payments by check from this account, so it is not only for deposits.

    Explanation

    IRS Publication 583 says one of the first things to do when you start a business is to open a business checking account. It says to keep that account separate from your personal checking account. Mixing business and personal money makes it hard to show what is business income and expense. Waiting a year goes against the advice to open it first, and the publication says to make business payments by check from this account, so it is not only for deposits.

    Source

  2. Business Finances

    2. While reconciling the business checking account, a contractor finds a $15 bank service charge on the statement. It is not in the checkbook. According to IRS Publication 583, what should the contractor do?

    • A. Add it to the bank statement balance as a new deposit
    • B. Ignore it, because the bank will reverse it next month
    • C. Subtract it from the checkbook and record it in the books
    • D. List it as an outstanding check on the reconciliation
    Show answer

    Correct answer: C

    • A. Add it to the bank statement balance as a new deposit

      A service charge is not a deposit, so it is not added to the bank statement balance. Publication 583's example subtracts it from the checkbook balance instead.

    • B. Ignore it, because the bank will reverse it next month

      Publication 583 says to update your checkbook and journals for unrecorded items such as service charges. The charge should not be ignored.

    • C. Subtract it from the checkbook and record it in the books

      Correct answer

      Publication 583 says to update the checkbook and journals for unrecorded items like service charges. In its example, the owner subtracts the charge from the checkbook balance and records it in the check disbursements journal.

    • D. List it as an outstanding check on the reconciliation

      A service charge is not an outstanding check. Publication 583 says to subtract it from the checkbook and record it in the journals.

    Explanation

    IRS Publication 583 says to update your checkbook and journals for items on the reconciliation that were not recorded, such as service charges. In its example, the owner subtracts a bank service charge from the checkbook balance and records it in the check disbursements journal. A service charge is not a deposit and not an outstanding check, and it should not be ignored.

    Sources

  3. Business Finances

    3. A customer pays a contractor $12,000 in cash (currency) for a job, in one payment. According to IRS Publication 583, must the contractor report this payment to the IRS?

    • A. Yes, because it is more than $10,000 in cash
    • B. No, because cash from customers is never reported
    • C. No, because only cash over $50,000 is reported
    • D. Yes, but only if the customer asks for a receipt
    Show answer

    Correct answer: A

    • A. Yes, because it is more than $10,000 in cash

      Correct answer

      Publication 583 says you must file Form 8300 if you receive more than $10,000 in cash in one transaction. A $12,000 cash payment is more than $10,000, so it must be reported.

    • B. No, because cash from customers is never reported

      Cash from customers must be reported when it is more than $10,000 in one transaction or related transactions. The $12,000 payment is over that limit.

    • C. No, because only cash over $50,000 is reported

      The limit is $10,000, not $50,000. A $12,000 cash payment is over $10,000, so Form 8300 must be filed.

    • D. Yes, but only if the customer asks for a receipt

      The rule does not depend on a receipt. Form 8300 is required because the cash received is more than $10,000.

    Explanation

    IRS Publication 583 says a business must file Form 8300 if it receives more than $10,000 in cash in one transaction or in two or more related transactions. A $12,000 cash payment is more than $10,000, so it must be reported. The rule does not depend on a receipt, and the limit is $10,000, not $50,000.

    Source

  4. Business Finances

    4. According to IRS Publication 334, how often should a contractor make sure its records balance with its actual cash and credit receipts?

    • A. At the end of each business day
    • B. At the end of each work week
    • C. At the end of each calendar month
    • D. At the end of each tax year
    Show answer

    Correct answer: A

    • A. At the end of each business day

      Correct answer

      Correct. Pub. 334 says that at the end of each business day, make sure your records balance with your actual cash and credit receipts for the day.

    • B. At the end of each work week

      Pub. 334 says to check this at the end of each business day, not once a week.

    • C. At the end of each calendar month

      This check is done at the end of each business day; the monthly task is reconciling the bank statement under Pub. 583.

    • D. At the end of each tax year

      Waiting until the end of the tax year does not follow Pub. 334's advice to check at the end of each business day.

    Explanation

    IRS Publication 334 says that at the end of each business day, you should make sure your records balance with your actual cash and credit receipts for the day. Do not confuse this with reconciling the bank statement, which IRS Publication 583 says to do each month. Waiting a week, a month, or a year to check the day's receipts does not follow this advice.

    Source

  5. Business Finances

    5. A contractor pays wages by check. Under Labor Code section 212, for how long after issuing a paycheck must the contractor have sufficient funds (enough money) or credit at the bank to pay it?

    • A. At least 5 days
    • B. At least 10 days
    • C. At least 30 days
    • D. At least 60 days
    Show answer

    Correct answer: C

    • A. At least 5 days

      Wrong: 5 days is too short; Labor Code section 212 requires funds or credit for at least 30 days after the check is issued.

    • B. At least 10 days

      Wrong: 10 days is too short; the law requires funds or credit for at least 30 days after the check is issued.

    • C. At least 30 days

      Correct answer

      Correct: Labor Code section 212 says the employer must have sufficient funds or a credit arrangement when the paycheck is issued and for a reasonable time after, which must be at least 30 days.

    • D. At least 60 days

      Wrong: the law sets 30 days as the minimum, not 60.

    Explanation

    Labor Code section 212 says a paycheck must be payable in cash, on demand, without discount. The employer must have sufficient funds, or a credit arrangement with the bank, when the check is issued and for a reasonable time after that, which must be at least 30 days. Shorter periods such as 5 or 10 days are not enough. The law sets 30 days as the minimum, not 60.

    Source

  6. Business Finances

    6. A customer pays a contractor for a job in Mexican pesos worth $14,000 in U.S. dollars. It is one payment. According to IRS Publication 583, must the contractor file Form 8300 (the report of cash payments over $10,000)?

    • A. Yes, because cash includes foreign coin and currency
    • B. No, because only U.S. currency counts as cash
    • C. No, because banks report all foreign currency instead
    • D. Yes, but only after the pesos are changed into dollars
    Show answer

    Correct answer: A

    • A. Yes, because cash includes foreign coin and currency

      Correct answer

      Pub. 583 says cash includes U.S. and foreign coin and currency. Pesos worth $14,000 in one transaction is more than $10,000 in cash, so Form 8300 must be filed.

    • B. No, because only U.S. currency counts as cash

      Pub. 583 says cash includes foreign coin and currency, not just U.S. currency.

    • C. No, because banks report all foreign currency instead

      The duty to file Form 8300 belongs to the business that receives the cash, not to a bank.

    • D. Yes, but only after the pesos are changed into dollars

      The duty to file does not depend on changing the pesos into dollars. Foreign currency already counts as cash when it is received.

    Explanation

    IRS Publication 583 says a business must file Form 8300 if it receives more than $10,000 in cash in one transaction or in two or more related transactions. It also says cash includes U.S. and foreign coin and currency. Pesos worth $14,000 are foreign currency over $10,000, so the contractor must file. The rule does not depend on changing the pesos into dollars, and the duty to file belongs to the business that receives the cash, not to a bank.

    Sources

  7. Business Finances

    7. A contractor already has a business bank account. It now wants to accept credit and debit cards from customers. According to the SBA, what else does it need?

    • A. A merchant services account or a payment processor account
    • B. Nothing more, because a bank account is enough, as for checks
    • C. Only an EMV chip reader, with no other account needed
    • D. Only a check verification service from a third party
    Show answer

    Correct answer: A

    • A. A merchant services account or a payment processor account

      Correct answer

      The SBA says that to accept credit and debit cards, you need either a merchant services account with a bank or an account with an independent payment processing company.

    • B. Nothing more, because a bank account is enough, as for checks

      A business bank account alone is enough only for checks. Accepting cards also needs a merchant services or payment processor account.

    • C. Only an EMV chip reader, with no other account needed

      The SBA recommends an EMV chip reader to limit fraud and liability, but the reader does not replace a merchant services or payment processor account.

    • D. Only a check verification service from a third party

      A check verification service is for checks, not cards. Accepting cards needs a merchant services or payment processor account.

    Explanation

    The SBA says you need a business bank account no matter what kinds of payment you accept. To accept credit and debit cards, you also need either a merchant services account with a bank or an account with an independent payment processing company. A business bank account alone is enough only for checks. The SBA recommends an EMV chip reader to limit fraud, but a reader does not replace the account, and a verification service is for checks, not cards.

    Sources

  8. Business Finances

    8. A contractor's paycheck to a worker bounces. The bank gives a notice of dishonor (a notice that it refused to pay the check). Under Labor Code section 212, this notice is presumptive evidence (treated as true unless disproved) of which fact?

    • A. That the contractor knew its funds or credit were not enough
    • B. That the bank, not the contractor, now owes the worker's wages
    • C. That the worker agreed to wait 30 more days for the wages
    • D. That the error was made by the bank and not the contractor
    Show answer

    Correct answer: A

    • A. That the contractor knew its funds or credit were not enough

      Correct answer

      Correct: section 212 says the notice of dishonor is presumptive evidence that the employer knew there were not enough funds or credit to pay the check.

    • B. That the bank, not the contractor, now owes the worker's wages

      The law does not move the wage debt to the bank. The notice is proof of presentation and nonpayment and presumptive evidence of the employer's knowledge of insufficient funds or credit.

    • C. That the worker agreed to wait 30 more days for the wages

      Section 212 does not give the employer 30 more days or presume the worker agreed to wait. The notice is presumptive evidence that the employer knew its funds or credit were not enough.

    • D. That the error was made by the bank and not the contractor

      The law does not presume a bank error. The notice is presumptive evidence that the employer knew there were not enough funds or credit.

    Explanation

    Labor Code section 212 says that when a wage check is dishonored, the notice of dishonor can be used as proof that the check was presented and not paid. It is also presumptive evidence that the employer knew there were not enough funds or credit to pay it. The law does not move the wage debt to the bank, give the employer 30 more days, or presume a bank error.

    Source

  9. Business Finances

    9. A remodeling contractor receives checks and cash from customers every day. According to IRS Publication 583, what should the contractor do with these daily receipts?

    • A. Keep them in the office safe until the month ends
    • B. Deposit all of them in the business checking account
    • C. Use them first to pay workers in cash
    • D. Deposit the checks but keep the cash on hand
    Show answer

    Correct answer: B

    • A. Keep them in the office safe until the month ends

      Holding receipts until month end leaves money outside the account. Publication 583 says to deposit all daily receipts in the business checking account.

    • B. Deposit all of them in the business checking account

      Correct answer

      Publication 583 says you should deposit all daily receipts in your business checking account. The checkbook is then the basic record of business money coming in and going out.

    • C. Use them first to pay workers in cash

      Paying workers from the cash leaves that money outside the account, so the records would not show all receipts. All daily receipts should be deposited in the business checking account.

    • D. Deposit the checks but keep the cash on hand

      The rule is to deposit all daily receipts, not just the checks. Keeping the cash on hand means the records would not show all receipts.

    Explanation

    IRS Publication 583 says you should deposit all daily receipts in your business checking account. The business checkbook is then the basic record of business money coming in and going out. Holding receipts until month end, keeping the cash, or paying workers from the cash all leave money outside the account, so the records would not show all receipts.

    Source

  10. Business Finances

    10. A contractor keeps a petty cash fund with a fixed amount of $300. At the end of the month, the petty cash slips in the box total $215. Using the method in IRS Publication 583, how much unspent cash should be in the box?

    • A. $85
    • B. $215
    • C. $300
    • D. $515
    Show answer

    Correct answer: A

    • A. $85

      Correct answer

      Unspent cash plus the petty cash slips should equal the $300 fixed amount, so the cash left is $300 - $215 = $85.

    • B. $215

      $215 is the total of the slips, which is money already spent, not the cash left. The unspent cash is $300 - $215 = $85.

    • C. $300

      $300 is the full fixed amount and forgets the $215 that was spent. Cash plus slips should equal $300, so only $85 should remain.

    • D. $515

      This adds the $215 in slips to the $300 fund instead of subtracting them. The unspent cash is $300 - $215 = $85.

    Explanation

    Step 1: IRS Publication 583 says the unspent petty cash plus the petty cash slips should equal the fixed amount of the fund. Step 2: So unspent cash = fixed amount - slips. Step 3: $300 - $215 = $85. Choosing $215 confuses the slips with the cash. Choosing $300 forgets that money was spent. Choosing $515 adds the slips to the fund instead of subtracting them.

    Source

Keep studying

Read the Section 2 study notes: Business Finances