CASH AND CASH

EQUIVALENTS
 IMPREST SYSTEM
● System of control of cash which requires that all
cash receipts should be deposited intact and all
cash disbursements should be made by means of
check
 PRESENTATION AND MEASUREMENT OF CASH IN
THE BALANCE SHEET
A. CASH ITEMS
1. PETTY CASH FUND
2. CASH IN BANK
3. POSTAL MONEY ORDER
4. MANAGER’S CHECK AND TRAVELLER’S CHECK
5. UNDELIVERED OR UNRELEASED CHECKS
6. COMPANY’S POSTDATED CHECK AND STALE CHECK
7. COMPENSATING BALANCES ( UNRESTRICTED )
8. CASH SET ASIDE FOR CURRENT OPERATIONS
9. FOREIGN CURRENCY- cash in foreign currency should be translated
to Philippine currency using the exchange rate at the balance sheet
date ( closing rate )

B. CASH EQUIVALENT- short term investment purchased 3

MONTHS OR LESS BEFORE MATURITY
● CASH IN CLOSED BANKS/BANKS HAVING A FINANCIAL
DIFFICULTY
- classified as receivable and write down to its
recoverable value
● CUSTOMERS POSTDATED CHECKS AND NSF CHECK
- classified as receivables including the IOUs
- it is described also as DAUD AND DAIF
● EXPENSE ADVANCES- classified as prepaid expense such
as travel expenses and postage stamps
● BANK OVERDRAFT- occurs when a depositor has written
checks for a sum greater than that in the depositor’s bank
account
-classified as current liability
-right of offset exists- cash in bank net of bank overdraft
 PETTY CASH FUND

●Small amount of cash in a fund to

pay MINOR EXPENSES
 ESTABLISHMENT OF FUND

Journal Entry:

PETTY CASH FUND XX

CASH IN BANK XX
PAYMENT OF EXPENSES

NO ENTRY
 REPLENISHMENT OF FUND

Journal entry:

EXPENSES ( VARIOUS ) XX
CASH IN BANK XX

NOTE:

● Reimbursement should equal to the amount/ sum of

petty cash vouchers submitted
 YEAR-END ADJUSTMENT

Journal entry:

EXPENSES XX
PETTY CASH FUND XX

NOTE:
1. To avoid understatement of expenses
2. To avoid overstatement of assets
 TO INCREASE OR DECREASE PETTY CASH FUND

Journal entry:

PETTY CASH FUND XX

CASH IN BANK XX
( To increase PCF )

CASH IN BANK XX
PETTY CASH FUND XX
( To decrease PCF )
 CASH SHORT/OVER ( CSO )
- Nominal account that is debited for shortages and
credited for overages in the Petty Cash Fund
- Error in making change fund or failure to obtain receipts
for very small amounts
- Incorrect recording of amounts and theft/loss
- Cash shortage is debited to miscellaneous expense at
the end of the period
- Cash overage is credited to miscellaneous income and
deposited to general cash account at the of the period
and the journal entry is
Cash in Bank xx
Miscellaneous Income xx
BANK RECONCILIATION
Bank Reconciliation- report that explains the
difference between the book ( company )
balance of cash and the cash balance reported in
the bank statement

Bank Statement- monthly report provided by the bank to

the depositor which shows the following
● Beginning-of-month cash balance
● Total deposits made by the depositor and other bank
credits
● Checks paid by the bank and other charges
● End-of-month cash balance
 BANK RECONCILING ITEMS
● DEPOSITS IN TRANSIT/ UNDEPOSITED
COLLECTIONS
● OUTSTANDING CHECKS
● ERRORS
 BOOK RECONCILING ITEMS
● DEBIT MEMOS
● CREDIT MEMOS
● ERRORS
DEPOSITS IN TRANSIT/UNDEPOSITED
COLLECTIONS
● Deposit made near the end of the month and recorded
on the depositor’s books but is not received by the bank
in time to be reflected on the bank statement ( DIT )
● Collections still in the hands of the depositor awaiting
delivery to the bank for deposit ( UC )
● Comparing the receipts in the accounting records and
deposits in the bank statement
● Understate the bank balance
● Added to the bank balance
 OUTSTANDING CHECKS
● Checks written by the company and issued to payees but
have not been cleared or presented to the bank for
payment
● Comparing written checks during the month as reflected
in the company’s check voucher or cash disbursements
book with the canceled checks included in the bank
statement
● Overstate the bank balance
● Deducted from the bank balance

Canceled checks- checks that the bank has paid and

deducted from the depositor’s account
 DEBIT MEMOS
● Charges to the company’s or depositor’s account made
directly by the bank such as returned checks ( NSF and
technically defective checks ), bank service charge,
charge for the cost of check booklets and payment of
bank loans
● Overstate the book balance
● Deducted from the cash balance per book
 CREDIT MEMOS
● Deposits or credits made directly by the bank to the
depositor’s account such as notes collected by bank in
favor of the depositor, proceeds of bank loan and
interest earned on the depositor’s account and matured
time deposits transferred to current account
● Understate the book balance
● Added to the cash balance per book
 FORMS OF BANK RECONCILIATION

● ADJUSTED BALANCE METHOD

● BOOK TO BANK BALANCE METHOD

● BANK TO BOOK BALANCE METHOD

 ADJUSTED BALANCE METHOD
● Under this method, the book balance and the bank balance are
brought to a correct cash balance that must appear on the balance
sheet

PROFORMA RECONCILIATION

Book balance xx Bank balance xx

Add: Credit memos xx Add: Deposits in transit xx
Total xx Total xx
Less: Debit memos xx Less: Outstanding checks xx
Adjusted book balance xx Adjusted bank balance xx
 BOOK TO BANK METHOD
● Under this method, the book balance is reconciled with the bank
balance or the book balance is adjusted to equal the bank balance

PROFORMA RECONCILIATION

Book balance xx
Add: Credit memos xx
Outstanding checks xx xx
Total xx
Less: Debit memos xx
Deposits in transit xx xx
Bank balance xx
 BANK TO BOOK METHOD
● Under this method, the bank balance is reconciled with the book
balance or the bank balance is adjusted to equal the book balance

PROFORMA RECONCILIATION

Bank balance xx
Add: Deposits in transit xx
Debit memos xx xx
Total xx
Less: Outstanding checks xx
Credit memos xx xx
Book balance xx
 DEPOSITS IN TRANSIT
Deposit in transit, beginning of the month XX
Add: Cash receipts reflected in the company’s record during
the month* XX
Total XX
Less: Deposits during the month as reflected in the
bank statement ** XX
Deposit in transit, end of the month XX

*The amount does not necessarily represent debits ( charges ) in the

company’s records. If the total of charges to the cash account is
given, any credit memo in PREVIOUS month should be excluded
**The amount does not necessarily represent credits in the bank
statement. If the total of the credits in the bank statement is given,
any credit memo for the CURRENT month should be excluded
 OUTSTANDING CHECKS
To compute the outstanding checks:

Outstanding checks, beginning of the month XX

Add: Checks drawn by the company during the month* XX
Total XX
Less: Checks paid by the bank during the month** XX
Outstanding checks, end of the month XX

*The amount does not necessarily represent credits in the company’s records. If
the total of the credits to the cash account is given, any debit memo in
PREVIOUS month should bee excluded
**The amount does not necessarily represent debits ( charges ) in the bank
statement. If the total of charges in the bank statement is given, any debit
memo for the CURRENT month should be excluded
 PROOF OF CASH
● Reconciles the beginning and ending
balances of cash for the month, as well as
the recorded receipts and disbursements
made by the bank and by the depositor
company
 CASH IN BANK

Jan 31 beginning balance 50,000 Feb 28 Book credits

( including NSF of P 5,000
Feb 28 Book debits and SC of P 1,000 for Jan) 180,000
( including Jan CM of 15,000 ) 200,000

COMPANY X

Feb 28 Bank debits Jan 31 Beg bal 84,000

( including NSF check ofP10,000) 130,000 Feb 28 Bank credits
( including CM for note
collected of P 20,000) 170,000