IA Module Week 1 - 2

Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department

Course Title Intermediate Accounting 1 Course No. AE 103
Instructor Ma. Angelica C. Balatucan, CPA, MSA Schedule 1:00 – 4:00 MTH
Week 1-2
Course Learning Outcome Prepare the current asset section of the statement of financial position
Student Learning Outcomes 1. Identify items considered as cash

2. Identify items considered as cash equivalents
3. Compute the correct balance for cash and cash equivalents
4. Prepare journal entries to account for petty cash fund
Learning Content
CASH AND CASH EQUIVALENTS
Introduction
Welcome to the first lesson in Intermediate Accounting focuses on the accounting for cash and cash equivalents. In this
lesson, you will learn the items to be included in cash and cash equivalents and compute the correct cash and cash
equivalent balances.
Lesson Content
Definition of Cash
Cash – simply means money
Money – a standard of medium of exchange in business transactions
In accounting, cash includes money and any other negotiable instrument that is payable in money andacceptable
by the bank for deposit and immediate credit.
✔To be included as cash, it must be unrestricted in use.
1. Cash on hand
a) Undeposited cash collections
b) Undeposited dated customer’s checks (customer’s checks awaiting deposit)
c) Traveler’s check – a certified bank draft that travelers may use the same way they use regular paper
currency.1
d) Cashier’s check – a type of official check that banks issue and sign. When you purchase a cashier’s check,
the bank takes the money from your checking or savings account and puts it in its own account. The bank
then writes out a check to the person or business you need to pay. You’ll typically pay a fee for a cashier’s
check to the bank.2
e) Manager’s check – is a check issued by the bank’s manager upon the bank itself promising to pay to the
payee or its order an amount certain in money at a certain date.3
f) Money orders – a certificate, usually issued by a government or banking institution, that allows the
stated payee to receive cash on demand. A money order functions much like a check, in that the person
who purchased the money order may stop payment.4
g) Bank drafts – a written order addressed to the bank to pay an amount of money to the order of themaker.
It is a check that is drawn on a bank’s funds and guaranteed by the bank that issues it. To get a banker’s
draft, a bank customer must have funds (or cash) available. The bank will freeze theamount needed or
move those funds into the bank’s accounts to complete the payment.
1
COURSE LEARNING MODULE | 2nd Semester, 2021-2022
2. Cash in bank
a) Demand deposit/commercial deposit/current account/checking account
b) Savings deposit (savings account)
3. Cash fund (current operations)

a) Petty cash fund (for small and miscellaneous disbursements)
b) Change fund
c) Payroll fund
d) Purchasing fund (for purchasing of inventories)
e) Revolving fund (fund that is used for limited or specific purpose set by management)
f) Interest fund
g) Dividend fund
h) Travel fund
i) Tax fund
Other Funds
Fund for Non-current Operations Classification
Pension fund if related liability is current, then pension fund is current, thus partof
cash
Preferred redemption fund noncurrent investment (unless the preferred share capital has a
mandatory redemption, and the redemption is already within oneyear
from the reporting period in which case this fund is already part of ash
equivalent)
Acquisition of property, plant, and always noncurrent even if expected to be disbursed next year
equipment
Contingent fund Non-current investment
Insurance fund Non-current investment
Sinking fund Always noncurrent even if expected to be disbursed next year
✔Classification of cash fund as current or non-current should parallel the classification applied to therelated
liability. Thus, an entity should classify such non-current asset if the related liability becomes current.
Definition of Cash Equivalents

▪ are short-term and highly liquid investments that are readily convertible into cash and so near their
maturity that they present insignificant risk of changes in value because of changes in interest rates.
▪ only highly liquid investments that are acquired three months before maturity can qualify as cash
equivalents
Examples:
4. Time deposit – acquired within three months from maturity date
5. Three-month treasury bill
6. Three-year treasury bills purchased three months before date of maturity
7. Three-month money market instrument and commercial paper
8. Redeemable preference shares with mandatory redemption period and acquired three months
before maturity
Investment of excess cash

Term Classification Presentation
≤ Three months cash equivalents “Cash and cash equivalents”
1 year ≥ x > three months short-term financial assets/temporary Current assets
investments
>1 year long-term investments Non-current assets
2
Measurement and Classification of Cash and Cash Equivalents
1. Cash Measured at face value
2. Cash in foreign currency Translated to Philippine Peso
3. Deposit in foreign bank included as cash (if unrestricted deposit)
classified separately among noncurrent assets as
receivables (if restricted and material)
4. Cash in closed bank/banks in bankruptcy Estimated realizable value
(if Recoverable amount < face value; Non-current asset)
5. Bank overdraft – when cash in bank accounthas a Different banks - current liabilities
credit balance which results from the issuance of Same bank - netted against the account with positive
checks in excess of the deposits balance but cannot be offset against restricted account
6. Compensating balance – the minimum checking or not legally restricted as to withdrawal – part of cash
demand deposit account balance that must be
maintained in connection with a borrowing legally restricted because of formal compensating
agreement with a bank) balance agreement
• Related loan is short-term - presented as “cash held
as compensating balance” under current assets
• Related loan is long-term – non-currentinvestment
7. Undelivered/unreleased check Reverted back to cash
8. Stale checks – checks outstanding for morethan Reverted back to cash
six months from the date of check
9. Postdated checks – checks dated after the Company’s check issued – reverted back to cash
reporting period Customer’s check received – not yet cash (A/R)
10. IOUs (I owe you) Part of receivable
11. Equity securities cannot be classified as cash equivalents because shares
do not have maturity a date (except redeemable
preference shares)
12. Redeemable preference shares specified redemption date and acquired three months
before maturity date are classified as cash equivalents
13. Callable preference shares Reverted back as part of receivables.
14. Expenses advances Receivable or prepaid expenses
15. Temporary investments in shares of stocks either FVTPL or FVTOCI
16. Unused credit line Disclosed in the notes
17. Treasury warrants – a warrant for the Included as part of cash
payment of money into or from public
treasury
18. Escrow deposit – restricted amount held in trust for Other current or noncurrent
another party, i.e. deposit requiredby court of law for
a pending case
19. Unrecorded cash disbursements increase recording of disbursements
20. Unrecorded cash collections increase recording of receipts
21. Certificate of deposits invested 3 months before maturity - cash equivalents
Invested for more than three months – investment
(short or long term)
22. Postage stamps on hand Office supplies
Undelivered/unreleased check
▪ Check merely drawn and recorded but not given to the payee before the end of the reporting period
▪ No payment is made since check is pending delivery to the payee at the end of reporting period
Adjusting Entry:
Cash xx
Accounts payable xx
3
Postdated check delivered
▪ Check drawn, recorded and already given to the payee but it bears a date subsequent to the end of
the reporting period
Adjusting Entry: Cash xx
Accounts payable xx
Stale check
▪ A check not encashed by the payee within a relatively long period of time
In banking practice, a check becomes stale if not encashed within six months from the time of issuance.
a. If the amount of stale check is immaterial, it is simply accounted for a miscellaneous income as follows:
Cash xx
Miscellaneous income xx
b. If the amount is material and liability is expected to continue, the cash is restored, and the liability is again set
up.
Cash xx
Accounts payable or appropriate account xx
Cash shortage and overage

SHORTAGE = Cash counts shows: cash < balance per book
AJE:
Cash short or over xx
Cash xx
a) If cashier or cash custodian is held responsible for the shortage:
Due from cashier xx
b) If reasonable efforts fail to disclose the cause of shortage:

Loss from cash shortage xx
OVERAGE = Cash counts shows: cash > balance per book

AJE:
Cash xx
a) If there is no claim on the overage:
Miscellaneous income xx
b) If reasonable efforts fail to disclose the cause of shortage:

Payable to cashier xx
4
Illustration 1 – Computation of cash balance
The data from the books of ABC Co. as of December 31, 20x1 are shown below:
Cash on hand P 100,000 Treasury bill, purchased 12/1/20x1, P 800,000
maturing 2/28/20x2
Cash in bank – current account P 350,000 Treasury note 200,000
Cash in bank – peso savings deposit 2,000,000 Unused credit line 2,000,000
Cash in bank – dollar deposit $ 100,000 Redeemable preference shares, 370,000
(unrestricted) purchased 12/1/20x1, due on
3/1/20x2
Cash in bank – dollar deposit 20,000 Treasury shares, purchased 50,000
(restricted) 12/15/20x1, to be reissued on
3/5/20x2
Cash in money-market account P 250,000 Sinking fund 200,000
6-month time deposit $ 60,000
Additional information:
a) Cash on hand includes a P20,000 check payable to ABC Co.dated January 10, 20x2.
b) During December 20x1, checks amounting to P60,000 and P40,000 were drawn against the Cash in bank –
current account in payment of accounts payable. The P60,000 check is dated January 15, 20x2.The P40,000 check
is dated December 31, 20x1, but was delivered to the payee only on January 18, 20x2.
c) The cash in bank-peso savings deposit includes a deposit in escrow in the amount of P340,000 and a
compensating balance amounting to P250,000 which is legally restricted.
d) The cash in bank – dollar deposit (unrestricted) account includes interest of $2,000, net of tax, directly credited
to ABC Co.’s account. Year-end exchange rate is $1 to P40.
Question: What is the total cash and cash equivalent?
Solution:
Cash on hand (100,000 – 200,000 PDC) 80,000
Cash in bank – current account (350,000 + 60,000 PDC + 40,000 UC) 450,000
Cash in bank – peso savings deposit (2,000,000 – 340,000 deposit in escrow – 250,000
1,410,000
restricted compensating balance)
Cash in bank – dollar deposit (100,000 x P40) 4,000,000
Cash in money-market account 250,000
Treasury bill, purchased 12/1/20x1, maturing 2/28/20x2 800,000
Redeemable preference shares, purchased 12/1/20x1, due on 3/1/20x2 370,000
Total 7,360,000
Illustration 2 – Bank overdraft
The cash balance of ABC Co. comprises the following:
Cash on hand 100,000
Cash in bank – Savings – BPI 200,000
Cash in bank – current – BPI (80,000)
Cash in bank – deposit in escrow – Metrobank 100,000
Cash in bank – current – Metrobank (20,000)
Cash in bank – current – BDO (30,000)
Total 270,000
Additional information:
• Cash on hand includes undeposited collections of P20,000.
• The cash in bank – savings maintained at BPI includes a P50,000 compensating balance which is not
restricted.
Required: Compute for cash to be reported in the financial statements.
Solution:
Cash in bank – Savings – BPI 200,000
Cash in bank – current – BPI (80,000)
Total 220,000
5
IMPREST SYSTEM
▪ A 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. However, it is sometimes impossible to issue check for all
payments especially for small amounts.
Petty cash fund
▪ Money set aside to pay small expenses which cannot be paid conveniently by means of check
Journal entries - Imprest fund system
a Check drawn to establish the fund Petty cash fund xx
Cash in bank xx
b Payment of expenses out of the fund No journal entry however the petty cashier prepares
memorandum entries in the pettycash journal.
c Replenishment of petty cash payments
▪ Whenever the petty cash fund runs Expenses xx
low, a check is drawn to replenish the
Cash in bank xx
fund. Thereplenishment check is
usually equal to the petty cash
disbursements.
Petty cash disbursements should be replenished only by means of check and not fromundeposited receipts
d Adjust unreplenished expenses to state the Expense xx
correct petty cash balance. Petty cash fund xx
▪ The adjustment is to be reversed at the beginning of the next accounting period in order that the normal
replenishment procedures may be followed by simply debiting expenses and crediting cash in bank
whether the expenses pertain to the current period or prior period.
e Increase in fund Petty cash fund xx

Cash in bank xx
f Decrease in fund Cash in bank xx
Petty cash fund xx
Illustration 2.1. Imprest Fund System
2019
Nov 10 The entity established an imprest fund of
P10,000.
JE: Petty cash fund 10,000
Cash in bank 10,000
Nov 29 Replenished the fund. The petty cash items include the following:
Currency and coins 2,000
Supplies 5,000
Telephone 1,800
Postage 1,200
JE: Supplies 5,000

Telephone 1,800
Postage 1,200
Cash in bank 8,000
Dec. 31 The fund was not replenished. The fund was composed of the following:
Supplies 1,500
Postage 500
Miscellaneous expense 1,000
JE: Supplies 1,500

Postage 500
Petty cash fund 3,000
6
2020
January 1 The adjustment made on December 31, 2019 was reversed.
Supplies 1,500
Postage 500
February 1 The fund was replenished and increased to P15,000. The composition
of thefund are as follows:
Supplies 4,500
Postage 3,000
Total 10,000

Supplies 4,500
Postage 3,000
Cash in bank 14,000
Review Questions
Recall the lesson and try to answer the following review questions:
1. Differentiate cash from cash equivalents.
2. What are examples of cash items?
3. What are examples of cash equivalents?
4. What is the purpose of a petty cash fund?
Exercises
Instruction: Try to answer the following problems on your own.
PROBLEM 1.1
On December 31, 2020, Albania Company provided the following data:

Cash in bank 3,000,000
Time deposit – 30 days 1,000,000
Money market placement due on June 30, 2021 2,000,000
Saving deposit in closed bank 100,000
Sinking fund for bond payable due June 30, 2022 1,500,000
▪ The cash in bank included customer check of P200,000 outstanding for 18 months.
▪ Check of P250,000 in payment of accounts payable was dated and recorded on December 31, 2020, but mailed
to creditors on January 15, 2021.
▪ Check of P100,000 dated January 31, 2021 in payment of accounts payable was recorded and mailed December
31, 2020.
▪ The reporting period is the calendar year.
The cash receipts journal was held open until January 15, 2021 during which time an amount of P450,000 was
collected and recorded on December 31, 2020.
Required:
1) Prepare adjusting entries on December 31, 2020.
2) Compute the total amount of cash and cash equivalents that should be reported on December 31, 2020.
3) Explain the presentation of the items excluded from cash and cash equivalents.
7
PROBLEM 1.2
Argentina Company reported the following accounts on December 31, 2020:
Cash on hand 1,000,000

Security bank – current account 2,000,000
PNB current account 1,500,000
BDO current account (overdraft) (200,000)
BSP Treasury bill – 120 days 3,000,000
BPI time deposit – 90 days 2,000,000
Bond sinking fund 2,500,000
▪ The cash on hand included a customer post-dated check of P150,000 and postal money order of
P50,000.
▪ The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee check
for P5,000 dated January 31, 2021.
▪ The BPI time deposit is set aside for acquisition of land to be made in early January 2021.
▪ The bond sinking fund is set aside for payment of bond payable due December 31, 2021.
Required:
1. Prepare the adjusting entries on December 31, 2020.
2. Compute the total amount of cash and cash equivalents.
3. Explain the presentation of the items excluded from cash and cash equivalents.
Problem 1.3
Armenia Company reported the following information on December 31, 2020:
Cash on hand 1,000,000
Cash in bank 4,000,000
Savings deposit 2,000,000
▪ Cash on hand included the following:
a. Customer check of P100,000 returned by bank December 26, 2020 due to insufficient fund but
subsequently redeposited and cleared by bank January 5, 2021.
b. Customer check for P150,000 dated January 15, 2021 received December 22, 2020.
c. Postal money orders received from customers, P200,000.
▪ The petty cash fund consisted of the following items:
Employees’ IOUs 10,000
Currency in envelope marked collections for Christmas 5,000
party
Check drawn by Armenia payable to petty cashier 33,000
▪ Check written and dated December 22, 2020 and delivered to payee on January 5, 2021, P200,000.
▪ Check written December 26, 2020 and dated January 31, 2021, delivered to payee on December 26,
2020, P300,000.
Required:
1. Prepare adjusting entries on December 31, 2020.
2. Compute the total cash on December 31, 2020.
8
Problem 1.4
Callous Company reported the following accounts on December 31, 2020:

Philippine Bank – current account 5,000,000
City Bank – current account no. 1 4,000,000
City bank – current account no. 2 (overdraft) (100,000)
Asian Bank Saving account 250,000
Asian Bank time deposit, 90 days 2,000,000
▪ Cash on hand included the following items:
Customer check for P35,000 returned by bank December 26, 2020 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 10, 2021.
Customer check for P15,000 dated January 10, 2021, received December 23, 2020.
▪ The petty cash fund consisted of the following items:
IOUs from officers 2,000
Unreplenished petty cash vouchers 12,000
▪ Included among the checks drawn by Callous Company against the Philippine Bank current account
and recorded in December 2020 were the following:
▪ Check written an dated December 23, 2020 and delivered to payee on January 31, 2021, P25,000.
▪ Check written December 26, 2020, dated January 30, 2021, delivered to payee on December 28, 2020,
P45,000.
Required: 1. Compute the total cash and cash equivalents.
2. Prepare adjusting entries on December 31, 2020.
Problem 1.5
Laborious Company closed the accounts on June 30. The entity provided the following transactions:
May 2 The entity established an imprest fund of P10,000

29 The fund was replenished. The petty cash items include:
Currency and coin 2,000
Postage 1,000
Supplies 3,000
Transportation 2,500
June 30 The fund was not replenished. The fund is composed of the following:
Supplies 2,000
Postage 1,000
July 15 The fund is replenished and increased to P15,000.
Postage 3,500
Supplies 1,500
Miscellaneous expense 500
Required: Prepare the journal entries to record the transactions under imprest fund system.
9
Problem 1.6
Tacit Company provided the following transactions;
2020
Nov 2 The entity established an imprest petty cash fund of P10,000.
30 An examination of the cash fund disclosed
Memoranda showing expenditures for:
Postage 2,000
Supplies 5,000
A check written drawn to replenish the fund and to increase its amount to
P20,000.
Dec 31 The fund was not replenished.
Memoranda showing expenditures for:
Postage 3,000
Supplies 4,000
Deposit for 20 cases of softdrinks 2,000
2021
Jan 2 The deposit for the 20 cases of softdrinks is collected.
31 A check was drawn to replenish the fund.
Postage stamps 500
Memoranda showing expenditures since November 30, 2020 for:
Postage 5,000
Supplies 6,000
Payment of account 7,000
Required: Prepare journal entries to record the transactions.
Teacher’s note:
• Answer the lesson exercises of your book. You may request for the solutions through
Messenger for a particular exercise only after you have submitted your own solution for that
problem.
• If you have questions, kindly send me a message via Messenger.
• Solutions will be provided in Week 2 after you have submitted your own solutions.
• Quiz will be conducted on Week 3. Kindly prepare in advance. The quiz schedule will be
announced in the GC within Week 2.
10

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Mater Dei College | Tubigon, Bohol | (038)508-8106

College of Accountancy, Business and Management - Business Department

Student Learning Outcomes 1. Identify items considered as cash

✔To be included as cash, it must be unrestricted in use.

3. Cash fund (current operations)

Definition of Cash Equivalents

Investment of excess cash

Cash shortage and overage

b) If reasonable efforts fail to disclose the cause of shortage:

OVERAGE = Cash counts shows: cash > balance per book

b) If reasonable efforts fail to disclose the cause of shortage:

e Increase in fund Petty cash fund xx

JE: Supplies 5,000

JE: Supplies 1,500

JE: Petty cash fund 5,000

On December 31, 2020, Albania Company provided the following data:

Cash on hand 1,000,000

Cash on hand 200,000

May 2 The entity established an imprest fund of P10,000

Required: Prepare journal entries to record the transactions.

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