CI{APTER, 1

CASH AI{D CASH EQUIVALENTS

TE,CI{NICAL KNOWLEDGE

To un derstan d. dhe con cept af caslt .

To understarud th,e concept af cash, equ,iualertts.

To iCentify iterns considered, cash.

To id,entify itents considered, cash equiualents

To lm.ow the s.ccounting far petty cash fund.

1
DEFINITION OF CASH Cash items included
From the point of view of a layman, "cash" simply means a. Cash on hand include
money. other cash items aw:
checks, cashier's or m
Money is the stand,ard medium of exchange in business bank drafts and mone
transactions. b. Cash in banle includes
Money refers to the currency and coins which are in and sauing deposit
withdrawal.
circulation and legal tender.
c. Cash fund set aside I
However, in the accounting parlance, the term "cash" has a cash fund, payroll fun
special and broader meaning and connotes more than rnoney.
Cash equivalents
As conternplated in accounting, cash includes money and, any PAS 7, paragraph 6, defir
other negotiable instrument that is payable in money and and highly liquid investr
acceptable by the bank for deposit and imntediate uedit. into cash and so near t
insignificant risk of chanl
Accordingly, cash includes checks, bank drafts and money interest rate.
orders because these are acceptable by the bank for deposit
or immediate encashment. The stan,dard further
inu e st ntent s a c quire d thr e e
as cash equiualents.
For example, when checks are received in full settlement of an
account receivable, cash is immediately debited. Exampies of cash equival,

But postdated checks received cannot be considered as cash

a. Three-month BSP trer
yet because the postdated checks are uno,cceptable by the bank b. Three-year BSP trear
for deposit and immediate credit or outright encashment. maturitl
before d,ate of
c. Three-month time de1
Unrestricted cash d. Three-month money r
There is no specific stand.ard, Cealing with "cash" paper
The only guidance is found in PAS 1, paragraph 66, which Equity securities cannot q
provides that an entity shall classify o,n asset as cu,rrent when shares do not have a matr
the asset is cash or a cash equiualent unless it is restricted to
settle a liability for more than, twelue months after the end of However, preference shar'
the reporting period. and acquired three mon
qualifu as cash equivalent
Accordingly, to be reported as "cash", an itern must be
unrestricted in use. Note that what is import
should be three months or
This means that the cash must be readily available in the
payment of current obligations and not be subject to any Thus, a BSP treasury bill
restrictions, contractual or otherwise. cannot qualify as cash equiv
is three months or less fro:
2
 Cash items included in cash
a. Cash on, hand includes. undeposited cash collections
and
other cash items awaiting deposii ;;.h;;;;rio_u"r,
checks-, cashier s or marag?.;. trr".r.", i"L#r""r;J lrr".r..,
bank drafts and money o""d.e.s. -
)-
b. Cash in bank includes dem.and, d,eposit or checlein g account
and sauin-g deposjt which are unrestricted as to
withdrawal.
c. Ca2h /unp set aside for current purposes-such as petty
cash fund, payroll fund and dividtnd-funA.----^ -"
Cash equivalents
PAp,7: paragraph 6, defines cash equiualents as short_term
and highly liquid investments that are readily- convertible
into cash and so near their maturity that-ih"u- p."r"rt
insignificant risk of changes in value bucu"." Lf .Lr'.rs*, i"
interest rate.
The stand.ard. furth_er stotes tha-t only highly liquid,
tnuestnteruts acq-uired three months before
as cash equiuo,lents.
maturiiy ,i" q""tiiy
Examples of cash equivalents are:
a. Three-month BSp treasury bill
b. J\1ee-qe3r BSP .rre.asury bill purchosed, three months
oerot'e d,lte ol maturtty
c. Three-month time deposit
d. Three-month rnoney market instrument or commercial
paper

Equity s-ecurities cannot qualify as cash equivalents because

shares do not have a maturity"date.
However, preference shares with specified redemption date
ano .acqurred three months before redemption date can
qualiS, as cash equivalents.
Note that what is important is the d,ate of purchase which
should be three months or less belo.e matuii{y.
Thus, a BSP treasury bill that was p_u_rchased. one year ago
cash equivatent evel if tfre remai"irrg ini"rriy
::ll:j::r^ti-ryj.
rs rnree months or less flom the end of reporting pe"riod.
Investment of excess cash Measurement of cast
Cash is measured at face
The control and proper use of cash is an important aspect of cash
management. Basically, the entity must maintain sufficient cash Cash in foreign currencl' )
for use in current operations. rote.
l If a bank or financial insti
Any cash accumulated in excess of that needed for current is in bankruptcy or financ
operations should be invested even temporarily in some tlpe of down to estintated realiza
revenue earning investment is estimated to be lower r

Accordingly, excess cash may be investe d tn tim,e deposits, Financial statement

nloney market instrumenls and treasury bills for the purpose The caption cash and ca
of earning interest incorne. the first line item unde
This caption includes all
Classifications of investment of excess cash cash in bank, petty cash f
unrestricted in use for c
Investments in time deposit, money market instruments and
Howeuer, the details comp
treasury bills should be properly cl'assified. should, be disclosed in tfu
a. If the term is three ntanths or less, such instruments are Foreign eurrency
classified as cash equiualents and therefore included in
Cash in foreign currenc)'
the caption "cash and cash equivalents". pesos using the current t

b. If the term is more than three moiths but within one year, Deposits in foreign coun
such investments are classified as short-term financial foreign exchange restrict
assets or temporary investments and presented separately Deposits in foreign bank r,
as current assets. restriction should be clas
assets and the restriction
c. If the term is nrore than one year, such investments are
Cash fund for a certl
classified as noncurrent or long-term inuestments.
If the cash fund is set asic
However, such investments that become due within one the payment of current ob
year from the end of the reporting period are reclassified The cash, fund is irtcluded
as crrrent or temporary investments. Examples of this fund are
fund, interest fund, divide
On the other hand, if the r

purpose or payment of nc
long-term investment.
Examples of this fund a
redemption fund, continge
acquisition or constructior
4
 Measurement of cash
Cash is measured at face ualue:.
Cash in foreign cut-rency is measured at the current exchange
rate.
institutifr+ holding the fund-sof an entity
rs l-b**:1_fingncial
.I^f
rn bankrqptiy o-r financial difficulty,Iash shoul&bJwritteir
down to estinr.ated realizable ualue if the amount recoverable
is estimated to be lower than the face value. ----
Financial statement presentation
The gaptign cash and cash equiualents should be shown as
the first line item under curient assets.
Thiq 62p1ion includes all cash items,- such as cash on hand,
cash in bank,.petty cash fund ana castreq"i"ut".rtr'o,ifri.f,
unrestricted in use for current operations. ------ --- "r"
Howeuer, the details.comprising the cash and cash equiualents
should be disclosed in the notei to financial statements.

Foreign currency
Cash in foreign currency should. be translated to phfippine
pesos using the current exchange rate.
foreiSn countries which a_re not subject to any
P^:t":rr:-*
rorergn exchange restriction are included in ,,cash,,.
Deposits in
Freign bank which are subject to foreign exchange
restriction should be classifi e d separai"ly ;;;;g""o-"L"rrr"rrt
-
assets and the restriction clearly indicated.
Cash fund for a certain purpose
If the cash fund is set aside for use in current operations or for
the payment of current obligatiorl it is a current asset.
The cash fund is irycluded as part of cash and. cash equiualents.
Examples of this fun$ q1e pgtly cash fund, payroll fund, travel
fund, interest fund, dividend fund and tax furia. -
On the other hand, if the cash fund is set aside noncurrent
purpose or.payment of noncurrent obligation, for it is shown as
rong-term rnvestment.
Examples of this fund are sinking fund, preference share
redemption fund, contingent fund, in-s.,"ance?u"a."a i""a
fo"
acquisition or construction of property, ptanf a"a e-quip*e"t.

o
Classification of cash fund Exception to the rule o
The classification of a cash fund as current or noncurrent When an entity maintains t'
should parallel the classification of the related liability. and one account results in
be offset against the other b
For example, a sinking fund that is set aside to pay a bond
payable shall be classifi.ed as curqent asset when the bond in ord.er to show cosh, net of
payable is already due within dne year after the end of net of other baruk account.
reporting period.
An overdraft can also be offs
However, a cash fund set aside for the acquisition of a if the omounl is not nrcterio
tlotlcurrent asset should be classifie d as noncunent regardless
of the year of disbursemgnt. Under IFRS, bank overdrai
occount when PaYable on d
Bank overdraft positive to negative as .rn ir
When the cash in bank account has a cred,it balance,it is said. Compensating balance
to be an overdraft. The credit balance in the cash in bank
account results from the issuance of checks in excess of the A compensating balance gen
ch,ecking or demand dePos
lHil""rdraft is classified as a cunent liabilityand should rnaintained in connection wit
not be offset against other bank accounts with debit balernces. bank.

For example, an entity maintains two bank accounts: For examPle, an entitY borr
agrees to maintain a 10% or
a. Cashinbank-FirstBank, which is ouerdrawn byP10,000. balance in a demand dePos
b. Cash in bank - Second Bank, with a debit balance of
P100,000. In effect, this ar-rangement 11€

borrowed because the comPe

The net cash balance is P90,000. fund to the bank as Partial a
The proper statement classification of the two accounts is: Classifrcation of comP
Current asset:
Cash in bank- Second Bank 100,000 If the deposit ts not legollY
Current liability: borrower because of an i
Bank overdrafb - First Bank 10,000 agreement, the comPensat

Note that it is not necessary to adjust and open a bank If bhe deposit is legal$'
overdraft account in the ledger. compensating balance agret
classifi.ed seParatelY as "cE
In other words, the Cash in Bank - First Bank account is under current assets if the
maintained in the ledger with a credit balance.
Generally, ouerdrafts are not permitted in the Philippines.. If the related loan is long'
classified as noncurl'ent tn

6
Exception to the rule on overdraft
When an entity maintains two or more accounts in one bank
and one account results in an overdraft, such overdraft can
be offset against the other bank account with a debit balance
in ordepto .ho* cash, ruet of bo.nh ot'erdraft or bank ouerdra,ft,
net of other bank account.

A.n overdraft can also be offset against the other bank account
if the o,nrou,nt is not m,ateriol.

Under IFRS, bank overdraft can be offset against other bonk

occount when payable on demand and often fluctuates from
positive to negative as a,n integrol port of cash ntanagem.ent.

Compensating balance
A com,pensoting balance gen:rerally takes the form of minimum
checking or demand deposit occount balonce that must be
maintained in connection with a borrowing arrangement with a
bank.

For example, an entity borrows P5,000,000 from a bank and

agrees to maintain a l0o/o or P500,000 minimum compensating
balance in a demand deposit account.

In effect, this arangement results in the reduction of the amount

borrowed because the compensating balance provides a source of
fund to the bank as partial compensation for the loan extended.
i
Classifrcation of compensating balance
rs not legally restricted as to withdrawal by the
If the deposit
borrower because of an informal compensating balance
agreement, the compensating balance is part of cash.

If bhe deposit is legally restricted because of a formal

compensating balance agreement, the compensa.ting balance is
clasiified separately as "cash heid as compensating balance"
under curuent assets if the related Ioan is short-term,.

If the related loan is long-term, the compensating balance is

classified as noncurrent investment.

7
Undelivered or unreleased check Stale check or check
An undeli,uered or unreleased check is one that is merely A stale chech is a check n
drawn and recorded but not given to the payee before the relatively long period of r
end of reporting period.
There is no payment when the check is pending delivery tcr the The question is how ion
payee at the end of reporting period. outstanding?

The reason is tnau undelivered check is still subject to the entity's The Negotiable Instrume
control and may thus be canceled anytime before delivery at the instrument is payable on d
discretion of the entity. within a reasonable time ,

Accord.ingly, an adjusting entry is required to restore the In determining what is

cash balance and set up the liability. should be made regarding
Cash xx usage of trade or businr
Accountspayable or appropriate account xx instrument and the facts

In practice, the foregoing adjustment is sometimes ignored Clearly, the law does not s7
checks must be presented
because the amount is not very substantial and there is no
t0 usage of trade or busin
el,idence of actual cancelation of the check in the subsequent
period.
Ir banking practice, a chr
within six months flom th
Postdated check delivered is a matter of entity polic'
A postdo,ted checle deliuered is a check drawn, recorded and Thus, even after three mc
already given to the payee but it bears a date subsequent to stop payment order to tl
the end of reporting period. previously issued check.
The original entry recording a delivered postdated check If the amount of stale c
shali also be reversed and therefore restored to the cash accounted for as miscella.
bolance.
Cash
Cash xx Miscellaneous income
Accounts payable or appropriate account xx
I{orvever, if the amount is
The reason is that there is no payment until the check can be to continue, the cash is res
presented to the bank for encashment or deposit' up.

Cash
Accounts payable or ap

a
Stale check or check long outstanding
A stale chech is a check not encashed by the payee within a
relatively long period of time.

The question is how long a time must the check remain

outstanding?

The Negotiable Instruments Law provides that where the

instrument is payable on demand, presentment must be made
within a reasonable time after issue..
In determining what is a reosonable time, consideration
shouid be made regarding the nature of the instrument, the
usage of trade or business, if any, with respect to such
instrument and the facts of the particular case.

Ciearly, the law does not specify a definite period,within which

checks must be presented for encashment. Reference is made
to usage of trade or business practice.
In banking practice, a check becomes stale if not encashed
within six manths from the time of issuance. Of course, this
is a matter of entity policy"

Thus, even after three months only, the entity may issue a
stop payment order to the bank for the cancelation of a
previously issued check.

If the amount of stale check is immaterial, it is simply

accounted for as miscellaneous income.
Cash xx
Miscellaneous income xx

tr{owever, if the amount is material and iiability is expected

to continue, the cash is restored and the liability is again set
up.

Cash xx
Accounts payable or appropriate account

I
 Accounting for cash shortage Imprest systern
Where the cash count shows cash which is less than the The imprest system is a
balance per book, a cash shortage is to be recorded.
requires that all cash recet
all cash disbursentents shc
Cashshortorover xx
While internal control ideall
Cash :<l(
be made by means of check
The cash short or ouer accounl is on-ly a temporary or suspense
accqunt. When financial statements are prcpared the same should There are occasions wher
be adjusted. impractical or inconvenient
paid or things are hurr
Hence, if the cashier or cash custodian is held responsible for the
entertained.
cash shoriage, the adjustment should be: Consequently, in such inst
cashier
Due from xx and convenient to pay in ca
Cashshortorover xx
Petty cash fund
However, if reasonabie efforts fail'to disclose the cause of The petty cash fund is mor
the shortage, the adjustment is which cannot be paid conl
Loss from cashshortage xx
There are two methods of
over
Cash short or )o(

a. Imprest fund system

Accounting for cash overage b. Fluctuating fund syste
Where the cash count shows cash which is more than the
balance per book, a cash overage is to be recorded. Imprest fund system
Cash xx The imprest fund system is
Cashshortorover xx petty cash transactions.
Note that whether it is a cash shortage or cash overage, the
offsetting accountis cash short or over aecount' Such account Accounting procedurr
should be adjusted when statements are made.
a. A check is drawn to est
The cash overage is treated as miscellaneous income if there
is no claim on the same. Petty cash fund
Cash in bank
Cash short or over xx
Miscellaneous income xx b. Payment of expenses o

But where the cash overage is properly found to be the money No formal journal entr.
of the cashier, the journal entry is:
The petty cashier gene.
Cash short or over xx voucher for such pa
xx
Payable to cashier memorandum entries i
10

x
 Imprest systenr
The imprest system is a system of contrbl of cash which
requires that all cash receipts should be deposited intact and
all cash d.isbursentents should be mad,e by means of checle.
While internal control ideally requires that all payments should
be made by means of check, this is sometimes impossible.
€
td There are occasions when the issuance of checks becomes
impractical or inconvenient such as when small amounts are
paid or things are hurriedly bought or customers are
IE entertained.
Consequently, in such instances, it may be more economical
and convenient to pay in cash rather than issue checks.

Petty cash fund

)f
The petty cash fund is mriney set aside to pay small expenses
which cannot be paid conveniently by means of check.
There are two methods of handling the petty cash, namely:
a. Imprest fund system
b. Fluctuating fund system
IE
Imprest fund system
The imprest fund system is the one uanlly followed in handling
petty cash transactions.
IE
1t Accounting procedures
a. A check is drawn to establish the fund.
:e
Petty cash fund xx
Cash in bank xx

b. Payment of expenses out of the fund.

l]- No formai journa! entries are made.
The petty cashier generally requires a signed petty cash
voucher for such payments and simply prepares
memorandum entries in the petty cash journal.

11

-'.--'--.-_
c. Replenishment of petty cash payments. Illustration
Whenever the petty cash fund runs low, a check is drawn 2021
to replenish the fund. Nov. 10 The entity estab.
The replenishment check is usually equal to the petty Petty cash fund
cash fisbursements. Cash in bank

It is at this time that the petty cash disbursements are 29 Replenished the
recorded. the following:
Expenses xx
Currency and corn
Cash in bank xx
Supplies
Telephone
It is to be pointed out that the petty cash disbursements Postage
should be replenished only by means of check and not
from. undeposited collections. Nov. 29 The journal entr
d. At the end of the accounting period, it is necessary to Supplies
adjust the unreplenished expenses in order to state the Telephone
correct petty cash balance. Postage
Cash in banli
Expenses xx
Petty cash fund xx
Dec. 31 The fund u-as nr
necessary to recc,
The adjustment is to be reversed at the beginning of the
next accounting period.
The fund is comp,
The reversal is made in order that the nor.mal coin P7,000. sr
replenishment procedures may be followed by simply miscellaneous e\T
debiting expenses and crediting cash in bank without
distinguishing whether the expenses pertain to the Supplies
current period or prior period. Postage
Miscellaneous exper
e. An increase in the fund is recorded normally. Petty cash fund

.)i,g
Petty cash fund xx
Cash in bank xx .]an. 1 The adjustment m€

f. A decrease in the fund is recorded normally. Petty cash fund

Supplies
Cash in bank xx Postage
Petty cash fund xx Miscellaneous e:

L2
 Illustration
2021
Nov. 10 The entity established an imprest fund of p10,000.
Petty cash fund 10,000
Cashin bank 10,000

29 Replenished the fund. The petty cash items include

the following:
Currency and coin 2,000
SuppLies 5,000
Telephone 1,900
Postage \,200

5,000
I.,BOO
1,200
8,000

Dec. 31
necessary to record, the unreplenished expenses.

The fund is composed of the following: cunencSr and

coin P7,000, supplies P1,500, postage pb00,
miscellaneous expense P1,000.

1,500
Postage
Miscellaneous expense 1,000
Petty cash fund 3,000

2022
Jan. 1 The adjustment made on December Bl,2}Ztis reversed.

Petty cash fund 3,000

Supplies

----.
2022 Fluctuating fund sys
Feb. 1 The fund is replenished and increased to P15,000
The system is called "flu
The composition of the fund: checks drawn to replenisl
the petty cash disbursem€
Currency and coin 1,000
4,500
The replenishment checks
Supplies
3,000
of the petty cashier.
Postage
Miscellaneous expense 1,500
Moreover, petty cash disbr
Total t9!q9 thus resulting in a fluctuat
time to time:
Journal entry
a. Establishment of the
Petty cash fund 5,000
4,500 Petty cash fund
Supplies
3,000 Cash in bank
Postage
1,500
Miscellaneous expense
14,000
b. Payment of expenses
Cash in bank
Expenses
The total amount of the check drawn is P14,000 Petty cash fund
representing the petty cash disbursements of Under this system, thi
P9,000 and the fund increase of P5,000.
fund are intntedi.atel3
the imprest fund s1-s
recorded upon the le1
c. Replenishment or inc

Petty cash fund

Cash in bank

The replenishment ch
the petty cash disbur
d. At the end of the re
necessary because tht
outright.
e. Decr-ease of the fund

Cash in bank
Petty cash fund

L4
 Fluctuating fund system
.000
The sS,sXsm is called "fluctuating fund systefir" because the
checks drawn to replenish the fund do not necessarily equal
the petty cash disbursements.
r.000
1.500 The replenishment checks are simply drawn upon the request
1,000
of the petty cashier.
t.500
Moreover, petty cash disbursements are immediately recorded
M9 thus resulting in a fluctuating petty cash balance per book foom
time to time:

a. Estabiishment of the fund:

Petty cash fund xx
Cash in bank xx

1.000
b. Payment of uxpu.r.us out of the petty cash fund:
Expenses xx
1.000 Petty cash fund xx
.rs of
Under this system, the disbursements from the petty cash
fund are i,ntntediately recorded in contradistinction with
the imprest fund system where the disbursements are
recorded upon the repieni.shment of the fund.
c. Replenishment or increase of the fund:

Petty cash fund xx

Cash in bank xx

The replerrishment check nlay or ntary not be the same as

the petty cash disbufsements.
d. At the end of the reporting period, no adjustment is
necessary because the petty cash expenses are recorded
outright.
e. Decrease of the fund is reverted to the general cash.

Cash in bank xx
Petty cash fund xx

15
Illustration QUESTIONS
Nov. 10 The entity established a petty cash fund of
1. Define cash.
P10,000.
2. Explain the meaning
Petty cash fund 10,000
c

Cash in bank 10,000

3. Define cash equivalen
Nov. Ll-28Petty cash disbursements amounted to P8,000.
4. Explain the measurent
Expenses 8,000
PettS' cash fund 8'000 5. Explain the financial s
cash equivalents.
Nov. 29 Issued a check for P10,000 to replenish the fund.
6. Explain the classificati
Petty cash fund 10,000 time deposits, money mr
Cash in bank ' 10,000

' At this point, the petty cash balance per book is 7. Explain the treatment

P12,000. 8. Explain the classificatir

Dec. 1-30 Petty cash expenses amounted to P9,000. 9. Explain a bank overdr

Expenses 9,000 10. Explain a compensatit

Petty cash f'und 9,000
11. Explain undelivered
31 Issued a check for P15,000 to replenish the fund. and stale check.

Petty cash fund I-5,C100 12. Explain the accountin6

Cash in bank 15,000
13. Explain the imprest s
At this point, the petty cash balance is P18,000.
14. Explain the nature an

15. Explain the two metl

fund.

16
 QUESTIONS
,f
1. Define cash.

2. Explain the meaning of unrestriqted cash.

3. Defi.ne cash equivalents

4. Explain the measurement of cash.

5. Explain the financial statement presentation of cash and

cash equivalents.

6. Explain the classification of investments of excess cash in

time deposits, money market instruments and treasury bills.

7. Expl.ain the treatment of foreign currency.

8. Explain the cl"assifi.cation of a cash fund.

9. Explain a bank overdraft.

10. Explain a compensating balance.

11. Explain u-ndelivered check, postdated check delivered

and stale check.

12. Explain the accounting for cash shortage or cash overage.

13. Explain the imprest system of internal control.

14. Explain the nature and purpose of a petty cash fund?

fund.
I

.*- -fu----
 PROBLBMS Problem 1-2 (IAA)
Argentina Cotnpany repc
Problem 1-1 (IAA) December 31,202L:

On December 3 L, 2021, Albania Company provided the Cash on hand

following data: Petty cash fund
Security Bank current account
Cash in bank PNB current account
3,000,000
Time deposit - 30 days BDO current accorint (overdlal
1,000,000
Money markei placement due on June BO,2OZz BSP treasury bill - 120 days
2,000,000
Saving deposit inclosed bank BPI time deposit * 90 days
100,000
Sinking fund for bond payable due June 80, Z02B Bond sinkingfund
1,500,000
Petty cash fund 20,000
The cash on hand inci
*, The cash in bank included custorner check of p200,000 of P150,000 and postal
outstanding for 18 months.
* The petty cash fund ir
Check of P250,000 in payment of accounts payable was vouchers for P10,000 a
dated and recorded on December BL, ZOZI but mailed to dated January 31,2O2t
creditors on January 15, 2022.
The BPI time deposit i
Check of P100,000 dated January BL, zAZZin payment of to be made in early Jar
accounts payabie was recorded and mailed December 81,
2021. The bond sinking fund
payable due December
The reporting period is the calendar year.
Required:
'l'he cash receipts journal was held open until January
mt

15, 2022 during which time an amount of p450,000 was 1. Prepare adjusting entr
collected and recorded on December Bl, ZOZL.
2. Compute the total arn,-
Required:
:1. Explain the presentatit
1. Prepare adjusting entries on December 81, ZOZI. and cash equivalents.

2. Compute the total amount of cash and cash equivalents

that should be reported on December gL, ZA2l.
3. Explain the presentation of the items excluded from cash
and cash equivalents.

18
 Problem 1-2 (IAA)
Argentina Cornpany reported the following accounts on
December 37, 202L:

rd the Cash on hand 1,000,000

Petty cash fund 50,000
Security Bank current account 2,000,0u0
PIrIB current account 1,500,000
tr,000
$.00c BDO current account (overdraft) ( 200,000)
BSP treasury bill = 120 days 3,000,000
o 00c
0.000
BPI time deposit * 90 days 2,000.000
Bond sinking fund 2,500,000
c.000
0.000
The cash on hand included a customer postdated check
r0.000 of P150,000 and postal money order of P50,000.
* The petty cash fund included unreplenished petty cash
I WaS vouchers for P10,000 and an ernployee check for p5,000
led to dated January 37,2022.

The BPI time deposit is set aside for acquisition of land

:nt of to be made in early January 2022.
lr 31, * The bond sinking fund is set aside for payment of bond
payable due December 31, 2022.

Required' :

uary
11'as 1. Prepale adjusting entries on December Bl, 2O2I
2. Cornpute the total amount of cash and cash equivalents.

3. Explain the presentation of the items excluded from cash

and cash equivalents.

ents

:ash

19
Problem 1-3 (IAA)
Problem 1-4 (PHILC
Armenia Company reported the following information on Callous Company rep
December 3L,2021: December 3l.,2O2I:
Cash on hand 1,000,000
Cash on hand
Petty cash fund 50,000
Petty cash fund
Cash in bank 4,000,000
Philippine Bank current acc
Saving deposit 2,000,000
City Bank current account
7,050,000 City Bank current account l
Asia Bank saving account
* Asia Bank time deposit, 90 c
Cash on hand included the following:
* Cash on hand includ
a. Customer check of P100,000 returned by bank December
26, %OZL due to insufficient fund but subsequently
redeposited and cleared by bank January 5,2022.
Custorner check for I
26, 2021 due to in,
b. Customer check for P150,000 dated January L5, 2022 redeposited and clear
received December 22, 2021.
Customer check for
c. Postal money orders received from customers. P200,000. received December 2
The petty cash fund consisted of the following items: * The petty cash fund
Currency and coins 2,000
Currency and coins
Employees'IOUs 10,000 IOUs from officers
Currency in envelope marked collections for Unreplenished petty cas
Christntas party 5,000
Check drawn by Armenia payable to petty cashier 33,000 Included arnong the
gry against the Philip
recordedin Decembe
* Check written and dated December 22, 2021 and
delivered to payee on January 5, 2022, P200,000. Check written and
delivered to payee on
* Check written December 26,2021and dated January 31,
2022 delivered to payee on December 26, 2021, P300'000. Check written Decem
delivered to payee or
Required:
Required:
1. Prepare adjusting entries on December 31, 202L.
2. Compute the total cash on December 31,2021. 1. Compute the total ca
2. Prepare adjusting en
20
 Problem 1-4 (PHILCPA Adapted)
n
Callous Company reported the following accounts on
December 31,2021:

Cash on hand 200,000

Petty cash fund 20,000
Philippine Bank current account 5,000,000
City tsank current account No. 1 4,000,000
City Bank current account No. 2 (overdraft) ( 100,000)
Asia Bank saving account 250,000
Asia Bank time deposit, 90 days 2,000,000

r
* Cash on hand included the foliowing items
!-
Customer check for P35,000 returned by bank December
26, 2021 due to iqsufficient fund but subsequently
2 redeposited and cleared by the bank on January L0,2A22.

).
Customer check for P15,000 dated Januar., L0, 2022,
received December 23, 2OZl.
* The petty cash fund consisted of the following ttems:
Currency and coins 5,000
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 2021were the foliowing:
l
Check written and dated Decembet 23, 202L and
delivered to payee on January 3L,2022, P25,000.

I
Check written December 26,202L, dated January 30,2022,
delivered to payee on December 28, 2021, P45,000.

R,equired:
1. Compute the total cash and cash equivalents.
2" Prepare adjusting entries on December 31, 2021

2L

*-.-.*-}r-
 Problem 1-5 (ACP) Problem 1-7 (IAA)

Zealous Company estabLished a petty cash fund. Laborious Company clos,

entity provided the foliov
1. Established a petty cash fund of P10,000 on January 2
May 2 The entity estab.
2. Petty cash expenses - Janu ary 2-31 are.
29 The fund is reg
Postage 1,500 inciude:
Supplies 5,500
Transportation 1,200 Curuency and coin
Miscellaneous expense 800 Postage
Supplies
3. The fund is replenished on February 1 and increased by Transportation
P5,000. Miscellaneous exper

Required: June 30 The fund was not

of the following:
Prepare journal entvies to record the transactions under the
fluctuating fund system and imprest fund system. Currency and coin
Supplies
Problem 1-6 (ACP) Postage.
Transportation
Zenith Company provided the following chronological July 15 The fund is reple
transactions in relation to petty cash:
Currency and coin
1. The entity estabiished a petty cash fund of P10,000. Suppiies
2. Petty cash disbursements were: Postage
Postage 1,500 Transportation
Supplies 3,000 Misceilaneous expen
3. Petty cash disbursements were:
Transportation 1,000 Required:
Accountspayable 3,500
Prepare journal entrii:s t
4. Issued check for an amount to replenish the fund and rmprest fund systern and f
bring the balance of the petty cash to P20,000.

Required:
Prepare journal entries to record the transactions under
fluctuating fund systern and imprest fund system.

22

:*
 Problem 1-? (IAA)
Laborious Company closed the accounts on June 80. The
entity provided the foliowing transactions:
May 2 The entity established an implest funcl of p10,000.

29 The fund is replenished. The petty cash irems

inciude:

Curuency and coin 2,000

Postage 1,000
Supplies 3,000
Transportation 2,500
Miscellaneous expense 1,500

June 30 The fund was not repienished. The funcl is composed

of the foilowing:
Currency and coin 6,000
Supplies 2.000
Posfage. 1,000
Transportation 1,000

JuIy 15 The fund is replenished ancl incr.easecl to plb,000.

Currency and coin 3,000
Suppiles 3.500
Postage 1,500
Transportation 1.500
Misceilaneous expense ' 500

Required:
Prepare joiirnal entries to record the transactions under
imprest fund s5,s6srn and fluctuating fund system.
 Problem 1-8 (IAA) Probiem 1-9 (IAA)
On December 1, ZOZL,
Tacit Company provided the following transactions: imprest petty caol ii nrl
2A2L 2A2l
Nov. 2 The entity established an imprest petty cash fund Dec.. 1 Established an u
of P10,000. writing a check t

30 An examination of the cash fund disclosed: 2A Replenished the

3,000 on National Ban
Currency an.d coin
Memoranda showing expenditures for:
Postage 2,000 Currency and coin
Supplies 5,000 Vouchers for sellin
Vouchers for misce
A check was drawn to replenish the fund and to Vr:uchers for equip
increase its amount to P20,000.
Dec. 31 The petty cash I

Dec 31 The tund was not rePlenished' contained:

Currency and coin 11,000
Currency and corrl
Memoranda show ing expendittues for; Postdated emp1o1-e
Postage 3,000
Vouchers f61 sellin
SuppLies 4,000
Vouchers for trans
Deposit for 20 cases ofsoftdrinks 2,000

2022
2022 Jan. 15 Encashed the er
Jan. 2 The deposit for the 20 cases of softdrinks is
retained in the I
collected.
31 Replenished the
31 A check was dlawn to replenish the fund' on Nationai Br
Currency ancl coin 1,000 January expend
Postage stamPs 500
Distribution cost-.
Memoranda showing expenditures since Administrative eq
November 30, 2021 for: Transportation
5,000 Payment for supp.
Postage
Supplies 6,000
Payment of account 7,000 Required:

Required: : Horv much is the pet

Prepare journal entries to record the transactions
the replenishment?

24

h-
 Problem 1-9 (IAA)
On December 1, %OZL, Wacky Company established an
imprest pettY cao' i'-,trtl.
202L
i Dec.. 1 Established an imprest petty cash fund of P10,000 by
writing a check on National Bank.
20 Replenished the petty cash fund. by writing a check
on National Bank. The fund contained:

Currency and coins 1,000

Vouchers for selling expenses 5,000
Vouchers for miscellaneous expenses 2,000
) 2,000
Vouchers for equipment

Dec. 31 The petty cash fund was not replenished. The fund
contained:
Currency and coins 6,000
Postdated employee's check 2,000
Vouchers for selling expenses 1,500
Vouchers for transportation 500

2022
S
Jan. 15 Encashed the employee's check The proceeds were
retained in the fund.
31 Replenished the petty cash fund by writing a check
on National Bank. The petty cash vouchers for
January expenditures were:

Di.stribution costs 500

Administrative expense s 2,000
Transportation 1,000
Payment for supplier's invoice 1,200

Required:
1. Prepare journal entries to record the transactions.
2. How much is the petty cash on January 3\, 2A22 before
the replenishment?

25
 Problem 1-10 (AICPA Adapted) Problem 1-12 PHILCI
Tranvia Company revealed the following information on Starex Company provid
December 31; 2021: year-end:
Checking account at Metrobar
Cash in checking account 350,000 Employee's postdated. check
Cash in money market account 750,000 Foreign ban-k account unrestri,
'freasury bill, purchased November 1,2027 IOU from company president
maturing January 37, 2022 3,500,000 NSF customer check
Time deposit purchased December 1, 2027 Petty cash fund, expense recei
maturing March 31,2A22 4,000,000 Postage stamps
Treasury bonds
What amount shoqld be reported as cash and cash equiualents Value added tax account
on December 31, 2021?
What arnount shouid be r
a. 1,100,000
b. 3,950,000 a. 7,050,000
c. 4,600,000 b. 5,500,000
d. 8,600,000 c. 7,010,000
d. 5,510,000
Problem 1-11 (IAA)
Problem l-13 (PHILCI
At year-end, Myra Company reported cash and cash
equivalents which comprised the following: At year-end, ABC Compan
at P4,700,000 which consi
Cash on hand 500,000 Petty eash fund
Demand deposit 4,000,000 Undeposited receipts, includrr
Certificate of deposit 2,000,000 check for P100,000
Postdated customer check 300,000 Cash in bank
Petty cash fund 50,000 Deposit in bank closed by BS.t
Traveler check 200,000 \-ouchers paid out ofcollection
Manager check 100,m IOUs signed by employees, tal
Moneyorder 150,00d

What total amount should be reported as cosh at year-end?

'r\fiat amount shouid be r
a. 7,000,000 a. 3,750,000
b. 4,800,000 : 3,950,000
c. 6,800,000 _ 4,250,000
d. 5,000,000 I +,C50,000

26

S.
Problem 1-12 PHILCPA Adapted)
Srarex Company provided. the foliowing information at
-"'e
ar- e nd:
tlhecking account at Metrobank 3,000,000
impioyee's postdated check 120,000
F',reign bank account unrestrictedand in equivalent pesos 2,500,000
IOU from companypresident 500,000
\SF custorner check 100,000
Petty cashfund, expensereceipts P40,000 50,000
P-.stage stamps 10.000
lreasurybonds 500,000
i-alue added tax account 1",500,000

\\fiat arnount should be reported as unrestricted cash?

2. 7,050,000
h. 5.500,000
,r. 7,010,000
,1.5,510,000

Problem l-13 (PHILCPA Adapted)

{t 1.ear-end, ABC Company reported cash account per ledger
at P4,700,000 which consisted of the following:
Petty cash fund 50,000
Undeposited receipts, including a postdated customer
cheek for P100,000 1,500,000
Cash in bank 2,500,000
Deposit in bank closed by BSP 500,000
\-ouchers paid out ofcoilections, not yet recorded 150,000
IOUs signed by employees, taken from collections 100,000

4,800,000

\\fiat amount should be reported as cash at year-end?

a. 3,750,000
: 3,950,000
,.4,250,000
l. "1,c50,000

qn
 ?roblem 1-16 (AICPA
Problem 1-14 (AICPA Adapted)
On December 31, 2l?lLam,
Thor Company provided the following data on December 31, cash balances:
202t: Cash in bank - current accoun
Checkbook balance 4,000,000 Petty cash fund - all funds wer
Bank statement balance 5,000,000 Time deposit - three months, d
Check drawn on Thor's account, payable to supplier, Saving deposit
dated and recorded on December 31, 2021 but not
mailed until January 31,2022 500,000 Cash in bank included Pq
Cashin sinkingfund 2,000,000 against short term borrorv
On December 31, z}Z1.,what amount should be reported as cash The compensating bala:
under cunent assets? withdrawal.
a" 4,500,000 What total amount shoul
b. 5,500,000 equiualents?
c. 3,500,000 a. 9,500,000
d. 6,500,000 b.9,150,000
Problem 1-15 (AICPA Adapted) c. 9,100,000
d. 6,950,000
Joana Company had the following account balances on
December 3l,2O2l: Problem 1-17 (AICPA
Petty cash fund 50,000
Cash on hand 500,000 Baloney Company had th,
Cash in bank - current account 4i000,000 December 3I,202I:
Cash in bank - payroll account 1,000,000
Time deposit 2,000,000 Cash in bank
Cash inbank - restricted account for plant addition, Cash on hand
expected to be disbursed in early January _2022 500,000 Cash restricted for'addition to 1
Cash in sinking fund set aside for bond payable due .

June 30,2022 1,500,000 Cash in bank included P6

The petty cash fund included unreplenished Decembet 2O2L against short-terrn borrow.;
petty cash expense vouchers of P5,000 and employee IOU of The compensating balanc
P5,000. withdrawal.
The cash on hand" included. a P100,000 check payable to Joana
What total amount should
Company dated January 31,2022.
3L,202L?
What total amount should be reported as cash' and crlsh
equiualents on December 31, 202L? a. 1,775,000
b. 2,250,000
a. 6,940,000 c. 2,375,000
b. 8,940,000 d. 3,975,000
c. 7,940,000
d. 7,440,000

28
 Problem 1-16 (AICPA Adapted)
On December 31, 20?lLamentable Company had the following
:ash balances:
Cash in bank - current account 6,000,000
Petty cash fund - all funds were reimbursed at year-end 50,000
Time deposit - three months, due January lb, ZOZ2 2,500,000
Sartng deposit 1,000,000

Cash in bank included P400,000 of compensating balance

against short term borrowing arrangement.
The compensating balance is legally restricted, as to
',r'ithdrawal"
\\-hat total amount should be reported as cash and, cash
-:quiualents?
n. 9,500,000
':. 9,150,000 Legally restricted=not cash
:. 9, 100,000
i. 6.950,000
Problem 1-17 (AICPA Adapted)
Baloney Company had the following account balances on
December 31,202I:
lash in bank Z,ZIO,O}}
,lash on hand 12b,000
lash restricted for'addition to plant in January 2O2Z 1,600,000
llash in bank included P600,000 of compensating balance
asainst short-terrn borrowing arrangement.
The compensating balance is not legatly restricted as to
x rthdrawal.
\\-l-rat total amount should be reported as cosh on December
:.1.2021?

a- 1,775,000
:. 2,250,000
r 2,375,000 Not legally restricted = cash
1. 3,975,000

29

--L
Problem 1-18 (IAA) Problem tr-20 (AICPA
Yasmin Company provided the following on December 3l,2O2L: RaI Company reported the
2O2I at P5,000,000 and held
Petty cash fund 50,000
Current account - First Bank 4,000,000 Check payable to Ral, dated Jr
Current account- Second Bank (overdraft) ( 250,000) payment of a sale made in
Money market placement - Third Bank 1,000,000 included in December 31 c.
Time deposit - Fourth Bank 2,000,000 Check payable to RaI, deposite
and included in December
* A check for P100,000 was drawn against First Bank balance, but returned b:'b
current account dated and recorded Decembet 29, ZOZL stamped "NSF." The checi
but delivered to payee on January 15, 2022. January 2,2022 and cleari
Check drawn on Ral's account.
* The Fourth Bank time deposit is set aside for land and recorded in Ral's book
acquisition in early January 2022. but not mailed until Janue
lertrficate of time deposit
What total amount should be reported as cash and eash
equivalents on December 3l,ZOZL? \\-}-rat amount should be rr
2021?
a. 5,050,000
b.5,150,000 a. 4,800,000
c. 4,900,000 b. 5,300,000
d.4,150,000 : 6,500,000
i. 5,900,000
Problem 1-19 (IAA)
On December 31, 2021, Roma Company reported cash balance
Problem 1-21 (IAA)
of P9,950,000.
:i'erlast Cornpany l.e1rorr
'.':ar-end:
Undepositedcollections 600,000
=
Cashln bank - BDO checking account 4,000,000 Share investments of l
Undeposited NSF check received from customer, rraded.
dited December 1, 2021 150,000 ' Government treasurr -ont
Undeposited check from a customer, dated January L5,2A22 250,000 term but purchased
Cashln bank - BDO fund for payroli 1,000,u00
- to go until maturitl.
Cash in bank - BDO time deposit, 90 days 2,000,000 Cash of P3,400,000 in r
Cash in foreign bank restricted 1,500,000 account and checking e
Cash in bank- BDO value added tax account 450,000 ' Commercial papers ci
nonths but purchase
Total 9,950,000
months to go until rna
On December 31, hOZL, what total amount should be reported '-:3r total amount shouii
: ,l u ivalents?
as cash and cash equivalents?
a. . 6.900,000
b.
7,600,000 : 1.900,000
c.
8,200,000
6,050,000
. r.100,000
d. 8,050,000
- =.r.-100,000

30
 Problem 1-20 (AICPA Adapted)
F.a1 Company reporGd the checkbook balance on December 81,
2A21 at P5,000,000 and held the following items on same date:
Check payable to Ral, dated January 2,2AZ2in
payment of a sale made in December ZO2l, not
rncluded in December 31 checkbook balance 2,000,000
ilheck payable to Ral, deposited December 15
and included in December 31 checkbook
balance, but returned by bank on December B0
stamped "NSF." The check was redeposited on
January 2,2022 and cleared on January 9,2022 b00,000
lleck drawn on Ral's account, payable to a vendor, dated
and recorded in RaI's books on December 91, 2021
but not mailed until January 10,2022 800,000
l=rtificate of time deposit 1,000,000
'.\hat amount should be reported as cash on December 81,
- l:1?
r 4,800,000
: 5.ts00,000
r 6.500,000
i 5,800,000

Problem 1-21 (IAA)

:.,'er'last Cornpany reported the following information
at
'.':ar'-end:
= Share investments of P1,000,000 that are very actively
:raded.
* Government treasu_ry bi1ls of P2,000,000 with a 10-year
term but purchased on December 81 with two months
to go until maturity.
= Cash of P3,400,0Q0 in the form of coin, currency, saving
account and checking account.
= Commercial papers of P1,500,000 rvith term of nine
raonths but purchased on December B1 with three
months to go until maturity.
'',-lat total amount should be reported
as cash and cash
r qu ivalents?
=
:
6.900,000
;,900,000
: 3.-100,000
- 5100,000

31

-=.jr!-r
Problem L-22 (AICPA Adapted) Prohlem 1-2S (ACP)
Isabei Company provided the following information'on Love Company reported the
December 3L,2O2L: to cash on December 31, 20
* Checkbook balance, P4.
Cashonhand 400,000
5,000,000
* Undepositedcollections
Security Bank current account
Manila Bank current account No. 1 4,000,000 * A customer check amou
Manila Bank current account No. 2 @ank overdraft) ( 500,000) 2,2022 was included in r

BDO account set aside forbond payable due balance.

December 31,2022 3,000,000
* Another customer che
United Bank saving account for equipment acquisition 1,500,000
United Bank time deposit, 90 days 2,000,000 December 22,2OZl was i
Treasury bills 1,000,000 but returned by the ban
This check was redepos
Included among the checks drawn by Isabel Company against cleared two days later.
the Security Bank current account and recorded in December * A P400,000 check payab
2021 arc: on December 30, 2027 w
* A petty cash fund of P5t
' Check written and d.ated Decernber 23,z}2land delivered
December 3L,2O2I:
to payee on January 3, 2A22, P100,000.
Coins and currencies
' Check written December 26,202L, dated January 30,2022 Petty cash vouchers
delivered to payee on I)ecember 28, 2021, P150,000. Refundable deposit for retu

1. What total amount should be reported as cash on

December 3l,ZAZL? n A check of P40,000 war
a. 12,150,000 payable to Petty Cash.
b. 12,650,000 1. What amourrt shouid be r
c. 9,150,000 on December 31, 2021?
d. 9,400,000
a. 4,600,000
2. What total amount should be reported as cash b. 4,200,000
equivalents on Decemher 3L,202I? c. 4,400,000
d. 3,700,000

a. 3,000,000 2. What total amount shoulc

b. 4,500,000 3L,202L?
c. 2,000,000 a. 4,645,000
d. 2,500,000 b. 4,945,000
c. 4,600,000
d. 4,650,000
82
Problem 1-23 (ACP)
- .:r'e
Company reported the following information in relation
:- cash on December 31, 2021:
* Checkbook balance, P4,000,000.
= Undeposited collections, P400,000.
= -{ customer check amounting to P200,000 dated January
2.2022 was included in the December 31,2021checkbook
balance.
Another customer check for P500,000 deposited on
December 22,2021was included in the checkbook balance
but returned by the bank for insufficiency of fund.
This check was redeposited on Decernber 26, 2O2t and
cieared two days later.
A P400,000 check payable to supplier dated and recorded
on December 30, 2021- was mailed on January \G,2022.
A petty cash fund. of P50,000 comprisecl the following on
December 31,2021:
Coins and currencies 8,000
Petty cash vouchers 40,000
Refundable depositforreturnable containers b,000
50,000

A check of P40,000 was drawn on December 91, ZOZ|

pa1'abie to Petty Cash.
\\hat amount should be reported as ad,ju,sted cosh in btnh
on December 31, 2021?
a. 4,600,000
b. 4,200,000
c. 4,400,000
d. 3,700,000
\\trat total amount should be reported as cash on December
3t,2021?
a. 4,645,000
b. 4,845,000
c. 4,600,000
d. 4,650,000
33
Problem 1-24 (PHILCPA Adapted) Problem 1-26 (PHIL(
Marjorie Company established a petty cash fund of P50,000 On December 1, 2A21, An
with the following information: fund of P50,000. On Dece
Coins and currency 22,000 was examined and fo
Petty cash vouchers: information:
Gasoline 3,000
Medical supplies 1,000
1,500 Coins and curreneies
Rep4rs
3,500 Petty cash vouchers for expe:
IOU from an employee
Check drawn payabie to the order of Ann Cruz, petty cash
custodian, representing her salary 15,000 The petty cash fund was
Check of an ernployee returned by bank marked "NSF' 3,000
A sheet of paper with the names of several employees 1. What amount should I

together with a contribution for a birthday party - overage?

an1 attached to the sheet ofpaper is a currency of 5,000
a. 2,000 over
What amount of petty cash fund, should be reported? b. 2,000 short
a. 42,000
c. 4,000 short
b. 27,000 d.0
c. 37,000
2. What entry should f
d. 22,000
3t, 2021 to record the
Problem 1-25 (PHILCPA AdaPted) a. Petty cash
Cash in bank
Adrnirable Company had a petty cash fund rvhich i"ncluded Cash short anr
the fbllowing details:
Coins and currency 2,000 b. Miscellaneous exi
Paid vouchers Cash in bank
Transportation 600 Cash short ant
Gasoline 400
Office supplies 500 C Miscellaneous exl
Postage stamps 300 Cash short and or
Due from employees 1,200 3,000 Cash in bank
Employee's check returned by bank marked "NSF" 1,000
Check drawn to the order ofofpetty cash custodian 4,000 d. Misceiianeous exI
Petty cash
What amount of petty cash should be reported? Cash short anr

a. 2,000
b. 7,000
c. 6,000
d. 9,000

.34
Problern 1-26 (PHILCPA Adapted)
On December 1, 202l,Andi Qompany established a petty cash
fund of P50,000. On December 31, 2021, the netty cash fund
was examined and found to comprise the following
information:

Coins and curreneies 6,000

Petty cash vouchers for expenses 46,000

The petty cash fund was replenished on December 31, 2021.

1. What amount should be reported as cash shortage or cash.

overage?
a. 2,000 over
b. 2,000 short
c. 4,000 short
d.0
2. What entry should Andi Company make on December
37, 2021to record the replenishment of petty cash fund?

a. Petty cash 46,000

Cash in bank 44,000
Cash short and over 2,000

b. Miscellaneous expenses 46,000

Cash in bank 44,000
Cash short and over 2,000

C Miscellaneous expenses 44,000

Cash short and over 2,000
Cash in bank 46,000

d. Miscellaneous expenses 46,000

Petty cash 44,000
Cash short and over 2,000

ato
 6. Technically, cosh ma]'
Problem 1-27 Multiple choice (IAA)
a. Foreign currenc!'
1. Which of the following should not be considered cash? b. Money order
c. Restricted cash
a. Petty cash fund d. Undeposited custo
b. Money order 7. Restricted deposits in
c. Coin and currency
d. IOU a. Current asset witl
' b. Noncurrent asset'
2. Which of the following is usually considered cash? c. Be written off as l<
d. As part of cash ant
a. Certifrcate of deposit
b. Checking account 8. What is a compensatit
c. Money market cdrtificate
d. Postdated check a. Saving account bal
b. Demand deposit ar
3. Which of the following should not be included in cash? c. Temporary investn
d. Minimum deposi'
a. Trave1 cash advance connection with a
b. Certifi.ed check
c. Personal check 9. Compensating balanct
d. Manager check
a. Fund in a bank ac<
4. All of the following may be included in cash, except b. Balance in a payrc
c. Account that is sul
a. Curuency d. Account on which ,

b. Money market instrument

c. Checking account balance 10. A compensating balan
d. Saving account balance
a. Must be included i
5. Under IFRS, which of the following statements is true b. Which is legally re
about reporting bank overdraft? loan is classified a
c. Which is legaily rei
a. Overdraft typically cannot be offset against positive loan is classified s
balance in other cash account but reported as curuent d. Which is not lega.
liability. classified separate
b. Generally, cash overdraft is not allowed.
c. Overdraft can be offset against other bank account
when payable on demand and often fluctuates from
positive to overdrawn as an integral part of cash
management.
d. All of these statements are true about bank overdraft.

36
 6. Technically, cosh may not include
a. Foreign currency
b. Money order
c. Restricted cash
d. Undeposited customer check
7. Restricted deposits in foreign bank are classified as

a. Current asset with appropriate disclosure.

b. Noncurrent asset with appropriate disclosure.
c. Be written off as loss.
d. As part of cash and cash equivalents.
8. What is a compensating balance?
a. Saving account balance
b. Demaid d"eposit account baiance
c. Temporary investment as collateral for loan
d. Minimum deposit required to be maintained in
connection with a borrowing arrangement

9. Compensating balance represents

a. Fund in a bank account that cannot be spent
b. Balance in a payroll checking account
c. Account that is subject to bank service charge
d. Account on which a bank pays interest

10. A compensating balance

a. Must be included in cash and iash equivalent.
b. Which is legally restricted and related to a long-term
loan is classified as current asset.
c. Which is legally restricted and related to a short-term
loan is classified separately as current asset.
d. Which is not legally restricted as to withdrawal is
classified separately as current asset.

37
Problem 1-28 Multiple choice (IAA) Problem 1-29 Multiple
1. A cash equivalent is a short-term, highly liquid inveetment 1. 1'he internal control feai
readily convertible into known amount of cash and
a. Is acceptable as a means to pay current liability
a. Separation of duties
b. Has a greater current fair value
b. Assignment of respo
c. Bears a prime interest ra[e c. Proper.authorization
d. Is so near maturity that it presents insignificant risk of d. Imprest system
change in interest rate
2. What is the major purpo
2. Highly liquid investments are cash equivalents if the
maturity is 90 days or less a. To effectivel.v plan ca
b. To ease the payment
a. From the clate the investrnents are acquired c. To determine the hor
b. From the end of reporting period d. To effectively control
c. From the date of issue of fi.nancial statements
d. From the beginning of reporting period 3. The imprest petty cash f
3: AII of the following can be classified as co,sh and cosh a. Only when the fund;
eqwiualents, except b. When the fund is crea'
a. Redeemable preference shares due in 60 days c. \&'hen the fund is crez
b. Commercial papers due for repayment in 90 days is increased.
c. Equity investments d. When the fund is cre
d. A bank overdraft is decreased.
4. Cash equivalents do not include {. A cash over and short ac

a. Money market funds a. Is not generally accel

b. Hish grade marketable equity investments b. Is debited when the
c. BSP treasury bills c. Is debited when the i
tr

d. Commercial papers d. Is a contra account to

5. Cash equivalents are 5. Petty cash fund is
a. Treasury bills and money market instruments. a. Separatelyclassified
b. Investments with original maturity of three months or
less. b. Money kept on hand
c. Readily convertible into known amount of cash. of coin and currency r

d. AIl of these are features of cash equivalents. c. Set aside for the palr
d. Restricted cash

3E
Problem 1-29 Multiple choice (IAA)
1. 1'he internal control feature specific to petty cash is
a. Separation of duties
t,. Assignment of responsibility
c. Proper.authorization
d. hnprest system

2. What is the major purpose of an imprest petty cash fund?

a. To effectively plan cash inflows and outflorvs
b. To ease the payment of cash to vendors
c. To determine the honesty of the petty cashier
d. To effectively control cash disbursements

i. The imprest petty cash fund account is debited

a. Only when the fund is created.
b. When the fund is created and everytime it is replenished.
c. W'hen the fund is created and when the size of the fund
is increased.
d. W'hen the fund is created and when the size of the fund
isdecreased.

I \ cash over and short account

a. Is not generally accepted.
b. Is debited when the petty cash fund proves out over.
c. Is debited when the petty cash fund proves out short.
d. Is a contra account to cash.
i. Petty cash fund is
a. Separately classified as current asset
b. Money kept on hand for making minor disbursements
of coin and curency rather than by writing checks
c. Set aside for the payment of payroll
d. Restricted cash

39