Chapters

The AcCTunting Process

R. Bocaue Trading provided the following information for die year:

Cash and Cash Eqwvalents
Accounts receivable,January 1 . 190,000
Collections from customers. 2,100,000
Shareholders'equity,Januaiy 1 380,000 Learning Outcomes
Total assets,januaiy 1 750,000
Total assets, December 31 880,000 After reading this chapter,you should be able to:
^ Accounts receivable,December 31 360,000
Total liabilities, December 31 390,000 (a) understand the definition and nature ofcash and cash equivalents and identify
its composition;
(23) Whatis the net income for the current year? (b] know the proper presentation of cash and cash equivalents in the statement of
a. P70,000 financial position;
b. P110,000 {c) explain the basic features ofa cash control system;
c. P150,000 (d) understand how a petfy cash system works and be able to solve problems
d. P490,000 invdlving the petty cash fund;
(e) solve simple and complex problems relating to bank reconciliation and proof of
S. The adjusted trial balance ofMalolos Fabrication for the month ended January 31, cash; and
2021 shows the following: (f) attain proficiency in solving problems relating to cash and cash equivalents.

Debit Cisdit Definttion and Nature

Cash 150,000
Accounts Receivable 355,000 Cash is any item that can be used as a medium ofexchange and which is acceptable
Prepaid expenses 88,000 by bank at face value upon deposit Ciash or cash on hand and in banks include
Land / 250,000
Machinery - net of depreciation 185,700 > cash items on hand - undeposited cash collections and cash items awaiting
Accounts Payable ^ 198,500 deposit such as bills and coins, bank drafts, customers' checks, manager's
Interest Payable 8,000 checks,cashier's checks and postal money orders
Ordinary Shares 350,Q00
Retained Earnings 450,000 > peso or foreign currency deposits in bank - savings,checking or money market
accounts
Revenue 585,100
Direct Labor 185,000
> working funds - petty cash fund,change fimd,pa3n'oll fund,and dividend fiind
Direct Materials 157,000
Depreciation expense ^ 13,300 These items should be unrestricted and immediately available for use in the current
Rent expense 115,000 operations.
Utilities expense 78,600
Interest expense 14,000
Cash Equivalents
TOTAL 1,591,600 1,591,600
These are shortterm and highly liquid investments that are both readily marketable
(24) Whatis the correct trial balance total after all closing entries are made? to known amounts of cash and are subject to" insignificant risk ofchange in value.
a. P1,028J00
b. Pt050,900 > Examples are Bangko Sentral ng Pilipinas CBSP) treasury bills, commercial
c. Pt569,400 papers, and money market instruments with original maturities of three
d. Pl,591,600 months or less.

> The deteririination of original maturity date starts from the date of acquisition
ofthe instrument and notfrom the date indicated on the face ofthe instrument.

> Trading equity securities capnot qualify as cash equivalents because these
equity securities do not have maturity dates.

50
Chapter4
Cash and Cash Equivalents
> .Redeemable, preference shares that are to be reacquired by the issuing
- cofporation at a determined redemption date qualifies to be reported as cash
equivalent if purchased within three nionths or less before redemption date.
Valuation
There is usually no problem on valuation of cash and cash equivalents, since they
are generally valued at their face value. For cash in foreign currency, however,
valuation is at the exchange rate at the reporting date.
Presentation in the Statement ofFinancial Position
> Cash and cash equivalents are usually presented as the first item among the
current assets in the statement offinancial position. » that the shortage-in the petty cash fund is significant, the amount may be
^ Unless the statement offipancial position is prepared for a special purpose,it is
not necessaiy to classify them, to distinguish deposits in yaripus. banks or
deposits at various locations,cash on hand and undeposited cash. The details,
however,should be disclosed in the notes to the financial statements.
> A cash overdraft (credit balance of cash in bank) is generally reported as a
current liability. It niay be offset against another demand deposit with a
positive balance in the same bank if a right of Offset exists in the agreement
between the bank and the depositor.
Basic Characteristics ofa Cash Control System
> Specifically assigned responsibility for handling cash receipts
> Separation ofcash handling and cash recording functions
>
Daily deposit ofall cash received
>
•Voucher system to controi cash payments
>
Internal audit at irregular intervals ■
> Periodic fecdnciliatioh of bank statement balance and cash balance in the
company's accounting records. .' 1.
Petty Cash Fund
> It represents cash on hiarid thatis maintained for petty and immediate payments 2.
ofexpenses.
> It is generally maintained on an imprest system. The fimd is replenished when
its bdlance is low'or at the end ofan accounting period.^ 3. .
> Ifthe fund is hot replenished at the end ofan accounting period,an adjustment
is required to record the disbursements from the fund and to reduce its balance
' to the actual amount ofcash Ph hand.
> Pro-fonha entries to record the transactions affecting petty cash fund 4.
52
Chapter4
Cash and Cash Equivalents
Petty Cash Fund XX
Cash in Bank XX
, Establishment ofthefund
Expenses(various expense accounts) XX
Cash in Bank XX
Replenishment ofthefund
Expenses(various expense accounts) ■ XX
Petty Cash Fund XX
Year-end adjustment
A cash shortand over accountis a suspense accountthatis debited for shortages
and credited for overages in the petty cash fund. This account is considered as
other expense or other revenue reported in the income statement. In the event
charged as a receivable from the employee in charge ofthe fiind.
Types of Bank Reconciliation Statement
> Reconciliation of ending balances(reconciliation at one date)
> Reconciliation ofreceipts,disbursements,beginning and ending balances. This
is also known as proof o^cash orfour-cOlumn reconciliation. This type of bank
reconciliation provides columns for the beginning reconciliation, deposits of
receipts, withdrawals or disbursements, and ending reconciliation. Thus,this
approach is a reconciliation of two periods presented in one statement -
reconciliation as of the end of the preceding period and as of the ehd of-the
current period. The amounts must'reconcile both vertically and horizontally
for the ending bank and book balances to agree.
A proofofcash is presented on the next page. The problem itselfis omitted,but
' some points or notes are given hereunder and after the statement for emphasis
in its preparation.
, Deposit in transit at the end of the previous month is added to the balance per
bank statement on that date and deducted from the deposits reported during
the current month since this deposit was received and recorded by the bank
during the current month. • '
Deposit in transit at the end ofthe current month had not been received yet by
the bank during the month and is, therefbre, an addition to current month's
deposits and balance per bank statement at the end ofthe current month.
Outstanding checks at the end of the previous month are deducted from the
balance per bank statement on that date. . This is also deducted from the
disbursements of the current month since it is presumed that these checks
cleared the bank during the current month,
Outstanding checks at the end ofthe current month is an addition to the current
month's disbursements jser bank and a' deduction from the bank's current
month's ending balance.
53 V
 Cliapter4 Chapter4
Cash and Cash Equivalents Cash and Cash Equivalents
'Ji&
Sample Company balance per books on that date but are deducted from receipts of the current
Proofof Cash month since these are presumed to have been recorded in the books in the
November 30,2021
i
current month. The amounts at the end of the month, on the other hand, are
added to both receipts and*ending balances.
Beginning Ending
Reconciliation Deposits/ Withdrawals/ Reconciliation
Forms of Bank Reconciliation Statement
October 31 fis£sh2tst Disbursements November 30
Balance per bank P58,954.20 P213,124.00 P242,281.00 P29,797.20
> Adjusted balance method .
Deposit in transit
OcLSl 4,254.00 (4,254.00) Balance per bank statement XX
Nov.30 6,585.00 6,585.00 Receipts not yet deposited/Deposits in transit
Add: XX
Outstanding checks Erroneous charge by bank XX XX
Get 31 (8,105.00) (8,105.00) Total XX
Nov.30 . 7,038.30 (7,038.30) Deduct: Outstanding checks - XX
NSF check redep.in Erroneous credits by bank XX XX
Nov;no entry made Adjusted/correct cash balance
for return or
redeposit. (1,000.00) (1,000.00) Balance per books XX

Erroneous bank Add: Note collected by bank XX

charge (125.00) 125.00 Interest credit by bank XX

Corrected balances P55.103.2Q P214.455.00 P240.089.30 P29.468.90 Overstated disbursements recorded.in the books XX

Understated receipts recorded in the books XX XX

Balance per books P54,062.20 P214,570.00 P239,107.30 P29,524.90 Total XX

Bank service Deduct: NSF check returned by bank XX

charges Bank service charges XX

Get 31 (59.00) (59.00) Understated disbursements recorded in the books XX

Nov.30 31.60 (31.60) Overstated receipts recorded in the books 2S

Interest earned Adjusted/correct cash balance XX
Get' 1,100.00 (1,1G0.00)
Nov. 985.00 985.00 > Bank balance reconciled with hook balance
NSF check returned
by bank 1,189.40 (1,189.40) Balance per bank statement XX

Check No.112 for Add: Receipts not yet deposited/Deposits in transit XX

P460 recorded in Erroneous charge by bank XX

the books as P640 (180.00) 180.00 NSF check returned by bank XX

Corrected balances P5.5.103.20 P214.455.00 P240.089.30 P29.468.90 Bank service charges XX

Understated payments recorded in the books XX

5. Bank service charges of the previous month are presumed to have been Oyerstated receipts recorded in the books XX

reflected in the books in the current month;hence,the amountis deducted from NSF check returned by bank XX

XX
both beginning balance and disbursements of current month. The explanation Total
holds true for NSF checks. Deduct: Outstanding checks XX
XX
Erroneous credits by bank
6. Bank service charges and NSPOhecks at the end ofthe current month have not Note collected by bank XX

yet been reflected in the books; thus, these are shown as additipns to the Interest credit by bank XX

disbursements per books ofthe current month and deductions from the ending Overstated disbursements recorded in the books XX

balance. Understated receipts recorded in the books XX XX

Balance per books

7. Credits made by the bank that are not yet reflected in the books such as interest
credits and note collected by bank ih behalf of thie depositor are accounted
similarly. The amounts at the end of the previous month are added to the

'54 55
Chapter4 Chapter4
Cash and Cash Equivalents Cash and Cash Equivalents

> Book balance reconciled with bank balance information is made known by the bank to the depositor after the end of the
; month (usually in the bank statement), the amount of the check is deducted
Balance per books XX
from the cash balance per books and a corresponding entry is made debiting
Add: Outstanding checks XX
Accounts Receivable cmd crediting Cash in Bank On the other hand,ifthe bank
•Erroneous credits by bank XX
informs the depositor and returns the check during the month,the same may
Note collected by bank XX
be redeposited after the check is funded by the customer/makeh When the
Interest credit by bank XX
return and the redeposit take place in the same month, no adjustment is made
Overstated disbursements recorded in the books XX
in the books.
Understated receipts recorded in the books 2Si
Total XX
Customers' post-dated checks (PDCs) are checks received from customers
Deduct: Receipts not yet deposited/Deposits in transit XX
that are dated subsequent to the end ofthe reporting period. These are usually
Erroneous charge by bank XX
received in settlement of open accounts or in pa3mient of a sale. Proper
NSF check returned by bank XX
accounting dictates that these checks should not be treated and recorded as
Bank^ervice charges XX
cash. Upon receipt from customers in payment ofan account,no journal entry
Understated disbursements recorded in the books XX
should be made; upon receipt from customers in payment of a sale, accounts
Overstated receipts recorded in the books XX receivable should be charged. When these checks are recorded as cash upon
NSF check returned by"bank receipt, the amount should be deducted from the cash balance per bpoks to
Balance
arrive at the correct cash balance. .,

Types ofReconciling Items Compan)r's post-dated checks delivered are checks drawn against the
compan/s checking account, recorded and delivered to payees but bearing a
^ Book debits not yet credited by bank (e.g. deposits in transit) date subsequent to the end of the reporting period. . These checks should be
restored back to cash by reversing the entry that was made upon issuance of
> Book credits not yet debited by bank (e.g. outstanding checks) check In arriving at the correct cash balance,the amount is added to the cash
balance per books.
^ Dank m behalfofthe
yet debited to cash
depositor, in theofdepositor's
proceeds books (e.g.
bank loan,interest collection by
earned)
Undelivered or unreleased checks are the company's checks drawn and
recorded as disbursements but were not actually given or delivered to payees
^ me y bank,bank credited
servicetocharges,
cash incharges
the depositor's books
by bank for (e.g. NSFofcheck
repayment loan) as ofthe end ofthe reporting period. Technically,checks drawn by a company
should not be deducted from the company's.cash balance until they have been
^ Bank eiTore that understate bank balance (e.g. check issued by another mailed or otherwise delivered. Therefore, these Checks should be restored
depositor charged to the compan/s account) back to cash by reversing the entry that was made upoii issuance of the check
> Bank emors that overstate bank balance (e.g. deposit of another company Similar to a company's post-dated checks delivered,i^e amount is added to the
cash balance per books in arriving at the correct cash balance.
credited to die company's account) ;
> Book errors that understate book balance(e.g.recorded amount ofcheck issued Company's certified checks should be; excluded from the total outstanding
IS overs te , recorded amount ofa customer's check is understated) checlK since these checks were already charged to the depositor's account by
the bank
> Book errors that overstate book b^ance(e.g. recorded amount of check issued
IS understated,recorded amount ofa customer's check is overstated) compensating balances are minimum amounts that a Company agrees to
maintain in a bank checking account as support or collateral for a loan by the
depositor. This is reported as part of cash unless the compensating balance is
Items That Require Attention in Solving Problems About Cash legally restricted,in Which case,it shall be reported separately either as current
or noncurrent asset depending on the nature of the* loan for which the
> Customers NSF (Not Sufficient Funds} checks are checks customarily compensating balance is set up. \
received from customers but are found to be without sufficient funds to coyer
the amountindicated in the check Locally,it is often described as DAIF(Drawn Computation ofdeposits in transit and outstanding checks. In practice,the
AgainstInsufficient Funds)or DAUD(Drawn Against Uncleared Deposits). This determination of deposit in transit and outstanding checks is done by a simple
amountis automatically charged by the bank in the depositor's account. If the comparison of the bank statement and'the company's cash records. The

56
57
 m

Chapter4 Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents
{f:;
receipts reflected in the books (usually towards the end ofthe month)that are TRUE OR FALSE QUESTIONS
not yet received by the bank and not yet reflected in the bank statement are '

considered as the deposits in transit Meanwhile, upon comparing the checks 1. Preference shares with mandatory redemption and acquired three months
issued in the accounting records with the checks that cleared the bank as prior to redemption date may be included as part of cash and cash equivalents.
reflected in the bank statement, the amount of the outstanding checks can be
determined. 2. A journal entry to record expenses out ofthe petty cash fund shall be done upon
disbursement
'However, if only narrative information is provided for problem solving
purposes, the following may serve as guide in the computation of deposits in 3. Term deposits with original maturity of more than three months and with early
transit and outstanding checks. withdrawal provisions subject to penalty may qualify as cash equivalents
provided the interest earned is substantially consistent with what have been
Deposit in transit, beginning ofthe month XX earned on a similar deposit with similar term ofless than three months.
Add cash receipts reflected in the company's records (does not
include charges to cash account result from bank credit memos in 4. A cash short or over account is credited when the petty cash fund proves over.
the previous month; e.g. note collected by bank and interest credit
• by bank in previous month) 5. Cash equivalents are held for the purpose of meetiiig short-term cash
SL
Total
XX commitments rather than for investments or other purposes.
Deduct deposits during the month as reflected in the bank statement
(does notinclude bank credit memos for the current month) 6. A three-year treasury note maturing on February 28, 2021 purchased by the
Deposit m transit,end ofthe month entity on November 2,2020niay qualify as cash equivalent in the December 31,
2020 statement offinancial position.
Outstanding checks,beginning ofthe month XX
Add checks drawn by the company during the month (does not 7. Collection ofa note receivable would cause a bank to debit a depositor's account
K?oc if ^'snk debit memos of the previous month; e.g., XX

8. Equity investments njay qualify as cash equivalents.

To^ services charges of previous month) XX
"iurtrig the month (does not include 9. Lapping occurs when cash shortage is concealed by overstating the balance of
bank debit memos ofthe current month) XX cash, which is performed by taking advantage of the float to make use of non
Outstanding checks,end ofthe month 2CK existent funds in a checking or other bank account

Disclosure Requirements 10^ Bank overdrafts are always offset against the cash account in the balance sheet
11. ; Classification of a cash fund as current or noncurrent should parallel the
^ ^' e coSr^ntet™r„Vfte MancI''"' equivalents and classification ofthe related liability.

sh^ld\e classme?al'S™Senre'i!SttLs®
disclosures.
®
' fluivaient, entities should also make relevant
12. With the establishment of an imprest petty cash fiind, one person is given the
authority and responsibility for issuing checks to cover minor disbursements.
13. If a bank or financial institution holding the funds of the company is in
bankruptcy of financial difficulty, cash should be written down to estimated
realizable value.
> Tempora^ placements of excess cash wfiich can be preterminated included in
the cash balance. 14. If the balance shown on a company's bank statement is less than the coirect
cash balance,and neither the company nor the bank has made any errors,there
> Compensating balance included in the cash balance. must be deposits in transit

15. A person authorized to write checks drawn on a checking account at a bank

must sign and have on file with the bank a deposit ticket.

58 59

_ii^i
 Chapter4 Ghapter4
■Cash and Cash Equivalents Cash and Cash Equivalents

16. The imprest fiind system is an internal control device for cash which requires FINANCIAL ACCOUNTING THEORY QUESTIONS
that all cash receipts should be deposited intact and all cash payments should
be made by means of checks. • 1. Which of the following are basic characteristic of a system of cash control?
I. Combined responsibility for handling and recording cash
17. The petty cash fund is debited when the fund is replenished. II. Daily deposit of all cash received
III. Internal audits at irregular intervals
18. The debit balance in Cash Short and Over at the end of an accounting period is IV. Use of a voucher system
reported as an expense on the income statement
a. 1,11 and ill
19. A voucher is a document used by a company*? accounts payable department b. II, 111 and IV
containing the supporting documents for an invoice. c. 1, 111 and IV
d. II and 111
20. The <mt-off bank statement is a bank statement prepared a few days after
mo^lh-end with the purpose of helping auditors verify reconciling items on the 2. In Mapera Company's December 31,2021 statement of financial position which
year-end bankxeconciliation. of the following items should be included in the amount reported as cash?
I. A check payable to Mapera, dated January 2, 2022, in pa3mfient of a sale
21. Deposits held as compensating balances if legally restricted, should- be made in December 2021.
segregated from the cash account and reported as current or noncurrent II. A check drawn on Mapera's account, payable to a vendor, dated and
depending on the term of the related credit recorded in the company's books on December 31, 2021 but not mailed
until January 10,2022.
22. An en*or made by a bank By charging an amount to the depositor's account
requires a correcting entry in the depositor's own records a. I only
b. II only
23. Cash set aside for the acquisition of fixed assets should be excluded from the c. I and II only
cash balance and presented as either current or noncurrent asset depending on d. Neither 1 nor II
Ae period of disbursement
3. Deposits held as compensating balances
24. Unless otherwise stated, reconciling items are presumed to have been taken up a. if legally restricted and held against long-term credit may be included
in the books or taken up by the bank in the immediately following month. among current assets.
b. if legally restricted and. held against short-term credit may be included as
25. Credit memoranda from the bank show the bank has collected a note receivable cash.
for the customer. - c. if legally restricted and held against short-term cre(dit should not be
included in the cash balance but is reported among current assets,
26. At any time, the sum of the cash in the petty cash fund and the total of petty cash d. usually do not earn interest. '
vouchers should equal the amount for which the imprest petty cash fund was
established. , / Which of the following statements are true?
I. Adjustment of the petty cash account is made at the end of the period to
27. The petty cash custodian obtains signed receipts from each individual to whom avoid understatement of expenses and overstatement Of cash.
petty cash is paid. II. Entries are made to the petty cash account to increase of decrease the size
of the fund or to adjust the balance if not replenished.at year-end.
28. Float refers to checks issued but not yet paid by a bank. III. The imprest petty cash system in effect adheres to the rule of
disbursements by check.
29. A check drawn by a depositor in payment of a voucher for P725 was recorded IV. The petty cash account is debited when the fund is replenished.
in the journal as P257..This item would be included in the bank reconciliation
as a deduction from the balance per the bank statement. a. 1,11 and III
b. 1, in and IV ^
30. Bank reconciliations are normally prepared on a monthly basis to identify c. , l and 11
adjustments needed in the depositor's records and to identify bank errors. d. II, III and IV

60 61
 Chapter4 Chapter-4.
Cash and Cash Equivalents Cash and Cash Equivalents «

Which ofthe following statements is false? 10. Procedures designed to protect cash from theft and misuse from the tinie it is
a. Cash may be offset against a liability if the deposit offunds in a restricted received until it can be deposited in a bank are called
account clearly constitutes the legal discharge ofthe liability. a. detective controls.
b. Petty cash fund ofP30,000 composed ofcurrency and coins ofP22,000 and b. cash controls.
unreplenished.petty cash vouchers of P8,000 should be shown in the c. accounting controls.
current asset section at P22,000 only. d. preventive controls.
c Marketable securities and commercial papers may be shown as part ofcash
provided this is disclosed. 11. Travel advances should be reported as
d. Not all items included in cash constitute legal tender. a. cash.
b. investments. . . .
A proofofcash is c. prepayments.
a. a proofofa company's liquid position. d. supplies.
b. a proofofthe existence ofa cash deposit in a bank.
a reconciliation of the cash receipts and payments during the current 12. A good internal control system provides procedures for
period,together with the beginning and ending balances of cash, a. allowing one person to receive cash to record cash receipts.
d. a reconciliation of the cash receipts and payments during the previous b. delaying the deposit of cash collections because no one knows for sure the
period,together with the beginning and eliding balances ofcash. account to be credited.
C. making pa3mients from the day's collections,
Seldom does the balance of the cash in bank account in the depositor's books d. preparing regular bank reconciliation.
agree with the balance appearing in the bank statement at a particular.date
because of 13. Which of the following are characteristics of an effective control of cash
a. a tax avoidance. disbursements? , ,
b. bank secrecy requirements. I. Requiring all checks to be pre-numbered consecutively.
c. negligence by the bookkeeper. If. Requiring all checks to be signed by one person and countersigned by
d. time-lapse differences. another.
III. Requiring approved supporting documents foroach check issued.
8. The following statements relate to cash. Which statement is false? IV. Requiring disbursements to be done in cash from daily receipts prior to
a. Classification of a restricted cash balance as current or noncurrent should making bank deposits to minimize handling of cash. •
parallel the classification of the related obligation for which the cash was
restricted. a. 1,11 and 111
b. Cash equivalents are short-term and highly liquid investments that are b. I, 111 and IV
readily convertible into cash and so near their maturity that they represent c. 1 and II
insignificant risk ofchanges in value because of changes in interest rates. d. II, 111 and IV
c. A six-month money market p^lacemeht with remaining maturity of two
months on balance sheet date should.be classified as cash equivalents. 14. The notification accompanying a check that indicates the specific invoice being
d. Legally restricted bank deposit held as compensating balance should be paid is called,a
segregated from the cash account and reported as current or ndncurrent a. debit memorandum.
depending on the term ofthe related loan. b. voucher.
c. remittance advice.
9. A cash short and over account is d. credit memorandum.
a. a contra account to cash.
b. debited when the petty cash fund proves out over. 15. Cash and cash equivalents on the statement offinancial position exclude
c. debited when the petty,cash fund proves out short. a. Cash reserved for acquisition of property, plant and equipment items.
d. not generally accepted. b. checks drawn before the reporting date but held for later deliver to
creditors.
c. unrestricted 30-day time deposits.
d. US dollars deposited in foreign currency depository account.

62
V
63
 Chapter4 Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents

16. Bank statements provide information about all ofthe following, except 21. The journal entries for a bank reconciliation
a. bank charges for the period. a. are taken from the balance per bank section only.
b. checks cleared during the period. b. may include a credit to accounts receivable for an NSF check.
c. errors made by the company. c. may include a debit to accounts payable for an NSF check.
d. no sufficient:fund checks.
d. may include a debit to office expense for bank service charges.

17. In a bank reconciliation that attempts to reconcile the bank balance to the 22. Which ofthe following statements is incorrect?
correct cash balance, the following items would affect reconciliation in what a. Bank statements are prepared from the depositor's perspective.
way? b. Every check the bank funds or pays for a depositor decreases the bank's
Outstanding checks Deposits in transit
liability(an accounts payable)to the depositor.
a. added added
c. When one individual is responsible for all of the .related activities, the
b.
potential for errors and irregularities is increased.
deducted added
added ;
d. Related purchasing activities (e.g. ordering merchandise, receiving goods,
c. deducted
d. deducted deducted
and pa3dng(or authorizing payment)for merchandise)should be assigned
to different individuals.

18. Salapi, Inc. placed P3.0 million in the money market for 60 days subject to
pretermination. The 3.0 million may be 23. Following are reconciling items in an eiiterprise'^s bank reconciliation
a. considered as part of its trading securities with the appropriate disclosure statement
in the notes to the financial statements. I. Deposits in transit y
b. included as part of cash and cash equivalents With appropriate disclosure II. Company check for P32,500 recorded in the books'^for P23,50b
III. Check ofanother company erroneously charged by bank in the compan5^s
in the notes to the financial statements.
account /
c. recorded as part ofits trading securities without need of any disclosure,
d. treated as short-term receivable with the appropriate disclosure in the IV. Deposit of another company erroneously credited by bank to the
company's account \
notes to the financial statements.
V. Bank service charges ^
19. The following statements are about the voucher system. VI. No sufficient fund check charged back by baiik
I, The voucher system refers to the complete use ofthe voucher check and of VII. Company deposit for P32,500 recorded in the books for P23,500
subsidiary records ofvouchers payable,voucher register and check register
II. The simplest and mostsatisfactory method of handling purchase discounts Which ofthese adjustments>would beshown as deduction from the cash balance
under the voucher system is to deduct the purchase discount on the face of per books in order to arrive at the correct cash balance?
a- II, IV, V, VI and VII
the voucher and enter this discountin a special column in the check register
b. II, V, Viand VII
III. Entries in the voucher register are made in the same sequence as the
Ci II, Vand Vt
numbering ofthe checks - that is,in the order in which payments are made.
d. V,VIandVII
Which ofthe above statements is(are) correct?
a. I only 24. As of December 31,2021, Maunlad Company had various checks and papers iii
its safe. Which item should hot be included in its cash account on its statement
b. I and II only
c! III and III offinancial position?
d. Neither I, II nor III
A past-due promissory note in favor of Maunlad by its president
Mauniad Company's December 28,2021,P50,000 check payable to Malula
20. Which ofthe following would not be classified as cash? Company,a MaUnlad supplier .
a. Cashier's checks
Mayabong Company's December 5, 2021, pi5,000 check pa3rable to
b. No sufficient fiind checks
Maunlad Company
c. Personal checks d. US$15,000 cash .
d. Traveler's checks

64 6S
 1
■1
Chapter4 Chapter 4
Cash and Cash Equivalents i Cash and Cash Equivalents

25, To be reported as cash and cash equivalent the item must be
a. unrestricted and available for use in current operations.
b. available only for the purchase of property,plant and equipment
c. set aside for the liquidation oflong-term debt
d. deposited in bank and restricted by the court exclusively for payment of
/ back wages ofemployees who won in a court case against the employer.
26. If the cash balance shown in the company's cash records is more than the
correct cash balance and neither the company nor the bank has made any
errors,there must be
a bank charges not yet recorded by the depositor.
31. Which statement is true about open-ended or perpetual deposit accounts?
a. Open-ended oi* perpetual deposit accounts [for example, no stated maturity
date offers a marginally better rate of interest but requires a notice period
for withdrawal without penalty.
b. . If the notice period is less than three months, such accounts can be
classified as cash equivalents if the cash is intended to meet short-term cash
commitments. . #
c. Entities often use such accounts to temporarily hold cash required for
working capital management if the withdrawal period is reasonably short.
d. All these statements are true about open-ended or perpetual deposit
accounts. - ,

b. deposit in transit
c. note collected by the bank not yet recorded by the depositor. 32. In order to be classified as a cash equivalent, an investment must have a
d. outstanding checks. maturity period of
a. less than four months.
27. Which ofthe following items would normally be excluded from the amount to b. at least three months.
be reported as cash on a companj^s statement offinancial position? c. three months or less.
a. Petty cash fimd d. three to six months.
b. Post-dated checks issued by the company
c. Post-dated checks payable to the company 33. Highly liquid investments that are readily convertible into cash can be shown
^d. Undelivered checks written and signed by the company as cash equivalents if the investments have a maturity of 90 days or less
a. from the date the investments are acquired or from the end of the reporting
28. A certihed check period.
a. is a liability ofthe bank certifying it. b. from the date the investments are acquired. *
b. should be included in the outstanding checks. c. from the end of reporting period.
c. • does not fall into the same umbrella as cashier's check. d. from the date ofissUe of financial statements.
d. is not a personal check from an account that's certified by a bank.• . V

34. What is the basic requirement for cash and cash equivalent?
29. kwarta Incorporated prepares a four-column bank reconciliation. Check no. a. Unrestricted in use for current operations
8888 was written for P6,780 on the books, but the check was written and b. Set .aside for the liquidation of long-term debt
cleared the bank for the correct amount,P7,680. The correct treatment on the c. Available for the purchase of property, plant and equipment
reconciliation would be: . d. Deposited in bank
a. on the bank side,add P900 to receipts and add P900 to ending balance
b. on the bank side, deduct P900 from payments and add P900 to ending 35. Which of the following would not be included, with the Cash and Cash
balance Equivalents classification in the. Statepient of Financial Position?
c. on the book side, add P900 to payments and deduct P900 from ending a. Municipal Securities
balance ' b. Short-Term Receivables
d. on the book side, deduct P900 from pa)mients and add P900 to ending c. • Money Market Mutual Funds
balance d. Commercial Paper

30. Which is not a key element ofinternal control over cash receipts? 36. Cash control system are the methods and procedures used to ensure
a. Cash deposit on a regular basis. a. that current obligations are met.
b. Daily entry in a voucher register b. the safeguarding of cash.
c. Daily recording of all cash receipts in the accounting records c. that unused cash is invested.
d. Immediate counting by the person opening the mail or using the cash d. that excess cash does not exist
register

66 67
 Chapter 4 Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents

Which ofthe following is a key element ofinternal control over cash payments? PRACTICAL FINANCIAL ACCOUNTING
eu Making daily bank deposits
b. Authorizing and verifying that all cash received is recorded daily Louis Company had the following account balances at December 31, 2021:
c. Requiring that all petty cash vouchers be approved by two signatures
d. Periodically reconciling the cash account balance on the company's books Cash in Metrobank 1,875,000
to the bank statement balance Cash in BPI 200,000
Cash on hand (includes a customer's check for F15,000
Which of the following is not a correct way of handling a voucher system? dated January 5, 2022) 125,000
a. Purchases are recorded in the voucher register at gross by debiting Cash restricted for acquisition of machinery(expected to
purchases and crediting vouchers payable. be disbursed in 2022) 1,600,000
b. When installments or other payments are made on an invoice, a separate
voucher is prepared for the amount of each check issued. Cash in Metrobank include P300,000 of compensating balance against short-term
c. Pajonent of purchases with discounts is recorded in the check register by borrowing arrangements. The compensating balance is not legally restricted as
debiting vouchers payable at gross and crediting respectively cash in bank to withdrawal by Louis.
and purchase discounts.
d. In case there are purchase returns and allowances, there is no need to (X) In the current asset section ofLouis'December 31,2021 statement offinancial
cancel the original voucher and the issuance of a new one for the lower position, total cash should be reported at
amount because adjusting entries could later on be prepared. a. P2,185,000.
b. PI,885,000.
Which ofthe following is not an appropriate procedure for controlling the petty c. P3,785,000.
cash fund? d. P3,485,000.
a. The petty cash custodian obtains signed receipts from each individual to
whom petty cash is paid. The following data pertains to Michael Trading on April 30:
b. Surprise counts of the fund are made from time to time by a superior of the
petty cash custodian to determine that the fund is being accounted for Correct cash balance in a general checking account with EDO 320,000
satisfactorily. Overdraft in a special checking account with Genbank
c. Upon receiving petty cash.receipts as evidence of disbursements, the (Michael does not have another account with Genbank) 20,000
general cashier issues to the petty cash custodian a company check, rather Cash accumulated in a special fund that will be used for plant
than cash,to replenish the fund. expansion in five years 150,000
i. The petty cash custodian files receipts by category of expenditure after Cash surrender value of life insurance policy 32,000
their presentation to the general cashier so that variations in different types Cash travel advances in the hands ofsales personnel 12,000
of expenditures can be monitored. Currency and coins in petty cash fund (the company has not
replenished the fund to the imprest amount of P2,000)
In reconciling a business cash book with the bank statement, which of
following items could require a subsequent entry in the cash book? (2) How much cash should Michael report on April 30?
I. Bank charges. a. P332,580
II. An error by the bank. b. P320,580
III. Deposits credited after date. c. P322,000
IV. Checks presented after date. d. P302,000
V. Standing order entered in bank statement.
VI. A check from a customer which was dishonored.
On January 1,2021, Moschino Company borrows P2,000,000 from National Bank
at 11% annual interest.In addition, Moschino is required to keep a compensatory
a. I, V and VI
balance of P200,000 on deposit at National Bank which will earn interest at 5%.
b. II, III and IV
c. 1,11, V and VI
(3) The effective interest that Moschino pays on its P2,000,000 loan is
d. Ill, IV, V and VI a. 10.0%
b. 11.0%
c. 11.5%
d. 11.7%

Sl,. M.
Chapter4 Chapter4
Cash and Cash Equivalents Cash and Cash Equivalents

D. The statement offinancial position of Vuitton Company shows cash of P237,390. Cash on hand (included a check amounting to P150,000
The following-items were found to comprise this amount payable to Burberry dated January 1, 2022 and two
checks amounting to P100,000 and P100,000 payable
Cash in Metrobank, per bank statement (outstanding checks as of year-end to Burberry dated November 30,2021 and April 30,
tOtaled-P5,200)- P99,320; Savings account at Far East Bank - P30,800; Petty 2021,respectively) 550,000
cash fund (including expense receipts of P250) - Pl,500; Cash on hand Treasury bills 500,000
(undeposited sales receipts) - P4,200; Sinking fund cash - P20,000; Cash in Pension fund 2,500,000
foreign bank (in equivalent pesos) - P62,000; Customers' checks on hand: Time deposit-60 days 800,000
Traveler's checks - P4,4S0 and certified check - P3,120; 90-day, BSP treasury Money market placement due on April 30,2022 500,000
bills - P12,000.
The cash in bank is composed ofthe following:
C4) Whatis the correctamountofcash and'cash equivalents in Vuitton Company's • Savings account- P2,000,000
statement offinancial position? • Current account- Pl,500,000
a. P23f940
■• Sinking fimd - P3,500,000 (for settlement of preference shares due on.
b. P21f940
March 31,2022)
c. P199,820 \ ' ■
d. P196,820
• Savings account - P1,000,000 (restricted account for plant expansion
and expected to be disbursed in 2022)

E. M^c Company's checkbook balance at December 31, 2021 was P123,450. In Check of P70,000 representing payment to a supplier was dated and recorded on
addition. Marc held the following items in its safe on that date. December 31,2021 but mailed to creditors on February 14,2022.
Check payable to Marc,deposited December 15 and included in Collection amounting to P85,000 was collected on January 15,2022 and included
December 31 checkbook balance, but returned by the bank on as part ofcash on hand.
December 30 stamped "NSF". The check was redeposited on
January 2,2022 and cleared on January 9,2022. P12,500 (6) On December31,2021, what total amountshould be reported ascash and cash
equivalents?
Check payable to Marc dated January 2, 2022 in payment of a a. P5,030,000
sale made in December 2021, not included in December 31 b. P5,130,000
checkbook balance. cemoer c. P5,230,000
d. P5,630,000
Check drawn on Marc's account,payable to a vendor,dated and
recorded in Marc's books oh December 31,but not mailed until
January 10,2022. 8 275 G. The trial balance of Gucci Company at December 31,2021 includes the following
accounts:
(SJ Whatis the amountofcash in Marc'sDecember31,2021 statementoffinancial
position? Petty cash fund - P15,000; Cash on hand - P190,700; MetrObank current
. a. P12Z675 account - P310,200; Allied Bank current account #1 - P320,000; Allied Bank
b. P123A50 current account#2 - P40,000 credit; Security Bank savings account- P150,000.
c. P119,225
d. P104,225 Additional information:

1. The petty cash fund consisted of the following items as of December 31,
F. You Were provided with the December 31, 2021 balance of the cash and cash 2021: .
equivalents account for Burberry Company and your review revealed the • Currency and coins, P8,500
following compositions: • Employees'advances, Pl,800
• Currency in ah envelope marked "collections for charity" with
Change fund 30,000 employees' names attached,P2;000
Petty cash fund (P3,000 expense vouchers, P2,000 20,000 • Unreplenished petty cash vouchers,P2,240
employee lOU)
Cash in bank
• Replenishment check drawn by Gucci Company payable to ^e petty
8,000,000 cashier,P2,320

70 71

. JlSL..
Chapter4 Chapter4
Cash and Cash Equivalents Cash and Cash Equivalents

2. Cash on hand includes the following items: The company's fiscal year ends ofJune 30. The petty cash fiind was established
• Customer's check for P30,000 returned by bank on December 26,2021 for an amount of PI5,000
due to insufficient funds, but subsequently redeposited and cleared by
the baiik on January 10,2022. (9) What is the correct amountofpetty cashfund atJune 30,2021?
• Postal money orders received from customers,PI8,000 a. P6,050
• Customer's check for P15,000 dated Januaty 10, 2022 received on b. P9,900 ,
December 23,2021. c. Pll,650 /
d. P15,000
3. Included among the. checks drawn by Gucci Company against the
Metrobank current account and recorded in December 2021 are the (10) How much is the shortage or overage in the petty cashfund atJune 30,2021?
following: a. P50shortage
• Check No.1214 written and dated December 22,2021 and delivered to b. ' P50 overage i
payee on January 3,2022,P25,000 c. Pl,800shortage
• Check No. 1219 written December 26, 2021 dated January 30, 2022, d. Pl,800 overage
and delivered to payee oh December 28,2021,P43,000.
4. The credit balance in'Allied Bank.current account #2 represents checks 1. Ferragamo Company established a petty cash fund ofPlp,000 on July 1,202l. At
drawn in excess of the deposit balance that are still outstanding at the end of the month, the count of cash on hand indicated that P3,557.40
December 31, 2021. A right of offset exists in the agreement between remained in the fund. A review ofthe petty cash vouchers disclosed the following
Allied Bank and its depositors. expenses had been incurred during the month:
5. The savings account depositin Security Bank was set aside by the Board of Office supplies - P841.60;
Directors for the acquisition of new equipment. This amount is expected Postage - P780.00; \ .
to be disbursed in the next three monAs from December 31,2021. Representation-P1,000.00;
Transportation- Pl,321.40; and
(7) What is the correct petty cash balance reported in becemher 31, 2021 Miscellaneous - P837.60
statement offinancial position? '
a. P8,500 , Other items found in the petty cash drawer were as follows:
b. PIG,820
c. P12,820 A sympathy envelope containing P3,500, l*epresenting employees'
d. P15,0P0 contributions for the, death of the mother of the company's
messenger.
(8) What is the; total amount reported in Gucci's December 31, 2021 statement of
financial position as cash on hand and in banks? An employee's check for Pl,100 dated August 15,2021.
a. P817,400
b. P814,720
(11) The given information indicates that there is a
c. P868,220
a. cash shortage ofP562.00.
b. . cash overage ofP562.00.
d. P978,220 ' V
c. cash shortage ofP538.00.
d. cash overage ofP538.00.
H. A surprise count ofthe petty cash fund of Tiffany Trading on July 4,2021 showed
the following:
J. On December 1,2021,Dolce Corporation established a petty cash fund of P5,000.
Currencies' P5,600 On December 31, 2021, the petty cash fiind was examined and found to have
Coins 450 receipts and documents for miscellanepus expenses amounting to P2,740 and a
Paid vouchers for petty cash voucher for Pl,250 signed by an employee as an lOU. In addition,there
Office supplies(dated July 2,2021) . ; 1,750 was cash amounting to P860.
Newspaper subscription for tvyo weeks(dated June 29,2021} 300
^ Loans to employees 3,000
Company check representing replenishment ofthe
petty cash fund 3,850

72
73
 ■

]
■m

: . Chapter 4
Chapter4
Cash and Cash'Equivalents W Cash and Cash Equivalents

(12) A^uming that no replenishment.was made atyear end, what entry would be In comparing the bank statement to its own cash records, Rolex found the
, required to record adjustment ofthe petty cashfund on December31,2021? following:

a. Miscellaneous Expenses • 2,740

Deposits made but not yet recorded by the bank, PI8,445
Petty Cash Fund Checks written and mailed but not yet recorded by the bank, P32,650
860
Receivablefrom Employees 1,250 In addition, Rolex discovered that it had erroneously recorded a check for P230
Cash Shortand Over 150
that should have been recorded as P32|0.
Cash in Bank 5,000
(14) What is Rolex's adjusted cash balance at March 31?
b.- Miscellaneous Expense . 2,740 a. P140,115
Receivablefrom Employees 1,250 b. P126,140
Cash Shortand Over 150 c. P126,025
Petty Cash Fund 4,140 d. P125,910

c. Miscellaneous Expense 2,740

Receivablefrom Employees 1,250 M. The following data pertains to Hermes Company on December 31:
Cash Short and Over 150
Cash in Bank
Bank statement balance P5,000,000 ^
4,140
Checkbook balance 5,600,000
d. Miscellaneous Expense Deposit in transit 2,000,000
2,740
Receivablefrom Employees Outstanding checks> including a check for PI00,000 dated
1,250
Cash in Bank
December 31 but undelivered to payee 500,000
3,990
(15) In Hermes' December 31 statement of financial position, cash should be
K. The following information is avaUable for the Jacobs Company on March 31 ofthe reportedgt
current year: a. P6,500,000.
b. P6,600,000.
Bank statement balance, March 31 - P146,570 c. P7,012,000.
Note collected by bank, including interest of P2,500, not yet taken up on the d. P7,200,000.
books - P62,500
NSF check returned with the bank statement - P21,260
Outstanding checks as of March 31 - P68,470
N. - Valentino Company provided the following data for the purpose of reconciling the
cash balance per books:
Bank service charges for March - Pl,285
Credit memo for interest credited by bank for the month of March - P105 Balance per books P170,000
Outstanding checks (including a certified check of P20,000) 100,000
(13) What is the correct cash balance at March 31? 40,000
Deposit in transit
a. P38,145
December NSF checks (P10,000 had been redeposited and
b. P78,100 30,000
cleared on 12/27)
c. P78,205
Erroneous credit to Valentino's account, representing
d. P76,815 60,000
proceeds of loan granted to another company
Proceeds of note collected by bank for Valentino, net of service
charge of P4,000 150,000
L. Roiex Company's bank statement for the month of March included the following
information:
(16) What is the cash balance as reflected in the bank statement at December 31 ?
Ending balance, March 31 P140,230 a. P280,000
Bank service charge for March 650 b. P300,000
Interest paid by bank to Rolex for March 535 c. P360,000
d P400,000 >

74 75

' '-M
 .. . . ..

Chapter4
Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents

O. Thfe cash account of Cartier Company showed a ledger balance of P396,980 on (18) How much is the correct cash balance atJune 30?
June 30. The bank statement as ofthat date showed a balance ofP415,000. Upon a. P,564,200
comparing the statement with the cash records, the following facts were b. P591J20
determined:
c. P598,200
d. P596A00
• There were bank service charges for June of Pl,500.
• A bank'memo stated that ABC Company's note for P90,000 and interest of
(19) How much is the net adjustment to the cash account?
•P2,600 had been collected on June 29,and the bank has made a charge of a. P41,400 credit ■ \
P550 on the collection. (No entry had been made in Cartier Company's b. P41,400debit
books wheh ABC's note was sent to the bank for collection.) c. P93,520 credit
• Receipts ofJune 30 for P289,000 were not deposited until July 2 d. P93,520 debit
• Checl^ outstanding on June 30 totaled P186,610.
• The bank had charged the Cartier Company's account for a customer's
uncollectible check amounting to P45,320 on June 29. Q. Chanel Limited keeps all of its cash in a Checking account. Presented in the next
• A customer's check for P90,000 had been entered as P60,000 in the cash . page are the bank reconciliation prepared at the end of May, a isummary of the
book; check no. 798 for P49,100 was recorded as P41,900 and check no. company's bank statementfor June,and the company's genera)ledger accountfor
799 in the amount of P5,820 had been entered as P58,200. Both checks cash.
had been issued to pay for the purchase ofa piece ofequipment. Chanel Limited
Bank Reconciliation Statement
(17) Whatis the amount ofcash to be shown in theJune 30statement offinancial , May 31,2021
position?
Balance per bank statement P 625,000
a. P531,790
Add deposits in transit 22.500
b. P51Z940
Total P 647,500
c. P51Z390
Deduct outstanding checks 41.800
d. 'P48Z390
Correct cash balance P 605.700
Balance per books P 607,200
P. The books of Coach Company disclosed a cash balance of P691,720 on June 30. Deduct bank service charge J,.5Q0
The bank statement as of June 30 showed a balance of P556,800. Additional Correct cash balance P 605.700

information that might be useful in reconciling the two balances follows:

A summary of Chanel's bank statement for June follows:
1. Check No. 128 for P13,000 was erroneously recorded in the check register Balance,June 1 . P 625,000
as P30,000.
Deposits shown for June 2,569,200
2. A customer's note dated March 31 was.discounted on April 12. The note
Note and interest collected during June less collection fee 156,500
was dishonored on June 29 (maturity date}.^ The bank charged Coach's
Checks that cleared during June (2,570,700)
account for P142,650,which includes a protest fee ofP420. June service charge T1.7Qn)
3. The deposit of June 24 was recorded on the books as P28,950 but it was
Balance,June 30 P 778.300
actually a depdsit ofP29,85(j.
4. Outstanding checks totaled P98,850 as ofJune 30.
The ledger account for Cash in Bank follows:
5. There were bank service charges for June of P2,100 not yet recorded on the
books. Cash in Bank .
Coach's account had been charged on June 26 for a customer's NSF check for Balance,June 1' 607,200 Service charge for May 1,500
P12,960. June receipts 2,618,200 June disbursements 2,566,400
.7. Coach properly deposited P6,p00 on June 30 that was not recorded by the
bank. Additional information:
8. Receipts ofJune 30 for P134,2S0 were recorded bythe bank on July 2.
9. A bank memo stated that a customer's note fof* P45,000 and interest of a. During June, Chanel Companyincorrectly recorded two checks. Check No.
Pl,650 had been collected on June 27 and the bank charged a P36p collection 123567 Was drawn for P23,3b0 butrecorded as P3,2,300; Check No.123572
fee. ' was drawn for P18,000 but recorded as Pl,800. Both checks were issued'in
pajonent ofaccounts payable aiid cleared the bank in June.

76 77
 Chapter 4
Chapter 4 Cash and Cash Equivalents
Cash and Cash Equivalents
(23) The correct cash balance at December 31, 2021 is
b. During June, the bank erroneously charged a P21,000 check of Bailey a. P945,900.
Company to Chanel Company's account b. P914,900.
c. P821,400.
c. A note for P150,000 and interest of P7,500 was collected by the bank during d. P789,900.
June. All of the interest was earned during the current year. The bank
>*• deducted a collection fee of P1,000. The company has not yet recorded the
collection. Korrs Company is engaged in the sale of ladies' accessories that are being
distributed in some malls located in Metro Manila. The company's accounting
(20) What is the amount of deposits in transit atJune 30, 2021 ? assistant prepares monthly bank reconciliation.
a. P14,900
b. P71,300 At August 31,2021, cash receipts and cash disbursements per general ledger Cash
c. P71,500 in Bank account of Korrs Company are P321,000 and P265,000, respectively. The
. d. P71,800 bank statement for the same month indicates that only P302,000 in deposits were
received during the month and checks clearing the bank were P326,000. The July
(21) What is the amount ofoutstanding checks at June 30,2021? 31,2021 bank reconciliation showed deposits in transit of P95,000. Outstanding
a. P17,900 checks at August 31, 2015 were P125,800.
b. P44.700
c. P51.300 (24) How much were the deposits in transit at August 31, 2021?
d. P65,700 a. P62,500
b. P79,000
(22) How much is the correct cash balance at June 30, 2021 ? c. P114,000
a. P805,100 d. P127,500
b. P801,500
c. P787,100 (25) Howmuchwere the outstanding checks atJuly 31 2021"^
d. P761,300 a. P62,300
b. P64,800
c. P186,800
R. Esprit Company keeps all its cash in checking account. An examination of the
d P189,300 ■
company's accounting records and bank statement for the month ended
> December 31, 2021 revealed the following information: Cash balance per bank
statement - P846,900; Cash balance per ledger - P852,400. T. Long Champ Company is preparing its March 31 bank reconciliation, The
following data are available:
A deposit of P95,000 placed in the bank's night depository on December 29, 2021
does not appear on the bank statement. The bank statement shows that on March data . Per bank Per hooks
December 26,2021, the bank collected a note for Esprit and credited the proceeds Balance, February 28 P859,500 P839,600
of P93/500 to the company's account The proceeds included P3,500 interest, all March deposits reflected .476,000 490.000**
of which Esprit earned during the current accounting period. Esprit has not yet March checks reflected (617,000)* (610,000)
recorded the collection. Checks outstanding on December 31, 2021 were: No. Note collected (including P2,000 interest) 202,000
032752 - P15,000; No. 032758 - P4,800; No. 032767 - P7,200. Service charge (1,200)
Balance, March 31 919,300 719,600
Esprit discovered that check No. 032759 written in December 2021 for PIS,300
in payment of an account had been recorded in the company's records as P13,800. From the February 28 bank reconciliation:
Included with the December 31, 2021 bank statement was an NSF check for Deposits in transit, P18,200
P25 000 that Esprit had received from Pitt Company on account on December 20, Outstanding checks, P38,100
2021. Esprit has not yet recorded the returned check. The bank statement shows
a PI,500 service charge for December. * Erroneously includes a check drawn by Long Camp Company for P15,000.
** Includes a collection of P20,800 recorded erroneously. The correct amount
of P2B,000 was properly reflected in the bank statement.

79
78

■*.*f ^ ••
■V .
tw -r '
Chapter 4 Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents

(26) How much is the deposit in transit at March 31? A customer's check for P72,500 was entered as P62,500 by both the
a. P39A00 depositor and the bank but was later corrected by the bank.
b. P32,200 Check no.661 for P124,250 was entered in the cash disbursements journal
c. P18,200 at P122,450 and check no.652 for P32,900 was entered as P3,290.
d. P14,000
Bank charges of P2,090 for December were not yet recorded on the books.
(27) Whatis the amount ofoutstanding checks at March 31? A bank memo stated that Versace Company's note for P250,000 and
a. P46J00
interest ofP6,250 had been collected on December 29 and the bank charged
b. P38J00
Pl,250. (No entry has been made on the books).
c. P31,100
d. PZOOO Receipts on December 29,.2021 for P420,000 were deposited January 2,
2022.
(28) Whatis the correct cash in bank balance at March 31?
Versace issued a total of PI,220,000 checks in December. The following
a. P719.600
cancelled checks were included in the December bank statement.
b. P920,400
c. P921,400
No.4110- P45,000 No.4221-P30,000
d. P927,600
No.4111- 120,000 No.4225- 78,000
No.4118- 95,000 No.4229- 63,000
A review ofthe accounting records reflected an adjusting entry made on June 30, No.4220-140,000 No.4230- 89,000
2021 to reconcile the bank statement balance and the cash balance shown in the
company's accounting records, as follows: (30) Whatis the correctamountofcash to be shown in Versace's December31,2021
statement offinancial position 7
Cash in Bank 6,272.60 a. Pl,990,000
Accounts Receivable 15,202.40 b. P2,090,000
Expense 125.00
c. P2,100,000
Notes Receivable 20,000.00 d. P2,191,000
Interest Revenue 1,600.00
Pre-adjustment cash balance in the accounting records was P76,837. At June 30, The following information was included in the bank reconciliation for Keith
outstanding checks and undeposited collections were P12,075 and P7,280, Company for July.
respectively. ^
Checks and charges recorded by bank in July, including a July
(29) Whatis the bank statement balance atJune 30 2015^ service charge of P30 P17,210
a. P70,564.40 Service charge made by bank in June and recorded on the books
b. P78,314.60 in July 20

c. P83J09.60
Total of credits to Cash in all journals during July 19,802
d. P8Z904.60
Customer's NSF check returned as a bank charge in July(no
entry made on boolts) . 100
Customer's NSF check returned in June and redeposited in July
The cash account of Versace Company disclosed a balance of P2,009,000 at (no entry made on books in either June or July) 250
December 31, 2021. The bank statement as of the same date showed a balance, Outstanding checks at July 31 13,260
of P2,230,000. Upon comparing the statement with the cash records, the Deposits in transit at July 31 600
following facts were developed.
(31) How much is the outstanding checks atJuly 1?
Versace's account was charged on December 26 for a customer's
a. PI0,558
uncollectible check amounting to PlOO,000. b. P10,658
A 6-month, 10%, P47,000 customer's note dated June 25, discounted on c. P10,668 ■ .
September 12, was dishonored on December 26 and the' bank charged d. P15,962
Versace P50,500, which includes a protest fee of Pl,150.
!•.. •*; v'-
Chapter 4 Chapter 4
Cash and Cash Equivalents Cash and Cash Equivalents

X. The following was included in the bank reconciliation of Celine Company on (36) What is the correct cash balance at August 31,2021?
December 31 ofthe current year: a. P902,000
b. P860,000
Total company receipts for December P850,000 c. P820,000
Total credits per bank in December 800,000 d. P802,000
Credit memo for November recorded in December 60,000
Credit memo for December not yet recorded 80,000
Deposit in transit, December 31 100,000 The accountant of Fendi Company gathered the following data in his attempt to
Erroneous receipt by the company during December, no reconcile its records with the data from the bank statements sent by Banco de
correction was made until the following year 10,000 Plata[BDP)for the months of March and April.

(32) Whatis the amount ofdeposit in transit at November 30"^ March April
a. P32,000 Cash in BDP per ledger 2,038,300 3,019,500
b. P40,000 Balances per bank statement 2,203,500 3,097,250
c. P42,000 Credits to Cash in BDP account 4,619,800
d. P50,000 Deposits and credit memos per bank statement 5,251,500
Outstanding checks 275,000 580,000
Deposit in transit 125,000 670,000
Below is the bank reconciliation for Prada Company for July 2021: Erroneous bank credit 20,000
Balance per bank,July 31,2021 P750,000
P750,000
Note collected by bank 17,000
Add deposits in transit 120 000 Bank service charge 1,800 2,450
120.000
P870,000 Fendi Company discounted its own note for P200,000 with the bank in April at
Deduct: Outstanding checks P140,000
P140,000 the discount rate of 12%. The note is due in six months. The net proceeds was
Erroneous bank credit SO OOO 190.000
Cash balance per books,July 31, 2021 P680.000 credited by the bank in April but has not yet been recorded in the books.

The bank statement for August 2021 contains the following data: Book receipts for April is understated by P4,500.
Book disbursements for April is overstated by P2,700.

"P550,000;
P40,000 and service charge Total charges (including All
of P2,000)-P480,000. a no-sufficient
outstandingfund checkon
checks of Loan amortization for April amounting to P45,000 was covered by a check
July 31,2021 including the bank credit were cleared in the bank in August 2021. payment buta debit memo for the same amount was issued by the bank in April.
There were outstanding checks of P150,000 and deposits in transit of P190,000
on August 31, 2021. (37) How much is the adjusted amount ofcash receipts during the month ofApril?
a. P5,251.500
(33) How much is the unadjusted cash balance per books on Auqust 31 2021"^ b. P5.215.500
a. P90Z000 ^ ' c. P5.601.000
b. P860,000 d. P5.776.500
c. P820,000
(38) How much is the adjusted amount ofcash disbursements during April?
d. P738,000
a. P4.357.750
(34) How much were the cash receipts per books during August2021? ■ - b. P4.617.750-
a. P860,000 ' ■ > c. P4.617.570
b. P680,000 d. P4.619,800
c. P620,000
(39) How much is the correct cash balance at April 30?
d. P240,000'
a. P3.212.250
(35) How much were the cash disbursements per books during August20217 b.. P3.097.250
a. P490,000 c. P3.019.500
b. P400,000 d. P4.707.750
c. P398,000
d. P378,000
 Chapter 4
Cash and Cash Equivalents

AA. The accountant of CLN Company gathered the following information:

Trade and Other Receivables
The November 30 bank statement balance included the bank service
charges of P2,000.
The November 30 cash balance in the ledger was P244,500.
On November 30, outstanding checks were P63,000 while undeposited Learning Outcomes
collections were P36,000.
After reading this chapter, you should be able to:
The December bank service charges as shown on the bank statement was
P3,000. (a) define and classify receivables;
The December 31 cash balance in the general ledger was P319,750 which (b) understand the proper valuation and presentation of receivables in the
recognized P482,750 for December receipts and P405,500 for checks statement of financial position;
written during December. In transit to the bank at December 31 were (c) understand the differences between interest-bearing and non-interest-bearing
receipts of P28,750. Checks of P15,000 written prior to December and notes receivable and solve problems relating to them;
checks of P60,500 written in December had not yet cleared the bank. fd) account for bad debt expense and the impairment of receivables;
(e) understand the accounts receivable and notes receivable fi nancing
(40) What is the total disbursements per books for the month of December? arrangements; and
a. P403,500
(f) acquire proficiency and accuracy in answering theoretical questions and
b. P404,500 solving problems relating to trade and other receivables.
c. P405,500
d. P40Z500
Definition
(41) What is the November 30 unadjusted balance per bank statement?
a. P271,500 Receivables are claims that are expected to be settled by receipt of cash or another
. b. P269,500 fi nancial asset from another entity. Loans and receivables are financial assets under
c, P268,500 PFRS 9, Financial Instruments and PFRS 7, Financial Instruments - Disclosures.
d. P266,500

Classification
(42) What is the total cash receipts per bank during the month of December?
a. P490,000 > As to source
b. P482,500
c. P49Z250 Trade receivables r- those arising from sale of goods or services in the
d. P488,000 normal course of business.

(43) What is the total cash disbursements per bank during the month of December? Non-trade receivables - all other claims not arising from sale of goods or
a. P419,000 services.

b. P405,500
c. P408,500 > As to timing of collection
d. P396M0
Current receivables - those that are expected to be collected within twelve
(44) What is the unadjusted bank balance on December 31 ?
■ .fei months from the end of the reporting period. Generally, trade receivables
are classified as current; however, portion of the receivables that are not
a. P316J50 • I

b.' P363,500 •AW

collectible within twelve months from the end of the reporting period
should be disclosed.
c. P322,750 . \
d. P366,500 , ' ' , Non-current receivables - all other claims that are not classified as current.
^. -is

I
Valuation and Presentation in the Statement of Financial Position
■' / \
■ ^ • i
\ '
Loans and receivables are presented in the statement of financial position at
their net realizable value or net amortized cost using the effective interest
method.

't
84
■A

> £• ;
v.a>3