DEFINITION OF CASH CASH ITEMS INCLUDED IN CASH

MONEY standard medium of exchange Cash on hand

currency and coins undeposited cash collections and other ca
circulation and legal tender awaiting deposit
CASH includes money and any other negotiable instrument customers' checks
payable in money and acceptable by the bank for cashier's or manager's checks
deposit and immediate credit traveler's checks
includes: checks bank drafts
bank drafts money orders
money orders Cash in bank
example when checks are received in full settlement of an unrestricted as to withdrawal
accounts receivable debited demand deposit
Postdated checks not cash checking account
checks received cannot be considered as cash saving deposit
unacceptable by the bank for deposit and immediate Cash fund
credit or outright encashment. set aside for current purposes
petty cash fund
UNRESTRICTED CASH payroll fund
no specific standard dealing with cash dividend fund
PAS 1, paragraph 66
an entity shall classify an asset as current when the asset is CASH EQUIVALENTS
cash or a cash equivalent unless it is restricted to settle a PAS 7, paragraph 6
liability for more than twelve months after the end of the cash equivalents as short-term and highly l
reporting period. investments that are readily convertible int
To be reported as cash, item must unrestricted in use. so near their maturity that they present ins
Cash readily available in the payment of current risk of changes in value because of changes
obligations interest rate.
not be subject to any restrictions, contractual
or otherwise The standard further states that only highly liquid
investments acquired three months before maturi
can qualify as cash equivalents.
EXCEPTION TO THE RULE ON OVERDRAFT > Three-month BSP treasury bill
> Three-year BSP treasury bill purchased thre
When an entity maintains two or more accounts in one bank before date of maturity
and one account results in an overdraft, such overdraft can be > Three-month time deposit
offset against the other bank account with a debit balance > Three-month money market instrument or
in order to show cash, net of bank overdraft or bank overdraft, commercial paper
net of other bank account.
Equity securities
An overdraft can also be offset against the other bank account cannot qualify as cash equivalents because shares
if the amount is not material. have a maturity date.
Preference shares
IFRS with specified redemption date and acquired three
Bank overdraft can be offset against other bank account when before redemption date can qualify as cash equiva
payable on demand and often fluctuates from positive to
negative as an integral part of cash management. Note: date of purchase should be three months o
before maturity
BSP treasury bill that was purchased one y
STALE CHECK cannot qualify as cash equivalents even if
check not encashed by the payee within a relatively long remaining maturity is three months or less
period of time. the reporting date.

How long a time must the check remain outstanding?

Negotiable Instruments Law ACCOUNTING FOR CASH SHORTAGE
instrument is payable on demand, presentment must be Cash count < balance per book
made within a reasonable time after issue. Cash short or over
Cash
Bangking practice check becomes stale if not encashed Cash short or over account is only a temporary or
within six months from the time of issuance. account.
Cashier or cash custodian is responsible for cash
Thus, even after three months only, the entity may issue a Due from cashier
stop payment order to the bank for the cancellation of a Cash short or over
previously issued check. Fail to disclose the cause of the shortage
Loss from cash shortage
Stale check is immaterial Cash short or over
Cash xx
Miscellaneous income xx
Stale check is material
Cash xx
Accounts Payable
or appropriate account xx
SH ITEMS INCLUDED IN CASH
ted cash collections and other cash items
or manager's checks
ed as to withdrawal
for current purposes
CASH EQUIVALENTS
valents as short-term and highly liquid
nts that are readily convertible into cash
eir maturity that they present insignificant
anges in value because of changes in
her states that only highly liquid
uired three months before maturity
h equivalents.
nth BSP treasury bill
ar BSP treasury bill purchased three months
te of maturity
nth time deposit
nth money market instrument or
cash equivalents because shares do not
demption date and acquired three months
on date can qualify as cash equivalents
INVESTMENT OF EXCESS CASH
The control and proper use of cash is an important aspect of
cash management.
Excess cash may be invested in
time deposits
money market instruments
treasury bills
for the purpose of earning interest income.
CLASSIFICATION OF INVESTMENT OF EXCESS CASH
A. Term: three months or less - cash equivalents
B. Term: more than three months but within one year
short-term financial assets or temporary investments
presented separately as current assets
C. Term: more than one year - noncurrent or long-term
investments
investments that become due within one year from the end
of the reporting period are reclassified as current or temporary
investments.
MEASUREMENT OF CASH
Cash face value
foreign currency current exchange rate
bankruptcy estimated realizable value
COMPENSATING BALANCE
Minimum checking or demand deposit account balance that must
maintained in connection with a borrowing arrangement with a
bank.
Entity borrows 5,000,000 from bank and agrees to maintain 10%
or 500,000 as the minimum compensating balance in a demand
deposit account.
CLASSIFICATION OF COMPENSATING BALANCE
Compensating balance is part of cash
Deposit is not legally restricted as to withdrawal by the borrower
because of an informal compensating balance agreement.
Cash held as compensating balance (short-term loan)
Deposit is legally restricted because of a formal compensating
balance agreement
urchase should be three months or less
Noncurrent investment
ury bill that was purchased one year ago If related loan is long-term.
ualify as cash equivalents even if the
g maturity is three months or less from
ACCOUNTING FOR CASH OVERAGE
Cash count > balance per book
Cash xx
OUNTING FOR CASH SHORTAGE Cash short or over xx
balance per book No claim on the same
xx Cash short or over xx
xx Miscellaneous income xx
er account is only a temporary or suspense Cash found is the money of the cashier
Cash short or over xx
custodian is responsible for cash shortage Payable to cashier xx
xx
xx
se the cause of the shortage
xx
xx
 FINANCIAL STATEMENT PRESENTATION CLASSIFICATION OF CAS
Cash and cash equivalents line item based on the classification of related liabi
all cash items: cash on hand, cash in bank current set aside to pay obligation
petty cash fund, unrestricted in use noncurrent set aside for acquisition of
cash equivalents
Details comprising cash and cash equivalents should be BANK OVERDRA
disclosed in the notes to financial statements. overdraft credit balance of cash in b
credit balance in cash in bank
FOREIGN CURRENCY
cash in foreign currency should be translated in pesos classified as current liability and should n
using current exchange rate other banks with debit balances.
Included in Cash - deposits in foreign countries not subject Example:
to exchange restriction Cash in bank 1st bank - overdrawn by 1
Noncurrent assets & restriction clearly stated - deposits in 2nd bank - debit balance o
foreign countries subject to exchange restriction. Net cash balance
Current Assset:
CASH FUND FOR A CERTAIN PURPOSE Cash in bank - Second ban
Current Asset - cash fund set aside for use in current Current Liability:
operations overdraft Cash in bank - First bank
Example: petty cash fund, payroll fund, travel
fund, interest fund, dividend fund It is not necessary to adjust and open a ba
tax fund in the ledger. First bank maintained in the
Long-term investment - set aside for noncurrent purpose Overdrafts are not permitted in the Philip
Example: sinking fund, preference share,
redemption fund, contingent fund,
insurance fund, fund for acquisition

UNDELIVERED OR UNRELEASED CHECK POSTDATED CHE

One that is merely drawn and recorded but not given to check drawn, recorded and already given t
the payee before the end of the reporting period. a date subsequent to the end of the repor

No payment when the check is pending delivery to the Entry recording a delivered postdated che
payee at the end of the reporting period because the check and therefore restored to the cash balanc
is still subject to the entity's control and may thus be Cash
canceled anytime before delivery at the discretion of the Accounts payable
entity. or appropriate account

Adjusting entry to restore the cash balance and set up the

liability: IMPREST FUND SYS
Cash xx one usually followed in handling petty cas
Accounts payable or a. A check is drawn to establish the fund.
xx
appropriate account Petty cash fund
Cash in bank
b. Payment of expenses out of the fund.
 IMPREST SYSTEM No journal entries are made.
system of control of cash which requires that all cash c. Replenishment of petty cash payments
receipts should be deposited intact and all cash Expenses
disbursements should be made by means of check. Cash in bank
d. Adjust the unreplenished expenses in o
PETTY CASH FUND petty cash balance.
money set aside to pay small expenses which cannot be Expenses
paid conveniently by means of check. Petty cash fund
a. Imprest fund system e. Increase in fund is recorded normally.
b. Fluctuating system Petty Cash Fund
Cash in bank
f. Decrease in the fund is recorded norma
FLUCTUATING FUND SYSTEM Cash in bank
checks drawn to replenish the fund do not necessarily Petty cash fund
equal the petty cash disbursements.
a. Establishment of the fund:
Petty Cash Fund xx
Cash in bank xx
b. Payment of expenses out of petty cash fund:
Expenses xx
Petty Cash Fund xx
c. Replenishment or increase of the fund:
Petty Cash Fund xx
Cash in bank xx
d. no adjustment at the end of the reporting period
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
 CLASSIFICATION OF CASH FUND
assification of related liability
set aside to pay obligation within one year
set aside for acquisition of noncurrent asset

BANK OVERDRAFT
credit balance of cash in bank
in cash in bank issuance of checks in excess
of the deposits
rrent liability and should not be offset against
th debit balances.

1st bank - overdrawn by 10,000

2nd bank - debit balance of 100,000
Net cash balance 90,000

Cash in bank - Second bank 100,000

Cash in bank - First bank 10,000

ary to adjust and open a bank overdraft account

irst bank maintained in the ledger with a credit bal.
not permitted in the Philippines.

POSTDATED CHECK
ecorded and already given to the payee but it bears
ent to the end of the reporting period.

g a delivered postdated check shall be also reversed

restored to the cash balance:
xx
Accounts payable
xx
or appropriate account

IMPREST FUND SYSTEM

owed in handling petty cash transactions.
awn to establish the fund.
xx
Cash in bank xx
expenses out of the fund.
ries are made.
ent of petty cash payments.
xx
Cash in bank xx
nreplenished expenses in order to state the correct

xx
Petty cash fund xx
und is recorded normally.
xx
Cash in bank xx
he fund is recorded normally.
xx
Petty cash fund xx
1. Define cash.
money or other negotiable instruments payable in money acceptable by bank for deposit.
2. Explain the meaning of unrestricted cash.
Cash that are readily available for the payment of obligations and there's no restriction.
no specific standard dealing with cash.
3. Define cash equivalents
short-term or highly liquid investments that are readily convertible into cash.
4. Explain the measurement of cash.
cash is measured at face value, foreign currency is measured at current exchange rate
and if the entity is bankrupt the cash is measured at estimated realizable value.
5. Explain the financial statement presentation of cash and cash equivalents.
The line item is cash and cash equivalents that includes cash on hand, cash in bank, petty
cash fund, unrestricted cash in use and cash equivalents and should be disclosed in the
notes to financial statements.
6. Explain the classification of investments of excess cash in time deposits, money market
instruments and treasury bills.
If the term of investment of cash is three months or less it is classified as cash equivalent.
If the term of investment of cash is more than three months but within one year it is classified
as short-term financial assets or temporary investments.
If the term of investment is more than one year it is classified as long-term investment.
7. Explain the treatment of foreign currency.
The foreign currency should be translated into pesos using the current exchange rate.
Those deposits from foreign countries that have no exchange restriction are included in cash.
Those deposits from foreign countries that are subject to exchange restriction are classified as noncurrent
asset and the restriction should be clearly stated.
8. Explain the classification of cash fund.
If the cash fund is for the payment of current operations it is classified as current asset.
If the cash fund is for the payment of noncurrent purpose it is classified as long-term investments.
9. Explain a bank overdraft.
Bank overdraft is the credit balance of cash in bank that comes from the issuance of checks in excess of deposits.
10. Explain a compensating balance.
it is the minimum checking or demand deposit that need to maintained in connection with the borrowing
arrangement with a bank.
11. Explain undelivered check, postdated check delivered and stale check.
Undelivered check is the check drawn, recorded but not given to the payee before the end of the reporting period.
Postdated check delivered is the check drawn, recorded and given to the payee but bears a date subsequent at
the end of the reporting period.
Stale check is the check not encashed within a relatively long period of time.
12. Explain the accounting for cash shortage and cash overage.
Cash shortage if the cash count is lesser than the balance per book while cash overage if the cash count is more than
the balance per book.
Cash shortage Cash overage
Cash short or over Cash
Cash Cash short or over
13. Explain the imprest system of internal control.
All cash receipts should be deposited intact and all the cash disbursements should be made by means of check.
14. Explain the nature and purpose of a petty cash fund.
Petty cash fund is the money that is set aside to pay for the small expenses that cannot be paid conveniently by means of c
15. Explain the two methods
Imprest fund system is one usually followed in handling petty cash transactions.
Fluctuating fund system check drawns to replenish the fund do not necessarily equal the petty cash disbursements.

cess of deposits.
e reporting period.
subsequent at
h count is more than
means of check.
conveniently by means of check.
1. IOU I owe you not considered as cash
>>document that acknowledges the existence of a debt
2. Checking account considered as cash
>>type of bank account that allows you to easily deposit
and withdraw money for daily transactions
3. Travel cash advance not included in cash
>>payments made before a trip take place
4. Money market instrument not included in cash, cash equivalent
>>debt securities that generally give the owner the
unconditional right to receive a stated, fixed sum of
money on a specified date.
5. Overdraft
>>typically cannot be offset against positive balance in other
cash account but reported as current liability.
>>not allowed
>>can be offset against other bank account when payable on
on demand and often fluctuates from positive to overdrawn
as an integral part of cash management.
6. Restricted cash not include in cash unrestricted
>>money that is held for specific purpose, meaning it's not
available for immediate or general business use.
7. Restricted deposits in foreign bank are classified as
>>noncurrent asset with appropriate disclosure.
8. Compensating balance
>>is minimum deposit required to be maintained in
connection with a borrowing arrangement.
9. Compensating balance represents
>> fund in a bank account that cannot be spent
10. A compensating balance
>>which is legally restricted and related to a short-term loan
is classified separately as current asset.
11. A cash equivalent is a short-term, highly liquid investment
readily convertible into known amount of cash and
>>is so near maturity that it presents insignificant risk of
change in interest date
12, Highly liquid investments are cash equivalents if the
maturity is 90 days or less
>>from the date of investments are acquired.
13. Equity investments not classified as cash and cash equivalents
>>money that is invested in a company by purchasing shares
that company in the stock market.
14. High grade marketable equity investments not included in cash equivalents
>>investment grade
>>the company issuing the bond can meet its financial obligations
under most normal, or mostly, even under adverse economic
conditions.
15. Cash equivalents are
>>treasury bills and money market instruments
 >>investments with original maturity of three months or less
>>readily convertible into known amount of cash
ash disbursements.
 1. The internal control feature specific to petty cash is
>>imprest system
2. Major purpose of imprest petty cash fund
>>to effectively control cash disbursements
3. The imprest cash fund account is debited
>>when the fund is created and when the size of the fund is increased
4. a cash over and short account
sh equivalent >>is debited when the petty cash fund proves out short
5. Petty cash fund
>>money kept on hand for making minor disbursements

ded in cash equivalents

 IMPREST FUND SYSTEM FLUCTUATING FUND SYSTEM
2021 Nov. 10 The entity established a petty cash fund of P10,000.
Nov. 10 The entity established an imprest fund of P10,000. Petty Cash Fund 10,000
Petty Cash Fund 10,000 Cash 10,000
Cash in bank 10,000
Nov. 11-28 Petty cash disbursements amounted to 8,000.
29 Replenished the fund. The petty cash items include Expenses 8,000
the following: Petty Cash Fund 8,000
Currency and coin 2,000
Supplies 5,000 Nov. 29 Issued a check for P10,000 to replenish the fund.
Telephone 1,800 Petty Cash Fund 10,000
Postage 1,200 Cash in bank 10,000

Supplies 5,000 Dec. 11-30 Petty cash expenses amounted to P9,000.

Telephone 1,800 Expenses 9,000
Postage 1,200 Petty Cash Fund 9,000
Cash in bank 8,000
31 Issued a check for P15,000 to replenish the fund.
Dec. 31 The fund was not replenished. Petty Cash Fund 15,000
Currency and coin 7,000 Cash in bank 15,000
Supplies 1,500
Postage 500
Miscellaneous expense 1,000 PROBLEM 1-8
Tacit Company provided the following transactions:
Supplies 1,500 2021
Postage 500 2-Nov The entity established an imprest petty cash fund
Miscellaneous expense 1,000 of P10,000.
Petty Cash Fund 3,000 30 An examination of the cash fund disclosed:
Currency and coin 3,000
2022 Memoranda showing expenditures for:
Jan. 1 The adjustment made on Dec. 31, 2021 is reversed. Postage 2,000
 Petty Cash Fund 3,000 Supplies 5,000
Supplies 1,500 A check was drawn to replenish the fund and to
Postage 500 increase its amount to P20,000.
Miscellaneous expense 1,000 31-Dec The fund was not replenished.
Currency and coin 11,000
Feb. 1 The fund is replenished and increased to P15,000. Memoranda showing expenditures for:
Currency and coin 1,000 Postage 3,000
Supplies 4,500 Supplies 4,000
Postage 3,000 Deposit for 20 cases of softdrinks 2,000
Miscellaneous expense 1,500 2022
Total 10,000 2-Jan The deposit for the 20 cases of softdrinks is collected.
31 A check was drawn to replenish the fund.
Petty Cash Fund 5,000 Currency and coin 1,000
Supplies 4,500 Postage stamps 500
Postage 3,000 Memoranda showing expenditures since November
Miscellaneous expense 1,500 30,2021 for:
Cash in bank 14,000 Postage 5,000
Supplies 6,000
Payment of account 7,000
PROBLEM 1-13
At year-end, ABC Company reported cash account per ledger Journal Entries
at P4,700,000 which consisted of the following: 2021
2-Nov Petty cash fund 10,000
Petty cash fund 50,000 Cash in bank 10,000
Undeposited receipt, including a postdated
customer check for P100,000 1,400,000 1,500,000 30 Postage 2,000
Cash in bank 2,000,000 Supplies 5,000
Deposit in bank closed by BSP 500,000 Petty cash fund 10,000
Vouchers paid out of collections, not yet Cash in bank 17,000
recorded 150,000
IOUs signed by employees, taken from 31-Dec Postage 3,000
 collections 100,000 Supplies 4,000
3,950,000 4,800,000 Special deposit 2,000
Petty cash fund 9,000
Solution:
Petty cash fund 50,000 2022
Undeposited receipt 1,400,000 1-Jan Petty cash fund 9,000
Cash in bank 2,000,000 Postage 3,000
Bank deposit 500,000 Supplies 4,000
Total Cash 3,950,000 Special deposit 2,000

2-Jan No entry
PROBLEM 1-14
Thor Company provided the following data on Dec. 31, 2021: 31-Jan Postage 5,000
Supplies 6,000
Checkbook balance 4,000,000 Accounts payable 7,000
Bank statement balance 5,000,000 Cash short or over 1,000
Check drawn on Thor's account, payable to Petty cash fund 19,000
supplier, dated and recorded on
December 31, 2021 but not mailed
until January 31, 2022 500,000 PROBLEM 1-16
Cash in sinking fund (settled for noncurrent 2,000,000 On December 31, 2021 Lamentable Company had the following
liability) cash balances:
Solution:
Checkbook balance 4,000,000 Cash in bank - current account 5,600,000 6,000,000
Undelivered check on Thor's account 500,000 Petty cash fund - all funds were reimbursed
Total cash, current assets, December 31, 2021 4,500,000 at year-end 50,000
Time deposit - three months, due January 15, 2022 2,500,000
Saving deposit 1,000,000
PROBLEM 1-15
Joana Company had the following account balances on Cash in bank included P400,000 of compensating balance against
December 31, 2021: short term borrowing arrangement.
Petty Cash fund 40,000 50,000 The compensating balance is legally restricted as to withdrawal.
Cash on hand 400,000 500,000
Cash in bank - current account 4,000,000 Solution:
Cash in bank - payroll account 1,000,000 Cash in bank - current account 5,600,000
Time deposit 2,000,000 Petty cash fund 50,000
Cash in bank - restricted account for plant Time deposit 2,500,000
addition, expected to be 7,440,000 Saving deposit 1,000,000
disbursed in early January 2022 500,000 Total cash and cash equivalents 9,150,000
Cash in sinking fund set aside for bond
payable due June 30,2022 1,500,000
PROBLEM 1-17
The petty cash fund included unreplenished December 2021 Baloney Company had the following account balances on
petty cash expense vouchers of P5,000 and employee IOU of December 31,2021:
P5,000.
Cash in bank 2,250,000
The cash on hand included a P100,000 check payable to Joana Cash on hand 125,000
Company dated January 3, 2022. Cash restricted for addition to plant in
Jan-22 1,600,000
Solution:
Petty Cash fund 40,000 Cash in bank included P600,000 of compensating balance against
Cash on hand 400,000 short-term borrowing arrangement.
Cash in bank - current account 4,000,000
Cash in bank - payroll account 1,000,000 The compensating balance is not legally restricted as to withdrawal.
Time deposit 2,000,000
Total cash and cash equivalents, Dec.31,2021 7,440,000 Solution:
Cash in bank 2,250,000
Cash on hand 125,000
Total cash, December 31, 2021 2,375,000
 Problem 1-1 Problem 1-2
On December 31, 2021, Albania Company provided the ff. data: Argentina Company reported the following accounts on
Cash in bank 3,000,000 December 3, 2021:
Time deposit-30 days 1,000,000 Cash on hand 1,000,000
Money market placement due on June 30, 2022 2,000,000 Petty cash fund 50,000
Saving deposit in closed bank 100,000 Security bank current amount 2,000,000
Sinking fund for bond payable due June 30, 2023 1,500,000 PNB current account 1,500,000
Petty Cash Fund 20,000 BDO current account (overdraft) -200,000
BSP treasury bill - 120 days 3,000,000
a. The cash in bank included customer check of P200,000 BPI time deposit - 90 days 2,000,000
outstanding for 18 months. Bond sinking fund 2,500,000
Accounts Receivable 200,000
Cash 200,000 a. The cash on hand included a customer postdated check of
b. Check of P250,000 in payment of accounts payable was P150,000 and postal money order of P50,000.
dated and recorded on December 31, 2021 but mailed to Accounts receivable 150,000
creditors on January 15, 2022. (undelivered check) Cash on hand 150,000
Cash 250,000 b. The petty cash fund included unreplenished petty cash
Accounts receivable 250,000 vouchers for P10,000 and an employee check for P5,000 dated
c. Check of P100,000 dated January 31, 2022 in payment of January 31, 2022.
accounts payable was recorded and mailed December 31, 2021. Expenses 10,000
(postdated check) Receivable from employee 5,000
Cash 100,000 Petty Cash Fund 15,000
Accounts payable 100,000 c. The BPI time deposit is set aside for acquisition of land to
d. The reporting period is the calendar year. be made in early January 2022.
The cash receipts journal was held open until January 15,2022 not recorded since the acquisition should be made in Jan 2022.
during which time an amount of P450,000 was collected and d. The bond sinking fund is set aside for payment of bond
recorded on December 31, 2021. payable due December 31, 2022.
Accounts Receivable 450,000 not recorded since it will be classified as noncurrent.
Cash 450,000
Cash on hand 1,000,000
Cash in bank 3,000,000 Postdated check -150,000
Customer outstanding balance - 18 months -200,000 Adjusted cash on hand 850,000
Undelivered check 250,000
Postdated check 100,000 Petty Cash fund 50,000
Collection on Jan 2022 recorded on Dec 31 -450,000 Unreplenished petty cash expenses -10,000
Adjusted cash in bank 2,700,000 Postdated employee check -5,000
Time deposit-30 days 1,000,000 Adjusted petty cash fund 35,000
Petty Cash Fund 20,000
Total Cash and Cash Equivalent 3,720,000 Cash on hand 850,000
Petty Cash fund 35,000
The money market of P2,000,000 due on June 30, 2022 should be Security bank current amount 2,000,000
separately shown as current asset. The sinking fund of P1,500,000 PNB current account 1,500,000
is presented as noncurrent asset. Bond sinking fund 2,500,000
Total Cash and Cash Equivalent 6,885,000

PROBLEM 1-9 The BSP treasury bill of P3,000,000 should be separately

On December 1, 2021, Wacky Company established an imprest shown as current asset. (4 months)
petty cash fund. The overdraft in BDO current account of P200,000 is shown as
2021 current liability.
1-Dec Established an imprest petty cash fund of P10,000 by The BPI time deposit pf P2,000,000 is shown as noncurrent
writing a check on National Bank. investment because it is restricted for land acquisition.
20 Replenished the petty cash fund by writing a check
on National Bank. The fund contained:
Currency and coins 1,000 PROBLEM 1-10
Vouchers for selling expenses 5,000 Tranvia Company revealed the following information on
Vouchers for miscellaneous expenses 2,000 December 31, 2021:
Vouchers for equipment 2,000
31-Dec The petty cash fund was not replenished. The fund Cash in checking account 350,000
contained: Cash in money market account 750,000
Currency and coins 6,000 Treasury bill, purchased November 1, 2021
Postdated employee's check 2,000 maturing January 31, 2022 3,500,000
Vouchers for selling expenses 1,500 Time deposit purchased December 1, 2021
 Vouchers for transportation 500 maturing March 31, 2022 (4 months) 4,000,000
2022
15-Jan Encashed the employee's check. The proceeds were Solution:
retained in the fund. Cash in checking account 350,000
31 Replenished the petty cash fund by writing a check Cash in money market account 750,000
on National Bank. The petty cash vouchers for Treasury bill, purchased November 1, 2021
January expenditures were: maturing January 31, 2022 3,500,000
Distribution costs 500 Total Cash and cash equivalents 4,600,000
Administrative expenses 2,000
Transportation 1,000
Payment for supplier's invoice 1,200 PROBLEM 1-18
Yasmin Compa ny provided the following on December 31, 2021:
Journal Entries
2021 Petty cash fund 50,000
1-Dec Petty cash fund 10,000 Current account - First Bank 4,100,000 4,000,000
Cash in bank 10,000 Current account - Second Bank (overdraft) -250,000
Money market placement - Third Bank 1,000,000
20 Distribution costs 5,000 Time deposit - Fourth bank 2,000,000
Miscellaneous expenses 2,000
Equipment 2,000 A check for P100,000 was drawn against First Bank current account
Cash in bank 9,000 dated and recorded December 29, 2021 but delivered to payee on
January 15, 2022.
31 Receivable from employee 2,000
Distribution costs 1,500 The Fourth Bank time deposit is set aside for land acquisition in
Transportation 500 early January 2022.
Petty cash fund 4,000
Solution:
2022 Petty cash fund 50,000
1-Jan Petty cash fund 4,000 Current account - First Bank 4,000,000
Receivable from employee 2,000 Undelivered Check on Yasmin's account 100,000
Distribution costs 1,500 Bank overdraft - Second Bank -250,000
 Transportation 500 Money market placement - Third Bank 1,000,000
Total cash and cash equivalents, 12/31/2021 4,900,000
14-Jan No entry

31 Distribution costs 2,000 PROBLEM 1-19

Administrative expenses 2,000 On December 31, 2021, Roma Company reported cash balance
Transportation 1,500 of P9,950,000.
Purchases 1,200
Cash in bank 6,700 Undeposited collections 600,000
(idagdag ang unreplenished) Cash in bank - BDO checking account 4,000,000
Undeposited NSF check received from
Petty cash fund 10,000 customer, dated December 1, 2021 150,000
Less: Petty cash expenses from December 21, 2019 to January Undeposited check from a customer, dated
31, 2021 15-Jan-22 250,000
Distribution costs 2,000 Cash in bank - BDO fund for payroll 1,000,000
Administrative expenses 2,000 Cash in bank - BDO time deposit, 90 days 2,000,000
Transportation 1,500 Cash in foreign bank restricted 1,500,000
Purchases 1,200 6,700 Cash in bank - BDO value added tax account 450,000
Petty cash before replenishment 3,300 Total 9,950,000

Solution:
Undeposited collections 600,000
Cash in bank - BDO checking account 4,000,000
Cash in bank - BDO fund for payroll 1,000,000
Cash in bank - BDO time deposit, 90 days 2,000,000
Cash in bank - BDO value added tax account 450,000
Total cash and cash equivalents, 12/31/2021 8,050,000
 Problem 1-3 PROBLEM 1-4
Armenia Company reported the following information on Callous Company reported the following accounts on
December 31, 2021: December 31, 2021:
Cash on hand 1,000,000 Cash on hand 200,000
Petty Cash fund 50,000 Petty cash fund 20,000
Cash in bank 4,000,000 Philippine Bank current account 5,000,000
Saving deposit 2,000,000 City Bank current account No. 1 4,000,000
7,050,000 City Bank current account No. 2 (overdraft) -100,000
Asia bank saving account 250,000
CASH ON HAND Asia bank time deposit, 90 days 2,000,000
a. Customer check of P100,000 returned by bank December 26,
2021 due to insufficient fund but subsequently redeposited Cash on hand 200,000
and cleared by bank January 5, 2022. NSF customer check -35,000
Accounts Receivable 100,000 Postdated customer check -15,000
Cash on hand 100,000 Adjusted Cash on hand 150,000
b. Customer check for P150,000 dated January 15, 2022
received December 22, 2021. Currency and coins 5,000
Accounts Receivable 150,000
Cash on hand 150,000 Philippine Bank current account 5,000,000
c. Postal money orders received from customers, P200,000. Undelivered company check 25,000
no entry Postdated company check delivered 45,000
Adjusted balance 5,070,000
PETTY CASH FUND
Currency and coins 2,000 Cash on hand 150,000
Employees' IOUs 10,000 Petty cash fund 5,000
Currency in envelope marked collections Philippine bank current account 5,070,000
for Christmas party 5,000 City Bank current account No. 1 4,000,000
Check drawn by Armenia payable to petty City Bank current account No. 2 (overdraft) -100,000
cashier 33,000 Asia bank saving account 250,000
50,000 Asia bank time deposit, 90 days 2,000,000
Total cash and cash equivalents 11,375,000
Advances to employees 10,000
Cash short or over 5,000 CASH ON HAND
Petty Cash Fund 15,000 a. Customer check for P35,000 returned by bank December
26, 2021 due to insufficient fund but subsequently
CASH IN BANK redeposited and cleared by the bank on January 10, 2022.
d. Checkwritten and dated December 22, 2021 and delivered Accounts Receivable 35,000
to payee on January 5, 2022, P200,000. Cash on hand 35,000
Cash 200,000 b. Customer check for P15,000 dated January 10,2022, received
Accounts payable 200,000 December 23,2021.
e. Check written December 26, 2021 and dated January 31, 2022 Accounts Receivable 15,000
delivered to payee on December 26, 2021, P300,000. Cash on hand 15,000
Cash 300,000
Accounts payable 300,000 PETTY CASH FUND
Currency and coins 5,000
Cash on hand 1,000,000 IOUs from officers 2,000
NSF customer check -100,000 Unreplenished petty cash vouchers 12,000
Postdated customer check -150,000
Adjusted cash on hand 750,000 Advances to officers 2,000
Expenses 12,000
Currency and coins 2,000 Cash short or over 1,000
Check drawn payable to petty cashier 33,000 Petty cash fund 15,000
Adjusted petty cash fund 35,000
CASH IN BANK
Cash in bank 4,000,000 c. Check written and dated December 23, 2021 and delivered
Undelivered company check 200,000 to payee on January 31, 2022, P25,000.
Postdated company check 300,000 Philippine Bank Current 25,000
Adjusted cash in bank 4,500,000 Accounts payable 25,000
d. Check written December 26, 2021, dated January 30, 2022,
Cash on hand 750,000 delivered to payee on December 28, 2021, P45,000.
Petty cash fund 35,000 Philippine Bank Current 45,000
Cash in bank 4,500,000 Accounts payable 45,000
Saving deposit 2,000,000 e. Bank overdraft
Total cash 7,285,000 City Bank Current 100,000
Accounts payable 100,000

PROBLEM 1-20
Ral Company reported the checkbook balance on December PROBLEM 1-22
31, 2021 at P5,000,000 and held the following items on same Isabel Company provided the following information on
date: December 31, 2021:

Check payable to Ral, dated January 2, 2022 Cash on hand 400,000

in payment of a sale made in Security Bank current account 5,250,000 5,000,000
December 2021, not included in Manila Bank current account No. 1 4,000,000
December 31 checkbook balance 2,000,000 Manila Bank current account No. 2
Check payable to Ral, deposited to December (bank overdraft) -500,000
15 and included in December 31 BDO account set aside for bond payable
checkbook balance, but returned by due December 31, 2021 3,000,000
bank on December 30 stamped "NSF" United Bank saving account for equipment
The check was redeposited on January acquisition 1,500,000
2, 2022 and cleared on January 9, 2022 500,000 United Bank time deposit, 90 days 2,000,000
Check drawn on Ral's account, payable to a vendor, Treasury bills 1,000,000
dated and recorded in Ral's books on 12,650,000
December 31, 2021 but not mailed until Included among the checks drawn by Isabel Company against
January 10,2022 300,000 the Security Bank current account and recorded in December
Certificate of time deposit 1,000,000 2021 are:

Solution: *Check written and dated December 23, 2021 and delivered
Checkbook Balance 5,000,000 to payee on January 3, 2022, P100,000.
NSF customer check -500,000 *Check written December 26, 2021, dated January 30, 2022
Undelivered Company check 300,000 delivered to payee on December 28, 2021, P150,000.
Total cash, 12/31/21 4,800,000
Solution:
 Cash on hand 400,000
PROBLEM 1-21 Security Bank current account 5,250,000
Everlast Company reported the following information at Manila Bank current 4,000,000
year-end: Manila Bank current - bank overdraft -500,000
BDO account 3,000,000
*Share investments of P1,000,000 that are very actively traded. Total cash, 12/31/2021 12,150,000
*Government treasury bills of P2,000,000 with a 10-year term
but purchased on December 31 with two months to go until United Bank Time deposit 2,000,000
maturity. Treasury bills 1,000,000
*Cash of P3,400,000 in the form of coin, currency, saving account Total cash equivalent, 12/31/2021 3,000,000
and checking account
*Commercial papers of P1,500,000 with term of nine months but
purchased on December 31 with three months to go until maturity.

Solution:
Government treasury bills 2,000,000
Cash on hand - coin, currency, saving account
checking account 3,400,000
Commercial papers 1,500,000
Total cash and cash equivalents 6,900,000
 PROBLEM 1-5 PROBLEM 1-6
Zealous Company established a petty cash fund. Zenith Company provided the following chronological
1. Established a petty cash fund of P10,000 on January 2. transactions in relation to petty cash:
Imprest fund system 1. The entity established a petty cash fund of P10,000.
Petty cash fund 10,000 2. Petty cash disbursement were:
Cash in bank 10,000 Postage 1,500
Fluctuating fund system Supplies 3,000
Petty cash fund 10,000 3. Petty cash disbursements were:
Cash in bank 10,000 Transpotation 1,000
2. Petty cash expenses - January 2-31 are: Accounts payable 3,500
Postage 1,500 4. Issued check for an amount to replenish the fund and bring
Supplies 5,500 the balance of the petty cash to P20,000.
Transportation 1,200
Miscellaneous expense 800 IMPREST FUND SYSTEM
Imprest fund system 1. Petty cash fund 10,000
no entry Cash in bank 10,000
Fluctuating fund system 2. no entry
Postage 1,500 3. no entry
Supplies 5,500 4. Petty cash fund 10,000
Transportation 1,200 Postage 1,500
Miscellaneous expense 800 Supplies 3,000
Petty cash fund 9,000 Transportation 1,000
3. The fund is replenished on February 1 and increased by Accounts Payable 3,500
P5,000. Cash in bank 19,000
Imprest fund system FLUCTUATING SYSTEM
Petty cash fund 5,000 1. Petty cash fund 10,000
Postage 1,500 Cash in bank 10,000
Supplies 5,500 2. Postage 1,500
Transportation 1,200 Supplies 3,000
Miscellaneous expense 800 Petty cash fund 4,500
Cash in bank 14,000 3. Transportation 1,000
Fluctuating fund system Accounts Payable 3,500
Petty cash fund 14,000 Petty cash fund 4,500
Cash in bank 14,000 4. Petty cash fund 19,000
Cash in bank 19,000

PROBLEM 1-11
At year-end, Myra Company reported cash and cash equivalents PROBLEM 1-12
which comprised the following: Starex Company provided the following information at
year-end:
Cash on hand 500,000
Demand deposit 4,000,000 Checking account at Metrobank 3,000,000
Certificate of deposit 2,000,000 Employee's postdated check 120,000
Postdated customer check 300,000 Foreign bank account unrestricted and in
Petty cash fund 50,000 equivalent pesos 2,500,000
Traveler check 200,000 IOU from company president 500,000
Manager check 100,000 NSF customer check 100,000
Money order 150,000 Petty cash fund, expense receipts P40,000 10,000 50,000
Postage stamps 10,000
Solution: Treasury bonds 500,000
Cash on hand 500,000 Value added tax account 1,500,000
Demand deposit 4,000,000
Petty cash fund 50,000 Solution:
Traveler check 200,000 Checking account at Metrobank 3,000,000
Manager check 100,000 Foreign bank account unrestricted and in
Money order 150,000 equivalent pesos 2,500,000
Total Cash and Cash equivalents 5,000,000 Petty cash fund, expense receipts P40,000 10,000
Value added tax account 1,500,000
Total unrestricted cash 7,010,000
PROBLEM 1-23
Love Company reported the following information in relation
to cash on December 31, 2021: PROBLEM 1-25
 Admirable Company had a petty cash fund which included the
*Checkbook balance, P4,000,000 following details:
*Undeposited collections, P400,000
*A customer check amounting to P200,000 dated January 2, 2022 Coin and currency 2,000
was included in the checkbook balance but returned by the bank Paid vouchers
for insufficiency of fund. Transportation 600
This check was redeposited on December 26, 2021 Gasoline 400
and cleared two days later. Office supplies 500
*A P400,000 check payable to supplier dated and recorded on Postage stamps 300
December 30, 2021 was mailed on January 16, 2022. Due from employees 1,200 3000
*A petty cash fund of P50,000 comprised the following on Employee's check returned by bank marked
December 31, 2021: "NSF" 1,000
Coins and currencies 5,000 Check drawn to the order of petty cash custodian 4,000
Petty cash vouchers 40,000
Refundable deposit for returnable Solution:
containers 5,000 Coin and currency 2,000
50,000 Check drawn to the order of petty cash custodian 4,000
6,000
*A check of P40,000 was drawn on December 31, 2021 payable to
Petty Cash.
PROBLEM 1-26
Solution: On December 1, 2021, Andi Company established a petty cash
Checkbook balance 4,000,000 fund of P50,000. On December 31, 2021, the petty cash fund
Postdated customer check -200,000 was examined and found to comprise the following
Undelivered check 400,000 information:
Adjusted cash in bank 4,200,000
Petty cash: Coin and currencies 6,000
Coins and currencies 5,000 Petty cash vouchers for expenses 46,000
Replenishment check 40,000 45,000
Undeposited collections 400,000 The petty cash fund was replenished on December 3, 2021.
Total cash, 12/31/2021 4,645,000
 Solution:
Coin and currencies 6,000
PROBLEM 1-24 Petty cash vouchers for expenses 46,000
Marjorie Company established a petty cash fund of P50,000 with Total 52,000
the following information: Petty cash beginning 50,000
Cash overage 2,000
Coins and currency 22,000
Petty cash vouchers Entry
Gasoline 3,000 Miscellaneous expenses 46,000
Medical supplies 1,000 Cash in bank 44,000
Repairs 1,500 Cash short or over 2,000
IOU from employees 3,500
Check drawn payable to the order of Ann
Cruz, petty cash custodian,
representing her salary 15,000
Check of an employee returned by bank
marked "NSF" 3,000
A sheet of paper with the names of several
employees together with a
contribution for a birthday party
and attached to the sheet of paper
is a currency of 5,000

Solution:
Coins and currency 22,000
Checked drawn by the entity to the order
of the petty cash custodian
representing her salary 15,000
37,000
 PROBLEM 1-7
Laborious Company closed the accounts on June 30. The entity
provided the following transactions:
2-May The entity established an imprest fund of P10,000.
29 The fund is replenished. The petty cash items
include:
Currency and coin 2,000
Postage 1,000
Supplies 3,000
Transportation 2,500
Miscellaneous expense 1,500
30-Jun The fund was not replenished. The fund is composed
of the following:
Currency and coin 6,000
Supplies 2,000
Postage 1,000
Transportation 1,000
15-Jul The fund is replenished and increased to P15,000.
Currency and coin 3,000
Supplies 3,500
Postage 1,500
Transportation 1,500
Miscellaneous expense 500

IMPREST FUND SYSTEM

2-May Petty cash fund 10,000
Cash in bank 10,000

29 Postage 1,000
Supplies 3,000
Transportation 2,500
 Miscellaneous expense 1,500
Petty cash fund 8,000

Petty cash fund 8,000

Cash in bank 8,000

30-Jun Supplies 2,000

Postage 1,000
Transportation 1,000
Petty cash fund 4,000

1-Jul Petty cash fund 4,000

Supplies 2,000
Postage 1,000
Transportation 1,000

15-Jul Supplies 3,500

Postage 1,500
Transportation 1,500
Miscellaneous expense 500
Petty cash fund 7,000

Petty cash fund 12,000

Cash in bank 12,000
FLUCTUATING SYSTEM
2-May Petty cash fund 10,000
Cash in bank 10,000

29 Postage 1,000
Supplies 3,000
Transportation 2,500
 Miscellaneous expense 1,500
Petty cash fund 8,000

30-Jun Supplies 2,000

Postage 1,000
Transportation 1,000
Petty cash fund 4,000

15-Jul Petty cash fund 5,000

Supplies 3,500
Postage 1,500
Transportation 1,500
Miscellaneous expense 500
Cash in bank 12,000
 BANK RECONCILIATION
BANK DEPOSITS No. 1
>>Demand deposit - current account or checking account
or commercial deposit where deposits are covered by
deposit slips and where funds are withdrawable on demand
by drawing checks against the bank.
Usually non-interest bearing but some banks allow a demand
deposit account as interest bearing.
>>Saving deposit - depositor is given a passbook upon the
initial deposit.
Passbook - required when making deposits and withdrawals.
Withdrawals are made anytime but the bank sometimes may
require notice of withdrawal.
A saving deposit is interest bearing.
>>Time deposit - similar to saving deposit in the sense that it
is interest bearing.
Evidenced, however, by a formal agreement embodied in an
instrument - certificate of deposit.
May be predetermined or withdrawn on demand or after a
certain period of time agreed upon.
BANK RECONCILIATION - CONCEPT
>>Statement which brings into agreement the cash balance per
book and cash balance per bank. No. 2
>>Reconciliation is usually prepared monthly because the bank
provides the depositor with the bank statement at the end of
every month.
>>Monthly report of the bank to the depositor showing:
a. cash balance per bank at the beginning
b. deposits made by the depositor and acknowledged by the
bank
c. checks drawn by the depositor and paid by the bank
d. daily cash balance per bank during the month
>>Bank statement is an exact copy of the depositor's ledger in
the records of the bank. No. 3
>>When the bank statement is received, attached thereto are
the depositor's canceled checks and any debit or credit
memoranda that have affected the depositor's account.
>>Canceled checks - checks issued by the depositor and paid by
the bank during the month. They are canceled by stamping or
punching to show that they have been paid.
WHAT IS A BANK RECONCILIATION?
>>A bank reconciliation is necessary only for a demand de
or checking account.
>>When an account is opened at the bank, the person
authorized to draw checks against the account will be req
to sign cards furnished by the bank, to show the specimen
signatures to be used on the checks.
>>These specimen signatures will be filed by the bank so t
any teller who may be unfamiliar with a depositor's signa
can test the authenticity of a check by comparing the
depositor's signature on the card with the signature on th
check.
>>If the depositor is a corporation, the bank will request t
the directors pass a resolution authorizing certain officers
the corporation as signatories of checks and that a copy o
resolution be filed with the bank.
RECONCILING ITEMS
1. Book reconciling items
a. Credit memos
b. Debit memos
c. Errors
2. Bank reconciling items
a. Deposits in transit
b. Outstanding checks
c. Errors
CREDIT MEMOS
>>items not representing deposits credited by the bank t
account of the depositor but not yet recorded by the dep
as cash receipts. No. 4
Examples:
a. Notes receivable collected by bank in favor of the depo
b. Proceeds of bank loan credited to the account of the
depositor
c. Matured time deposits transferred by the bank to the c
account of the depositor.
Effect: increasing the bank balance
 ADJUSTED BALANCE METHOD
Book balance
FORMS OF BANK RECONCILIATION Add: Credit memos
a. Adjusted Balance Method No. 10 Total
>>the book balance and the bank balances are brought to a Less: Debit memos
correct cash balance that must appear on the balance sheet. Adjusted book balance
b. Book to Bank Method
>>the book balance is reconciled with the bank balance or the Bank balance
book balance is adjusted to equal the bank balance. Add: Deposits in transit
c. Bank to Book Method Total
>>the bank balance is reconciled with the book balance or the Less: Outstanding checks
bank balance is adjusted to equal the book balance. Adjusted bank balance

>>The first method is preferred over the other two. >>The reconciling items of the book are simply termed as
credit memos and debit memos.
>>Errors are excluded because no definite rule can be ma
BANK STATEMENT whether these are to be added or deducted.
The following is the bank statement for January received from >>The credit memos are always added to the book balanc
the First Bank: the debit memos are always deducted from the book bala
>>Deposits in transit are always added to the bank balan
In account with: No. 775 the outstanding checks are always deducted from the ban
Company X FIRST BANK balance.
Quezon City Manila, Philippines

Date Check No. Withdrawals Deposits Balance GENERAL PROCEDURES IN PREPARING THE RECONCILIA
Jan. 6 60,000 60,000 a. Determine the balance per book and the balance per b
8 721 5,000 55,000 b. Trace the cash receipts to the bank statement to ascer
11 722 10,000 45,000 whether there are deposits not yet acknowledged by the
12 723 18,000 27,000 bank.
14 20,000 47,000 >>DEPOSIT IN TRANSIT - cash receipt that does not appea
17 724 2,000 45,000 in the bank statement.
26 30,000 75,000 c. Trace the checks issued to the bank statement to ascer
26 15,000 CM 90,000 whether there are checks not yet presented for payment.
30 5,000 RT 85,000 >>OUTSTANDING CHECKS - checks that do not appear in t
30 1,000 SC 84,000 bank statement
d. The bank statement should be examined to determine
Code: CM - Credit Memo SC - Service Charge whether there are bank credits or bank debits not yet
DM - Debit Memo RT - Returned Check recorded by the depositor
>>DEBIT MEMO - returned check and service charge
The following data are gathered in connection with the CM e. Watch out for errors. Again, errors are reconciling item
and DM appearing on the bank statement: of the party which committed them. In the illustrative
a. The CM of P15,000 on January 26 represents proceeds of problem, there are no errors committed.
note collected by the bank in favor of the company.
b. The RT of P5,000 represents check of customer deposited
previously but returned by the bank because of"no sufficient SOME ERRORS AND THEIR CORRECTION
fund" or NSF a. Understatement of cash receipts on the book of depos
>>The collection from customer which is deposited amoun
P10,000 but recorded in the book only as P1,000.
BANK TO BOOK METHOD >>There is an understatement of cash receipt of P9,000.
COMPANY X error is added to the book balance and adjusted as follow
Bank Reconciliation Cash in bank
31-Jan Accounts receivable
b. Understatement of checks drawn by depositor.
Balance per bank 84,000 >>A check in payment of account payable amounting to P
Add: Deposit in transit 40,000 is recorded in the book as P2,000.
NSF Check 5,000 >>There is an understatement of cash disbursement and
Service charge 1,000 46,000 consequent overstatement of book balance in the amoun
Total 130,000 P18,000. The error is deducted from the book balance an
Less: Outstanding checks: adjusted as follows:
No. 725 37,000 Accounts payable
No. 726 28,000 65,000 Cash in bank
Note collected by bank 15,000 80,000 c. Deposit of another entity is credited by the bank to the
Balance per book 50,000 account of the depositor.
>>This is deduction from the bank balance because it
erroneously increased the account balance of the deposito
in the bank. No adjustment is necessary on the book of th
depositor.
d. Check of another entity charged to the account of the
depositor.
>>This is an addition to the bank balance because it erron
decreased the account balance of the depositor in the ban
adjustment is necessary on the book of the depositor.
K RECONCILIATION?
ssary only for a demand deposit
at the bank, the person
nst the account will be required
ank, to show the specimen
will be filed by the bank so that
ar with a depositor's signature
heck by comparing the
d with the signature on the
tion, the bank will request that
authorizing certain officers of
of checks and that a copy of this
ILING ITEMS
T MEMOS
osits credited by the bank to the
t yet recorded by the depositor
y bank in favor of the depositor
ed to the account of the
ferred by the bank to the current
JOURNAL ENTRIES ANOTHER ILL
Assume that Company X (the depositor) collected P100,000 Let us assume further that Compa
from a customer in settlement of an account. The collection check for P30,000 in payment of a
is deposited at the First Bank. books of Company X, the journal e
Record the collection and the subsequent deposit Accounts payable
Cash (or cash in bank) 100,000 Cash
Accounts receivable 100,000
On the books of the bank The journal entry on the books
Cash 100,000 Company X
Company X 100,000 Cash
>>The journal entry on the books of the bank shows the credit >>When a check is issued, the pay
is Company X account.This is made, for our purpose, to the bank for payment.
facilitate the illustration. In practice, the account credited by
the bank is demand deposit account but the same is posted to >>The depositor is actually orderin
the subsidiary ledger of Company X. out of its deposit in the bank. This
the account of the depositor there
>>When the bank credits the account of the depositor, depositor.
Company X, it recognizes its liability to the depositor.
>>When the depositor's account i
>>Debtor-creditor relationship - when deposit is made, the debited.
bank being the debtor, and the depositor being the creditor.
>>At this point, when balances are
>>When the account of the depositor is increased the same account on the depositor's book h
is credited. the Company X account on the bo
balance of P70,000.
DEBIT MEMOS
>>items not presenting checks paid by bank which are charged DEPOSITS IN
or debited by the bank to the account of the depositor but not >>Collections already recorded by
yet recorded by the depositor as cash disbursements. but not yet reflected on the bank s
Examples: No. 5 Includes:
a. NSF or no sufficient fund checks - checks deposited but a. Collections already forwarded t
returned by the bank because of insufficiency of fund. too late to appear in the bank stat
>>DAIF - Drawn against insufficient fund b. Undeposited collections or thos
b. Technically defective checks - checks deposited but returned depositor. Effect: cash on hand aw
by the bank because of technical defects, such as absence of for deposit.
signature or countersignature, erasures not countersigned,
mutilated checks, conflict between amount in words and
amount in figures. BANK TO BOO
c. Bank service charges include bank charges for interest, Bank balance
collection, checkbook and penalty. Add: Deposits in transit
d. Reduction of loan pertains to amount deducted from the Debit memos
current account of the depositor in payment for loan which Total
ALANCE METHOD the depositor owes to the bank and which has already matured. Less: Outstanding checks
xx Effect: decreasing the bank balance Credit memos
xx Book balance
xx
xx BOOK TO BANK METHOD >>deposit in transit is added and o
xx Book balance xx >>book reconciling items is simply
Add: Credit memos xx >>Since the credit memos are add
xx Outstanding checks xx xx are now deducted from the bank b
xx Total xx memos are deducted from the boo
xx Less: Debit memos xx added to the bank balance.
xx Deposits in transit xx xx
xx Bank balance xx
PREPARATION OF AD
book are simply termed as >>The bank reconciling items is simply reversed. Only the book reconciling items re
>>Since the deposit in transit is added to the bank balance, it the book of depositor.
no definite rule can be made is now deducted from the book balance, and since the >>The adjustments are necessary
or deducted. outstanding check is deducted from the bank balance, it is now balance to its correct balance for s
s added to the book balance and added to the book balance. purposes.
ducted from the book balance. a. To record the note collected b
ys added to the bank balance and Cash in bank
ays deducted from the bank ADJUSTED BALANCE METHOD Notes receivable
Balance per book 50,000 b. To record the NSF customer c
Add: Note collected by bank 15,000 Accounts receivable
Total 65,000 Cash in bank
REPARING THE RECONCILIATION Less: NSF customer check 5,000 c. To record the bank service ch
ook and the balance per bank. Service charge 1,000 6,000 Bank service charge
e bank statement to ascertain Adjusted book balance 59,000 Cash in bank
yet acknowledged by the
Balance per bank 84,000 >>In the preparation of adjustmen
eceipt that does not appear Add: Deposit in transit 40,000 balance is debited to cash and an
Total 124,000 balance is credited to cash.
e bank statement to ascertain Less: Outstanding checks
et presented for payment. Check No. 725 37,000
ecks that do not appear in the Check No. 726 28,000 65,000
Adjusted bank balance 59,000
be examined to determine
or bank debits not yet

ck and service charge

errors are reconciling items
hem. In the illustrative
D THEIR CORRECTION
eipts on the book of depositor.
r which is deposited amounts to
ok only as P1,000.
of cash receipt of P9,000. The
nce and adjusted as follows:
9,000
9,000
rawn by depositor.
nt payable amounting to P20,000

of cash disbursement and a

book balance in the amount of
from the book balance and

18,000
18,000
credited by the bank to the

ank balance because it

unt balance of the depositor
ecessary on the book of the

ged to the account of the

nk balance because it erroneously

of the depositor in the bank. No
book of the depositor.
 ANOTHER ILLUSTRATION EXPLANATION
ume further that Company X subsequently issued a >>The two accounts have equal or the same balances because
P30,000 in payment of an account payable. On the they are reciprocal accounts. This means that when on account
Company X, the journal entry is. is debited, the other account is credited or vice versa.

30,000 >>If no errors are committed in recording, and the same

30,000 information has been recorded by both accounts, the two
should have equal or the same balances.
urnal entry on the books of the bank is:
30,000 >>Very frequently, there are items on the depositor's book
30,000 which do not appear on the bank records as of the same date.
Example:
a check is issued, the payee will present the same to Checks issued by the depositor are not yet presented for
for payment. payment to the bank or deposits may have been made after
the bank records are sent out to the depositor.
positor is actually ordering the bank to pay the payee
deposit in the bank. This is the reason the bank debits >>Less frequently, there are items on the bank records which
nt of the depositor thereby reducing its liability to the do not appear on the depositor's book.
Example:
a. The bank may have charged the depositor's account with
he depositor's account is decreased, the same is service charges which the depositor may not know about until
a report is received from the bank.
b. Notes endorsed to the bank for collection have been
point, when balances are extracted, the cash in bank collected by the bank and credited to the depositor's account
n the depositor's book has a balance of P70,000, and but notice of collection is not yet received from the bank by
any X account on the book of the bank has also a the depositor.

OUTSTANDING CHECKS
DEPOSITS IN TRANSIT >>checks already recorded by the depositor as cash
ons already recorded by the depositor as cash receipt disbursements but not yet reflected on the bank statement.
et reflected on the bank statement. No. 6 Includes: No. 7
a. Check drawn and already given to payees but not yet
ons already forwarded to the bank for deposit but presented for payment.
o appear in the bank statement. b. Certified checks - one where that bank has stamped on its
osited collections or those still in the hands of the face the word accepted or certified indicating sufficiency of
Effect: cash on hand awaiting delivery to the bank fund. No. 8

>>When the bank certifies a check, the account of the depositor

is immediately debited or charged to insure the eventual
BANK TO BOOK METHOD payment of the check.
xx
osits in transit xx >>Certified checks should be deducted from the total
xx xx outstanding checks (if included) because they are no longer
xx outstanding for bank reconciliation purposes.
standing checks xx
xx xx
xx ILLUSTRATION
The cash records of Company X show the following for the
t in transit is added and outstanding check is deducted. month of January.
econciling items is simply reversed.
he credit memos are added to the book balance, they CASH RECEIPTS CASH DISBURSEMENTS
educted from the bank balance, and since the debit Jan. 5 60,000 Jan. 6 Check No. 721
re deducted from the book balance, they are now 13 20,000 7 Check No. 722
the bank balance. 25 30,000 10 Check No. 723
31 40,000 14 Check No. 724
150,000 28 Check No. 725
PREPARATION OF ADJUSTING ENTRIES 31 Check No. 726
book reconciling items require adjusting entries on
of depositor.
ustments are necessary to bring the cash in bank The general ledger of the company shows the cash in account
o its correct balance for statement presentation for January as follows:
Cash in bank - First Bank
ord the note collected by bank: Jan. 31 CR 150,000 Jan. 31 CD
15,000
Notes receivable 15,000 The balance of the cash in bank on the depositor's book is P50,000.
ecord the NSF customer check:
5,000
Cash in bank 5,000 BOOK TO BANK METHOD
ecord the bank service charge: COMPANY X
1,000 Bank Reconciliation
Cash in bank 1,000 31-Jan

preparation of adjustments, an item added to the book Balance per book

debited to cash and an item deducted from the book Add: Note collected 15,000
credited to cash. Outstanding checks No. 725 37,000
No. 726 28,000 65,000
Total
Less: NSF Check 5,000
Service charge 1,000
Deposit in transit 40,000
Balance per bank
 alances because
when on account

d the same
nts, the two

positor's book
of the same date.

een made after

k records which

account with
know about until

positor's account
m the bank by

CKS

nk statement.

stamped on its
sufficiency of

nt of the depositor
he eventual

y are no longer
owing for the

BURSEMENTS
5,000
10,000
18,000
2,000
37,000
28,000
100,000

cash in account

ank
100,000

itor's book is P50,000.

HOD

50,000

80,000
130,000

46,000
84,000
 QUESTIONS
1. Explain the three kinds of bank deposits.
2. What is bank reconciliation?
3. What is bank statement?
4. Explain credit memos.
5. Explain debit memos.
6. Explain deposit in transit.
7. Explain outstanding checks.
8. Define a certified check.
9. Explain the treatment of certified check for bank
reconciliation purposes.
10. Explain the three forms of bank reconciliation.
PROBLEM 2-1