Chapter 8 - Cash and Cash Equivalents CHAPTER 8 CASH AND CASH EQUIVALENTS TOPIC OVERVIEW: This chapter discusses the concept of cash and cash equivalents, its characteristics and components, preparation of bank reconciliation and proof of cash. LEARNING OBJECTIVES: After studying this chapter, you should be able to: 1. Identify what items are included as cash and cash equivalents. 2, Calculate the correct balance of petty cash fund. 3, Identify bank and book reconciling items. 4, Prepare bank reconciliation and proof of ca SUMMARY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR CASH Cash Items Unrestricted and immediately available for For use other than for use in the current current operations operations -For payment of operating expense - For payment of current liabilities - For acquisition of current assets “Cash” in the current asset Other noncurrent section financial assets DEFINITION OF CASH Cash includes money and other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. It 155Chapter 8 - Cash and Cash Equivalents , includes cash on hand, demand deposits and other items that 4. unrestricted for use in the current operations. | 1. Cash on Hand (CUTCMoBa) C | Customer’s checks awaiting deposit —) U__| Undeposited cash collections (currencies such as bills ang | coins) _ | T __| Traveler's check | C | Cashier's / Official / Treasurer's / Manager's checks . Mo | Postal money orders (a demand credit instrument issued ong} ible by a post office) | Ba | Bank eke te written order addressed to the bank to pay an) | amount of money to the order of the maker) | 2. Cash in bank - a. | Current account/checking account/demand deposit/commercia) | account | - Generally non-interest bearing | -__ Withdrawable by checks against bank | b. _ | Savings deposit (Savings Account-SA) = Generally non-interest bearing - Depositor is issued an ATM card or passbook -_ Withdrawable in ATM station or within the bank | L___|-__Withdrawable in ATM station or within the bane 3. Cash fund for current operations (CP?RintPeDiT®) Change fund | | —/ c P_| Payroll fund Rr | Purchasing fund (for purchasing of inventories) Revolving fund (fund that is used for limited or specie urpose set by management. Int_| Interest fund | Pe | Petty cash fund (for small and miscellaneous disbursements) _] Di_| Dividend fund | T__| Travel fund | Tax fund | Fund for Noncurrent Operations Fund for noncurrent operations are part of noncurrent assets and should not be included as part of cash. Examples are as follows: (P2ACIS) © P | Pension fund Generally noncurrent investment but if the related liability is current, the fund is included as cash. Preferred redemption | Noncurrent investment unless the preferred fund share has a mandatory redemption and if redeemable 156Cash and Cash Equivalents within one year from the reporting period - part of current investment ¥ within three months from the reporting ____| _ period - part of current invest: Acquisition of property, | Always nancurrent even if expected to be plant andequipment__| disbursed next year C_| Contingent fund Noncurrent investment 1 | Insurance fund Noncurrent investment $ | Sinking fund Noncurrent investment, if the related bonds payable is current, the fund is included as cash. Note: Classification of cash fund as current or noncurrent should be parallel to the classification applied to the related liability. Thus, an entity should reclassify such noncurrent asset if the related liability becomes current. CASH EQUIVALENTS Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. [PAS 7.6] Items that may qualify as cash equivalents include the following: 1. Time deposit 2. Money market instrument or commercial paper 3. Treasury bills, treasury notes and treasury bonds 4. Redeemable preference shares with mandatory redemption period. Ifthe above items are: Treatment 1) Originally invested/acquired for more than three months before maturity date a) Remaining term is three months or less from | Short-term the reporting date investment b) Remaining term is more than three months | Short-term but within one year investment c) Remaining term is more than one year Long-term investment 2) Originally invested/acquired for three months or Cash equivalents less before maturity date Note: ¥ If an item cannot be included as cash equivalent because it did not qualify the cut-off time period (ie. three months), it will always be classified as investments (short term or long term) depending on the period up to maturity. ¥ The reckoning period for time deposit is its duration since time deposit generally does not have secondary market. For other securities with 157secondary market, the reckoning period would be three months fro, acquisition date until maturity date. ¥ Ifthe problem is silent with regard to: 1. Treasury note and bonds - assumed non-current investment + 2. Cash in money market account - cash and cash equivalent 3. Time deposit - cash and cash equivalent Some Measurement Issues and Frequent Encountered Tricks in Cag, and Cash Equivalents Computation Items Remarks Cash Measured at face value Cash in foreign currency Should be translated to Philippine Peso us; the closing rate or spot rate at the reporti Deposit in foreign bank | date. * | a. Unrestricted - part of cash | b. Restricted - if material, classified Separaty, among noncurrent assets as receivables Cash in closed bank / banks in bankruptcy Measured at estimated realizable value andj) | included among noncurrent assets if amount recoverable is lower than face value, Bank overdraft Definition: Negative balance in the cash ® bank account. | Treatment: If the company is maintaining ty, accounts in a. Different banks Y current liability or may be against other bank if immaterial, Y netted against other account if it is of cash management. [PAS 7.8] b. Same bank - maybe netted against the account with positive amount but Cannot offset against restricted account. | Compensating balance Definition: Compensating balance is minimug checking account balance that must & maintained in connection with a borrowing agreement with a bank Treatment: a. Not legally restricted - part of cash b. Legally restricted - if the related loan is; 1) Short-term — presented as “cash held as compensating balance” —_(currey receivable) 2) Long-term - presented as “cash held | compensating balance” _(noncurer | 158Chapter 8 - Cash and Cash Equivalents receivable) Note: if the problem is silent with regard to compensating balance, it is assumed not legally restricted. Effect of compensating balance on: a. Yield rate (lender) - increase b. Effective rate (borrower) - increase (Effective rate) = Net interest expense Net proceeds Undelivered/unreleased | Reverted back to cash by a check Dr Cash xx Cr_A/P Stale checks/checks long outstanding x Definition: Checks not encashed by the payee with a relatively long period of time. Under current banking practice, checks are considered stale if not encashed within 6 months from its date. Treatment: Stale checks are reverted to cash bya z Dr Cash x Cr Accounts payable xx (if material) Misc.income _xx (if not material) Postdated checks Definition: Checks dated after the reporting date Treatment: a. For company own PDC - reverted to cash Dr Cash xx, Cr Accounts payable xx b, Customer’s check - will still remain as receivable 10Us (I owe you) Included as part of receivable Equity securities Generally cannot be classified as cash equivalents because equity securities do not have a maturity date (with the exception of redeemable preference shares) Redeemable preference shares Preference shares with specified redemption date Y acquired three months before redemption date - cash equivalents Y acquired for more than three months before redemption date - current investment 159Chapter 8 ~ Cash and Cash Equivalents Callable preference | Not classified as cash equivalents. It is part gj) shares shareholder's equity on the part of issuer ang part of long-term investment of the holder. NSF/DAUD/DAIF Definition: NSF - no sufficient funds DAUD - drawn against uncleared deposits DAIF - drawn against insufficient funds Treatment: Reverted back as part of receivables. Expense advances (eg. travel advances) Receivable or prepaid expense Temporary investments in shares of stocks Either FVTPL or FVTOCI but never to be included as part of cash & cash equivalents Unused credit line Definition: Difference between the amount of line of credit applied for and approved by a bank and the amount actually borrowed Treatment: Disclosed in the notes Treasury warrants Definition: A warrant for the payment of money into or from public treasury. Treatment: Included as part of cash. Escrow deposit Definition: Restricted amount held in trust for] another party, a deposit required by a court of law for a pending case. Treatment: Part of other current/noncurrent asset and reported as liability Unrecorded cash disbursements Record the disbursements by: Dr A/P or other appropriate account xx Cr Cash xx Unrecorded cash collections/receipts Record the collection by: Dr Cash x Cr Accounts receivable or other appropriate account _xx Certificate of deposit (CD) for time deposits Definition: A savings certificate entitling the bearer to receive interest. A CD bears 2 maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the PDIC. The term of a CD generally Tanges from one month to five years. Treatment: a. Invested three months before maturity - cash equivalents 160Chapter 8 - Cash and Cash Equivalents b. Invested for more than three months - investment (short or long-term) __| Postage stamps on hand | Should be reported as office supplies or as a prepaid expense Bank overdraft netted | Bank overdraft that was netted or deducted from cash in bank from cash in bank but should be presented as current liability should be added back to compute for the correct balance of cash in bank. ILLUSTRATION 1: Cash Composition On December 31, 2021, Wag Kang Aayaw Co's “cash and cash equivalents count” balance per ledger of P5,700,000 includes: Manager's C checks “Traveler's checks “Treasury note “Treasury shares, purchased on 12/1/2021, to be reissued on | 3/1/2022 _ Escrow deposit ‘Bank drafts “Postal money orders “Demand deposit _ oe bills, purchased December 16, 2021 due March 15, 50,000 | 160-day treasury bill 30,000 | “Time deposit - PCIB, one-year, due March 31,2022 | ‘180,000 “Time deposit - PNB- 90 days : _ “170,000 | ‘Time deposit - BPI- 120 days _ _ 45,000 Money market instrument-due 2/28/202 [Money market instrument-due 6/1/2022 _ Cash in bank - Metrobank, which include: sating balance of P50,000 for short-term borrowing arrangement. The compensating balance is not legally restricted as to _withdrawal. Cash in bank - Firstbank, which includes a compensating balance of P50,000 for long-term borrowing arrangement. © cq ggg, | | The compensating balance is legally restricted as to | " _withdrawal. (60,000) | ' Cash in bank - Seatacbank, which includes a compensating | _ balance of P40,000 for short-term borrowing arrangement. | 159 999 | The compensating balance is legally restricted as to | , | Lwithdrawal. | 161A” Chapter 8 - Cash and Cash Equivalents ———— | Cash in bank - Seabank which includes a compensating so balance of P40,000 for short- term borrowing arrangement. 250,009 Petty cash fund, which includes an unreplenished voucher —~| (for P4000 |__ 10.000 | Payroll fund 7 —_| 100,009" Travelfund —_———|____20,009° [Interest fund : 40,009" Tax fund 30,000" [Sinking fund SSE te [420,009 Preferred redemptionfund 100,009" Contingent fund 200,000 Insurance fund 500,009" Fund for acquisition of PPE expected to be disbursed in 2022 | 800,099 [OU from officers 20,000 | Customer's post-dated checks 70,000 Customer's checks returned by bank marked “NSF” 20,009 | Redeemable preferred shares - acquired 3 months before Eom | maturity date 2 [Unused credit line 200,000 Revolving fund 100,000 | Visa Card-credit limit ——20.009 Total |_B5,700,000 | Required: Compute the cash and cash equivalents that should be shown in the statement of financial position. SOLUTION: Manager's checks |? 70,000] Traveler's checks 100,000 Bank drafts [20,000 Postal money orders 20,000 | | Demand deposit 100,000, | Treasury bills, purchased December 16, 2021 due March 15, 50,000 | | 2022 | | Time deposit-PNB- 90 days 170,000 Money market instrument-due date 2/28/2022 40,000 | Cash in bank-Metrobank (including compensating balance) | 1,050,000 Cash in bank-Metrobank (overdraft) (100,000) | Cash in bank-Firstbank, net of compensating balance 400,000 | (P450,000-P50,000) Cash in bank-Seatacbank, net of compensating balance 110,000 | (P150,000-P40,000) Cash in bank-Seabank, (including compensating balance) _ 250,000, Petty cash fund, net of expenses (P10,000-P4,000) 6,000 162| Redeemable preferred shares - acquired maturity date | Revolving fund Classification of the other items: | Treasury note Assumed investment “Treasury shares Escrow deposit Deduction to SHE Other noncurrentasset__ 160-day treasury bill 30,000 - short term investment Time deposit-PCIB, one-year, due L March 31, 2022 180,000 - short term investment Time deposit - BPI- 120 day Money market instrument-due date 6/1/2022 45,000 - short term investment_ 70,000 - short term investment Cash in bank - Secondbank (60,000) - current liability Sinking fund 420,000 - noncurrent investment | Preferred redemption fund 100,000 - noncurrent investment | Contingent fund 200,000 - noncurrent investment “Insurance fund 500,000 - noncurrent investment [Fund for acquisition of PPE in 2022 800,000 - noncurrent investment 1OU from officers Customer's post-dated checks 20,000 - advances to officers 70,000 - accounts receivable NSF” customer's checks 20,000 - accounts receivable | Unused credit line Disclosed in the notes Visa Card-credit limit ILLUSTRATION 2: Cash Composition 20,000 (not yet cash, should the company withdraws money from the bank then there will be a debit to cash and credit to accounts payable-bank) | On December 31, 2021, GAME K N BA? Company's cash and cash equivalents account balance per ledger of 4,000,000 includes: Demand deposit Undeposited collection Time deposit-30 days NSF check of customer 35- day money market placement due 1/28/2022 45-day commercial papers due 2/4/2022 P 2,200,000 300,000 500,000 20,000 300,000 80,000 163Chapter 8 - Cash and Cash Equivalents Savings deposit in closed bank 50,000 {OU from an employee 150,000 Preferred redemption fund 400,009 Total 4,000,000 Additional information: a) b 9 qd) e) Included in the demand deposit of P2,200,000 was a customer Chee, amounting to P50,000 dated January 25, 2022. Also included in the demand deposit is a customer check amounting t, 90,000 dated December 31, 2020. Game K N BA? neglected to encagh the check. On December 31, 2021, the customer was informed and he was willing to replace this with a new one. New check is yet to by received from the customer. Check of 60,000 dated January 31, 2022 in payment of accouny payable was recorded and mailed December 31, 2021. Check of P70,000 in payment of accounts payable was recorded on December 31, 2021 but mailed to creditors on January 15, 2022. The company uses the calendar year. The cash receipts journal was helg open until January 15, 2022, during which time P80,000 was collecey and recorded on December 31, 2021. Required: 1. Prepare the adjusting entries to correct the cash account Compute the cash and cash equivalents to be shown on December 3) 2 2021 statement of financial position. Solution: Requirement No. 1: Adjusting Entries Debit Credit Accounts receivable 20,000 Cash in closed bank (other non-current asset) 50,000 Advances to employees 150,000 Preferred redemption fund 400,000 Cash in bank 620,000 a) Accounts receivable 50,000 Cash in bank 50,000 b) Accounts receivable 90,000 Cash in bank 90,000 ©) Cashin bank 60,000 Accounts payable 70,000 d) Cash in bank 70,000 Accounts payable 70,000 e) Accounts receivable 80,000 Cash in bank 80,000Chapter 8 - Cash and Cash Equivalents Requirement No, 2 Unadjusted balance 4,000,000 AJE#1 (620,000) AJEa (50,000) AJED (90,000) AJEc 60,000 AJEd 70,000 AJEe —(80.000) Adjusted balance 23,290,000 PETTY CASH FUND Imprest system is a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check. However, it is impractical for the company to make all payments thru check. Therefore, a petty cash fund is established to cover small and miscellaneous expenditures. Petty cash fund may be accounted for using the following two methods: 1, Imprest fund system 2. Fluctuating fund system Comparison of journal entries: XX Imprest Fund System Fluctuating System a. To establish the fund Petty cash fund XX Petty cash fund Cash in bank XX Cash in bank b. Payment of expenses Memo entry in the Expenses petty cash journal Petty cash fund c. Replenishment of petty cash payments Expenses x Petty cash fund Cash in bank XX Cash in bank d. To adjust the unreplenished expenses Expenses xX No adjusting entry Petty cash fund XxX e. Increase in the fund Petty cash fund x Petty cash fund Cash in bank XX Cash in bank f. Decrease in the fund Cash in bank XX Cash in bank Petty cash fund XX Petty cash fund 165Chapter 8 - Cash and Cash Equivalents The Cash Over and Short account is used as a plug (miscellaneous expens, or miscellaneous revenue) when the petty cash fund fails to turn out to be satisfactory. Replenishment check | The amount to be indicated in the replenishment check will be the tota | expense plus the cash shortage and less the cash overage. It can also by | determined by subtracting the bills and coins from the petty cash | accountability. | The Petty Cash Fund Count Sheet | The count sheet has basically four parts as follows: 1, Accounting for petty cash items 2. Accountabilities 3. Petty cashier's acknowledgment | 4. Auditor's adjusting entries Accounting for Petty Cash Items | All petty cash items, inclusive of the impurities are accounted in the workin, papers as the presence of the impurities may indicate some weaknesses in the accounting control systems. A summary of the weaknesses in the accounting control systems is prepared and submitted to the management after the general audit of the accounting records, Petty Cash Impurities Petty cash impurities are items which do not belong to the fund but for one | reason or another are nevertheless found in the petty cash box. Examples of | petty cash impurities are: | a. Bills and coins and customers’ check from the cashier's collections (as these should have in the general cash) b. Checks issued by the client in payment of utility bills (as these shoulg have been delivered to the payees) c. Checks issued to the client in payment of personal advances (as these should have been in the general cash) Accountabilities The accountabilities in the count sheet consist of the following: 1, Cash fund balance per general ledger 2. Petty cash impurities except checks issued to the client in settlement | of cash advanced from the petty cash fund Computation of Petty cash shortage Petty cash accounted Less: Petty cash accountabilities Overage (or shortage) lniee 166Chapter 8 - Cash and Cash Equivalents Computation of Petty Cash Accounted and Petty Cash Accountabilities Petty cash accounted Petty cash accountabilities Coins and currencies XX | PC Fund ledger balance XX Unexpended employees | XX | Petty cash impurities except contributions (eg. contribu- checks issued in settlement of tions for Christmas party, cash advanced from the PCF. birthday party, etc) Cash collections of accounts | XX | Unexpended ‘employees | XX receivable or sales. contributions (eg. contribu- tions for Christmas party, birthday party, etc. Unclaimed salary XX | Collections of accounts | XX receivable or sales (in cash or in check) Checks for deposits XX | Unclaimed salary XX Stale checks XX | Stale checks XX Post-dated checks (checks that | XX | Company's check in payment of | XX are dated after reporting date a liability (eg. utilities) (if AND cash count date) among the checks for deposits) Unreplenished vouchers | XX (expenses, 10Us that are taken from the PC Fund) Note: For unexpended employees contributions, unclaimed salary and cash collections of accounts receivable or sales, they should be included in the accounted only when it is intact or the envelope is still closed on the cash count date. However, it is included as part of cash accountabilities whether intact or not. Examples of Checks: 1. Employees’ checks (good, NSF or PDC) in settlement of cash advanced from the petty cash fund; 2. Check of the company as a replenishment of petty cash fund (replenishment check); and 3. Check of the company payable to the petty cash custodian representing his/her salary. Employees’ checks or checks issued to the client in settlement of cash advanced from the petty cash fund are not treated as accountabilities in the count sheet as these checks simply serve as evidence that there were cash advances drawn from the petty cash fund. These are accommodated checks or checks cash out from the fund. Note: Ifthe problem is silent, a check in which the payee is to “Cash” is assumed to be an accommodated check. Examples of checks for deposits that are part of the petty cash impurities and if included in the petty cash accounted, must be included also in the petty cash accountabilities: 167Chapter 8 - Cash and Cash Equivalents 1. Customer's checks - these are checks in the name of the client compan, and the maker is a customer. These represent collection of Accouny receivable from a customer. 2. Company's check in payment ofa liability (e.g. utilities) Cash collections of accounts receivable or sales Cash collections of accounts receivable or Sales may be evidenced by Say invoices or official receipts that are included in the petty cash box. Computation of adjusted PCF balance: Coins and currencies (excluding collections, unexpended employees yy contribution, and unclaimed salary) Add: Expenses paid out of the PCF after reporting date Check of the company in the name of petty cash custodian as a a. Replenishment check of the petty cash fund or b._ Salary of the petty cash custodian Employees’ check (good check only, exclude NSF check) Adjusted PCF balance Jesper 282 ILLUSTRATION 1: Petty Cash Fund Your firm has been engaged to audit the financial statements of the Mel Company for the year ended December 31, 2021. In connection with audit, you have been assigned to audit the petty cash fund. You cond your count at 9:15 a.m. on January 4, 2022 in the presence of Mr. Rodel Ocon, the cashier and at the same time the petty cash custodian. A Count ¢ the petty cash fund under the custody of Rodel E. Ocon showed jy composition as follows: Currencies: Denomination Quantity Bills: Pio00 3 | 500 7 100 6 50 4 20 5 Coins: 10 48 5 20 1 20 Checks: —Maker_Date Payee Particulars Amor Rodel Payment for cash advances Ocon 03/01/21 Client drawn fromthe petty cash fund 96 January 1, 2021 168Chapter 8 - Cash and Cash Equivalents Payment for cash advances Merilou- 42/02/21 client «drawn fromthe petty cashfund wy 99 Employee but was returned by the bank for insufficiency of fund, pebora: Payment for cash advances President 12/20/21 Client drawn from the petty cash fund 73,000 : December 1, 2021 ita Company 12/28/21 PetYS#H Replenishment of PCR 16,000 Vouchers: Particulars Date Amount Taxi fare - ORNo. 155 December 15,2021 2,400 Gasoline - OR No. 688 December 16,2021 1,600 Office supplies December 22,2021 2,000 OR # 64794 - Post Office December 23,2021 1,200 IOU signed by Jigo-company messenger December 24,2021 4,800 Others: « Unused stamps, P400 e The general ledger shows an imprest petty cash fund balance of P50,000. Required: 1. Prepare the working paper for Petty Cash Fund. 2, Compute for any petty cash shortage or overage. 3. Compute for the adjusted petty cash fund. 4, Prepare the adjusting journal entries. Solution: Requirement No. 1: Working Paper for the Petty Cash Fund Melben Company Petty Cash Count Sheet January 4, 2022; 9:15 AM Denomination Quantity Total Bills 1,000 3 ® 3,000 500 7 3,500 100 6 600 50 4 200 2 5 100 Coins 10 48 480 5 20 100 1 20 Pee 20 4 Total Bills and Coins P 8,000 169Chapter 8 - Cash and Cash Equivalents Checks for Deposits: ‘aceane Merilou December 20, 2021 Client ‘Advances-NSF og) Debora ‘December 20, 2021 Client Payment of Cash Advances 2 Melben Petty cash BCE replenishment Company _Devember 28,2021 Custodian ~ Lay Tata ches for depot Fly Vouchers: Particulars Date Amount. Taxi fare December 15, 2021 2,400 Gasoline December 16, 2021 1,600 Office Supplies December 22, 2021 2,000 Postage December 23, 2021 1,200 Advances - employees December 24, 2024 4,800 Total voucher payment 42,000 Bills and coins ® 8,000 Checks for deposit 20,000 Stale checks 9,600 Vouchers paid 42,000 Total Petty Cash Accounted 49,600 Less: Petty cash accountabilities 59,600 Petty Cash Shortage 10,000) Petty cash accountabilities Petty cash imprest balance 50,000 Stale checks of Rodel Ocon 9,600 Petty cash accountabilities 59,600 Acknowledgment | hereby acknowledge that the above petty cash fund items were counted in n Presence and the same were retumed to me intact. | further acknowiedge a pety Short of ten thousand pesos (10,000). | have no other fund accountabilities. Rodel Ocon Petty Cash Custodian Requirement No. 2 Bills and coins P 8,000 Checks for deposit 20,000 Stale checks 9,600 Vouchers paid 12,000 Total Petty Cash Accounted 49,600 Less: Petty Cash Accountabilities 0 Petty Cash Shortage 170Chapter 8 - Cash and Cash Equivalents Requirement No. 3 Coins and currency P 8,000 Replenishment check —16,000 Petty cash fund, 12/31/2021 P 24,000 Requirement No. 4: Adjusting Entries Debit Credit a) Transportation expense 2,400 Gasoline and oil expense 1,600 Office supplies expense 2,000 Postage expense 1,200 Advances to employees 4,800 Petty cash fund 12,000 b) Unused postage stamps 400 Postage expense 400 c) Advances to employees 4,000 Petty cash fund 4,000 d) Receivable from custodian 10,000 Petty cash fund 10,000 ILLUSTRATION 2: Petty Cash Fund You are examining the accounts of ABC Co. Your count of the imprest cash fund, made at 9:00 am. on January 4, 2022, in the presence of Stef Pangilinan petty cashier, revealed: Quantity Denomination Total 2 1,000 2,000 3 500 1,500 5 200 1,000 1 100 100 5 20 100 15 10 150 6 5 30 Checks Date Payee Amount G. Na, Asst. Manager 12/12/2021 ABC Co 1,000 Stef Pangilinan, PC custodian 12/15/2021 ABCCo 500 (Stef Pangilinan's check was returned by the bank because of insufficiency of funds) Unreimbursed vouchers Payee Date ‘Account charged Amount ACo 12/12/2021 Advances to employees P 150 BNa 12/15/2021 Supplies 200 CDa 12/18/2021 Freight 300 DNa 12/19/2021 Repairs 480 171N ‘Shaper 8 = Cash and cash Equatents 10Us Date Amount E.Na 12/12/2021 P 550 F.Ta 12/15/2021 400 P.Cu 12/18/2021 250 Additional information: The balance of the petty cash fund per books is P11,000. Required; For each of the following independent cases, compute for the following. 1. Petty cash shortage or overage 2. Adjusted petty cash fund balance as of December 31, 2021. CASE NO. 1: Use the above data Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150+200+300+480) 1,130 IOUs (550+400+250) 1,200 8710 Less: Petty cash accountabilities Shortage Requirement No. 2 Coins and currencies 4,880 Check of G. Na 1,000 Adjusted petty cash fund 5,880 L Thor's check was not included because of insufficiency of fund. CASE NO. 2: With replenishment check, check of customers for collect stale checks, post-dated checks : Assume instead that the checks included the following: Maker Date Payee Amount Stef Pangilinan 02/15/2021 ABCCo 600 J.Muel, customer 12/15/2021 ABC Co 1,000 G. Ma, bookkeeper 12/15/2021 ABC Co 880 ABC Co 12/15/2021 Stef Pangilinan 2,800 ABC Co 12/26/2021 Utility Company 1,200 R. Hood, employee 01/15/2022 ABC Co 550 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits (1,000+880+2,800+1,200) 5,880 Postdated check of R. Hood 550 Stale check of Stef Pangilinan 600 172Chapter 8 - Cash and Cash Equivalents Unreimbursed vouchers (150 + 200 + 300 + 480) 1,130 10Us (550 + 400 + 250) 1,200 14,240 Less: Petty cash accountabilities Petty cash fund balance 11,000 Stale check of Stef Pangilinan 600 }.Muel, customer 1,000 Check for payment of utility company 1,200 13,800 Overage 440 Requirement No. 2 Coins and currencies 4,880 G. Ma, bookkeeper 880 ABC Co- replenishment check 2,800 Adjusted petty cash fund 8,560 CASE NO. 3: With postage, unused stamps and expenses cash out of PCF after reporting period: Go back to the original data and assume the following additional information: Unreimbursed vouchers Payee Date Account charged Amount Bureau of Posts 12/12/2021 Postage P 800 M. Gaddo 01/02/2022 Supplies 300 Unused stamps, P50 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (1,130+800+300) 2,230 1OUs (550 + 400 + 250) 1,200. 9,810 Less: Petty cash accountabilities 11,000 Shortage (1,190) (Unused stamps amounting to P50 is not included in the unreimbursed vouchers since there is already disbursement for postage.) Requirement No. 2 Coins and currencies 4,880 Check of G. Na bs Payment of supplies after reporting date ___300_ Adjusted petty cash fund 8 173Chapter 8 - Cash and Cash Equivalents CASE NO. 4: Without postage, with unused stamps and expenses Cash oy, of PCF after reporting period Go back to the original data and assuming the following additionay information: Unreimbursed vouchers Account Payee Date charged Amount M. Gado 01/02/2022 Supplies 300 Unused stamps, P50 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (1,130+300+*50) 1,480 10Us (550 + 400 + 250) Less: Petty cash accountabilities Shortage 1,940) *Unused stamps amounting to P50 is included in the unreimburseg vouchers since there is no disbursement for postage. 200 9,060 Requirement No. 2 Coins and currencies 4,880 Check of G.Na 1,000 Payment of supplies after reporting date 300 Adjusted Petty cash fund 6,180 — CASE NO. 5: With unexpended employee's contributions and unclaimeg salary (amounts are intact) Go back to the original data and assume the following addition, information: A sheet of paper with names of employees together with contribution for; birthday gift of a co-employee amounting to P500 was included in the petyy h. The following employees’ pay envelopes have not been opened and th: money still intact. Each envelope was marked “unclaimed.” |.Masliyan — P400 X.Humiwat 200 Requirement No. 1 Petty cash accounted Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150 + 200 + 300 + 480) 1,130 0 + 400 + 250) 1,200 174Yy Chapter 8 - Cash and Cash Equivalents CASE NO. 4: Without postage, with unused stamps and expenses cash ug of PCF after reporting period Go back to the original data and assuming the following additionay information: Unreimbursed vouchers Account Payee Date charged Amount M. Gaddo 01/02/2022 Supplies 300 Unused stamps, P50 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (1,130+300+*50) 1,480 TOUs (550 + 400 + 250) 1,200_ 9,060 Less: Petty cash accountabilities Shortage *Unused stamps amounting to P50 is included in the unreimburseq vouchers since there is no disbursement for postage. Requirement No. 2 Coins and currencies 4,880 Check of G. Na 1,000 Payment of supplies after reporting date 300 Adjusted Petty cash fund 180 CASE NO. 5: With unexpended employee's contributions and unclaimeq salary (amounts are intact) Go back to the original data and assume the following additiona| information: \j A sheet of paper with names of employees together with contribution fora birthday gift of a co-employee amounting to P500 was included in the petty cash. The following employees’ pay envelopes have not been opened and the money still intact. Each envelope was marked “unclaimed.” J. Masliyan P400 X. Humiwat 200 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150 + 200 + 300 + 480) 1,130 10Us (550 + 400 + 250) 1,200 174Chapter 8 Cash and Cash Equivalents, Uneapended employees’ Contribution 500 Unclaimed salary (400 + 200) 600 9,810 Less: Petty Cash accountabilities Petty cash fund balance 11,000 Unexpended employees’ contribution 500 Unclaimed salary 600 12,100 Shortage Requirement No. 2 Coins and currencies 4,880 Check of G.Na Adjusted petty cash fund CASE NO. 6: With unexpended employee's contributions and unclaimed salary-amounts are not intact Go back to the original data and assume the following additional information: A sheet of paper with names of employees together with contribution for a birthday gift of a co-employee amounting to P500 was included in the petty cash. The following employees’ pay envelopes have been opened and the money removed. Each envelope was marked “unclaimed.” J. Masliyan P400 X. Humiwat 200 Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150 + 200 + 300 + 480) 1,130 10Us (550 + 400 + 250) 1,200 Unexpended employees contribution 500 9,210 Less: Petty cash accountabilities Petty cash fund balance 11,000 Unexpended employees contribution 500 Unclaimed salary 600 12,100 Shortage Requirement No. 2 Coins and currencies 4,880 Less: Unclaimed salary 600 Check of G. Na 1,000 ‘Adjusted petty cash fund —3280- 175Chapter 8 - Cash and Cash Equivalents CASE Ni /ith cash sales evidenced by sales invoice Go back to the original data and assuming the following addi, information: " Sales invoices (for cash sales, all in cash, no checks) Invoices Date Amount #143 12/30/2021 2,000 #144 12/31/2021 600 #145 01/02/2022 2,050 Assume that for the purpose of computing the petty cash balance, aval cash applies to cash collections and any remaining amount is for the pe, cash fund. Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150 + 200 + 300+480) 1,130 I0Us (550 + 400 + 250) 1,200. 8,710 Less: Petty cash accountabilities ; Petty cash fund balance 11,000 : Cash sales 4,650 _15, Shortage Requirement No. 2 Coins and currencies 4,880 Check of G.Na 1,000 Total cash 5,880 Less: Cash sales 4,650 Adjusted petty cash fund 1,230 CASE NO. 8: With cash sales evidenced by sales records and deposit slip, Go back to the original data and assume the following additions information: Cash sales on January 2, 2022 amounted to P9,000 per sales records, whig cash receipts book and deposit slip showed that only P8,000 was deposte in the bank on January 3, 2022. Requirement No. 1 Petty cash accounted: Coins and currencies 4,880 Checks for deposits 1,500 Unreimbursed vouchers (150 + 200 + 300 + 480) 1,130 10Us (550 + 400 + 250) 1,200 8,710 176Chapter 8 - Cash and Cash Equivalents Less: Petty cash accountabilities Petty cash fund balance Undeposited collection (9,000 - 8,000 deposited) Shortage Requirement No. 2 Coins and currencies Check of G. Na Total cash Less: Undeposited collection Adjusted Petty cash fund BANK RECONCILIATION Bank reconciliation is a schedule prepared that accounts for the differences between cash balances per book and per bank statement. It is prepared only for checking account/demand deposit and is prepared monthly because the bank provides the depositor with the bank statement at the beginning (normally first week) of the following month. Forms of Bank Reconciliation 1, Adjusted balance method 2. Book to bank method 3. Bank to Book 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 Deposits in Transit. These are deposits already recorded in the cash books in one period but were taken up by the bank only in the next period. Examples: a. Collections already forwarded to the bank for deposit but too late to appear in the bank statement. b. Undeposited collections awaiting delivery to the bank for deposit. Outstanding Checks. These are checks written and released to payees and are already recorded in the cash books but are not yet presented for encashment or deposit to the bank. 177Chapter 8 - Cash and Cash Equivalents Certified Checks. These are checks that the bank already certified as hay’ sufficiency of funds and thus technically are no longer outstanding checks, Debit Memo. These are charges and deductions made by the bank to 4, account of the entity but not yet recorded by the entity. Examples of ety, | memo: | a. Bank service charges. These include bank charges for inten collection, checkbook and penalty. J] b. NSF/DAIF/DAUD checks. These are check deposited and alrea | recorded by the bank but subsequently returned by the bank tou, entity because of insufficiency of fund. c. Payment of loan. This pertains to amount deducted from the Currey, | account of the depositor in payment for loan which the deposit, owes to the bank and which has already matured. d. Final withholding tax on interest income. | Credit Memo. These are collections or deposits made by the bank to | account of the company but not yet recorded by the entity. Examples y | credit memo: j a. Collections made by the bank on behalf of the entity. | b. Proceeds of bank loan credited to the account of the entity. | ¢, Matured time deposits transferred by the bank to the Current aceoy, | of the depositor. d. Interest income credited to the account. Bank or Depositor (Book) Errors. Errors made by the company ory, bank that must be corrected for the reconciliation to balance. ‘The following are rules for errors assuming the company is using th adjusted balance method of presenting bank reconciliation: Effect of the errors Treatment | 1. | Understatement ofcash [Add on the unadjusted cash in bay) receipts balance 2. | Overstatement of cash Deduct from the unadjusted cash in| receipts bank balance | 3.| Understatement of cash | Deduct from the unadjusted cash j) disbursements bank balance I 4. | Overstatement of cash Add on the unadjusted cash in bany disbursements balance Guidelines in Bank Reconciliation and Proof of Cash: | Bank reconciliation is performed only after the company receives the ban, statement in the next month. For example, the bank statement for the mont of January is received in February, thus bank reconciliation of January yi be prepared in February. Hence, unless otherwise stated, book Teconeiling 178Chapter 8 - Cash and Cash Equivalents items for January is assumed to be recorded in February after preparing the bank. Therefore, the following assumptions should be observed: ¥ Credit memo for January is assumed to have been debited (ie. increasing cash receipts) in February ¥ Debit memo for January is assumed to have been credited (ie. increasing disbursement) in February ¥ Overstatement in book receipts (i.e. debit) in January is assumed to be recorded by credit (i.e. increase in disbursement) in February. ¥ Understatement in book receipts (i.e. debit) in January is assumed to be recorded by debit (i.e. increase in receipts) in February. ¥ Overstatement in book disbursement (i.e. credit) in January is assumed to be recorded by debit (i.e. increase in receipts) in February. ¥ Understatement in book disbursement (ie. credit) in January is assumed to be recorded by credit (i.e. increase in disbursement) in February. From the point of view of the bank, it will only record the transaction upon actual receipt of deposit and upon presentment of payee for check payment or deposit. Unless otherwise stated, bank errors are assumed to be recorded in the next month following the month it committed the error. Therefore, the following should be observed: ¥ Deposit in transit at the end of January is assumed to have been credited (ie. increase receipts) by the bank in February. v Outstanding checks at the end of January is assumed to have been debited (i.e. increase disbursements) by the bank in February. Y Overstatement in bank receipts (ie. credits) in January is assumed to be recorded by debit (i.e. increase in disbursement) in February. v Understatement in bank receipts (i.e. credits) in January is assumed to be recorded by credit (i.e. increase in receipts) in February. Y Overstatement in bank disbursement (i.e. debits) in January is assumed to be recorded by credit (ie. increase in receipts) in February, v Understatement in bank disbursement (i.e. debit) in January is assumed to be recorded by debit (i.e. increase in disbursement) in February. ILLUSTRATION 1: One-month Bank Reconciliation On October 31, of the current year, the bank statement for the checking account Driftwood Company shows a balance of P126,300, while the company’s records show a balance of ®123,310. Information that might be useful in preparing a bank reconciliation is as follows: a) Outstanding checks are ®14,300 which includes a certified check for 2,000. b) The October 31 cash receipts of P7,850 are not deposited in the bank until November 2. 179Chapter 8 - Cash and Cash Equivalents c) One check written in payment of utilities for P1,370 is correc recorded by the bank but is recorded by Driftwood as a disbursement y 1,730. d In accordance with prior authorization, the bank debited P6,500 dire, from the checking account as payment of interest amounting to P5 and the principal amounting to P6,000. Driftwood has not yet recorg, the direct withdrawal. e) Bank service charges of P240 are listed on the bank statement. f) Adeposit of P5,670 is recorded by the bank on October 31, but it did p, belong to Driftwood. The deposit should have been made to checking account of Hollybuster Company, a separate company. g) The bank statement includes a charge of P750 for an NSF check. check is returned with the bank statement and the company will payment from the customer. Required: 1. Prepare a bank reconciliation, using the adjusted balance method fo the month of October. 2. Prepare the necessary adjusting journal entries. SOLUTION: Requirement No. 1 Bank Unadjusted balances 126,300 Outstanding check, net of certified checks (12,300) Deposit in transit (undeposited collections) 7,850 Book error - disbursement for utilities 3 Note charged by the bank, including interest = Bank service charge Erroneous bank credit (5,670) NSF check — Adjusted balance 2116,180 Requirement No. 2 The following are the adjusting entries to be recorded in the company, books. Note that only book reconciling items are recorded. ADJUSTING ENTRIES Debit Credit 1) Cash in bank 360 Utilities expense 360 2) Notes payable 6,000 Interest expense 500 Cash in bank 6,500 3) Bank service charge 240 Cash in bank 240 180 Book 123,310 360 (6,500) (240) (150) 216.180 Cy eg Seq, |Chapter 8 ~ Cash and Cash Equivalents 4) Accounts receivable 750 Cash in bank 750 ILLUSTRATION 2: One-month Bank Reconciliation You have gathered the following data in the preparation of bank reconciliation on December 31, of the current year for Armelia Company: a) Balance per bank statement, P2,000,000, b) Balance per book, 1,350,000. c) Bank service charge, P5,000. d) Outstanding checks, P300,000. e) Deposit in transit, P237,500, f) Proceeds of bank loan, December 1, discounted for 6 months at 12%, not recorded on Armelia Company's books, 470,000 g) Customer's NSF check charged back by bank, 25,000. h) Check of Joy Company charged by the bank against Armelia account, 75,000. i) Customer's note collected by bank in favor of Armelia Company. Face amount 200,000 Interest 20,000 Total 220,000 Less: Service charge 2500 217,500 j) Deposit of P50,000 incorrectly recorded by bank as, P5,000. k) Erroneous debit memo of December 28, to charge Armelia account with settlement of bank loan, P100,000. 1) Deposit of Joy Company credited to Armelia account, P150,000. Required: 1. Prepare bank reconciliation as of December 31, of the current year? 2. Prepare adjusting journal entries except for the amortization of discount on loans payable. SOLUTION: Requirement No. 1 Balance per bank 2,000,000 Add: Deposit in transit 237,500 Understatement of deposit (50,000-5,000) 45,000 Erroneous bank charge 75,000 Erroneous debit memo 100,000 _ 457,500 Total 2,457,500 Less: Outstanding check 300,000 Erroneous bank credit 150,000 _450,000 Adjusted bank balance 2,007,500 Balance per book 1,350,000 Add: Proceeds of bank loan 470,000 Note collected by bank 212.500 _687,500 181Chapter 8 - Cash and Cash Equivalents See Total 2,037, 50 Less: Service charge 5,000 | Customer's check charged back 25,000 __3 Sy Adjusted book balance 2.00759) Requirement No. 2: Adjusting Entries 1) Cash in bank 470,000 Discount on loans payable 30,000 Bank loans payable 500, To record bank loan, Discount = [(470,000 divide by (100% minus (1 | x 6/12)] -470,000 2). Cashin bank 217,500 Bank service charge 2,500 Interest income 200, Notes receivable 1 To record collection of note and interest income less service charge, 3) Bank service charge 5,000 Cash in bank ; Soy, To record bank service charge. 4) Accounts receivable 25,000 Cash in bank To record NSF check returned. PROOF OF CASH (TWO-DATE BANK RECONCILIATION) Proof of cash or four-column bank reconcil 8 reconciliation is an expanded reconciliation that includes proof of rece and disbursements. Formulas: Deposit in transit, beginning ‘Add: Deposit made by the company this month Total deposits to be acknowledged by the bank Less: Deposit acknowledged by the bank this month Deposit in transit, end Outstanding checks, beginning Add: Checks issued by the company this month Total checks to be paid by the bank Less: Checks paid by the bank this month Outstanding checks, end Jal=/= B dele aes 182Chapter 8 - Cash and Cash Equivalents Computation of the deposits made by the company and the deposits acknowledged by the bank Book receipts (Debits) XX Bank receipts (Credits) XX Less: XX Less: Credit Memo last month XX Credit Memo this month xX Book errors last month Bank errors last month XX corrected this month: corrected this month: Understatement of CR XX Understatement of CR XX Overstatement of CD XX Overstatement of CD XX Book errors this month: Bank errors this month: Overstatement of CR XX —_Overstatement of CR XX Add: Understatement of CR XX_ Add: Understatement of CR XX, Deposits made by the Deposit acknowledged by the company this month XX__ bank this month xX Computation of the checks issued by the company and the checks paid by the bank Book disbursements (Credits) XX Bank disb. (Debits) XX Less Debit Memo lastmonth XX Less DebitMemothismonth XX Book errors last month Bank errors last month corrected this month: corrected this month: Overstatement of CR XX — Overstatement of CR XX Understatement of CD XX Understatement of CD xX Book errors this month: Bank errors this month: Overstatement of CD XX Overstatement of CD XX Add: Understatement of CD _XX_ Add: Understatement of CD _XX_ Checks issued by the company Checks paid by the bank this this month _XX_ month XX Note: 1) Deposit in transit should exclude customer's post-dated checks. If these were included and recorded as receipts for the month, the following treatment will be required in the proof of cash or bank reconciliation assuming the adjusted balance method is to be used: Beg. Receipts Disb. End Unadjusted book balance (XxX) (xx) Outstanding checks should exclude the following: a) Company's post-dated check. b) Unreleased or undelivered company's checks. If these were included and recorded as disbursements for the month, the following treatment will be required in the proof of cash or bank reconciliation assuming the adjusted balance method is to be used) Beg, Receipts Disb. End Unadjusted book balance Ox Xx 2 183Chapter 8 - Cash and Cash Equivalents ILLUSTRATION 1: Computation of deposit in transit The following data are available for the Cash in Bank of Ellen Company f, | February of the current year: Deposit made by the company this February, P120,000. . Deposit in transit, January 31, 200,000 Customer’s check representing receipts in January amountin, & 21,000 was erroneously recorded by the company as P12,000, . Check of the company in January amounting to 72,000 wy, erroneously recorded by the company as P20,000. Deposit acknowledged by the bank in February, P150,000. Erroneous bank charge in January, P13,000. i Erroneous bank credit in February, ?14,000. . Customer's note collected, January 31, P10,000. Customer's note collected, February 28, P12,000. Required: Compute for the following: | 1. Deposit in transit in February 28. 2. Unadjusted book receipts in February. 3. Unadjusted bank receipts in February. 5p ODP rmomm SOLUTION: | Requirement No. 1 Deposit in transit, Jan. 31 200,099 Add: Deposit made by the company February 120, Total ~ sana Less: Deposit acknowledged by the bank this month 150,099 Deposit in transit, Feb. 28 —70000 —a Requirement No. 2 Deposit made by the company - February 120,009 | Add: Credit Memo in January 31-Customer's notes collected 1999) Errors in January corrected in February's book receipts: Understatement of cash receipts in January for customer's check (P21,000 - P12,000) 9,000 Overstatement of cash disbursements in January for customer's check (20,000 - 2,000) 18,000 Total unadjusted book receipts ior Ear | Requirement No. 3 Deposit acknowledged by the bank - February 150,000 | Add: Credit memo in February (customer's notes collected) 12,000 | Errors in January corrected in February's bank receipts: | Overstatement of cash disbursements in January | (erroneous bank charge January) 13000 | Error in February affecting bank receipts: Overstatement of cash receipts in February 14,000 184 'Chapter 8 - Cash and Cash Equivalents (erroneous bank credit February) Total unadjusted bank receipts ILLUSTRATION 2: Deposit in Transit 189,000, In your audit of the cash account of Ann Company, you have ascertained the following data relative to the debits per books and credits per bank: Book debits in February Bank credits in February Interest earned on the deposits in January but taken up in the books in February Interest earned on the deposits in February but taken up in the books in March Collection by the bank for the account of the depositor (this amount was collected by the bank in January but was taken up in the books of the depositor in February Loan granted by the bank to the depositor (this amount was credited by the bank on February 27 but not yet taken up in the books of the depositor in February.) Check from customer in January amounting to P20,000 but was taken up in the book as Check issued to supplier in January amounting to P1,000 but was taken up in the book as Erroneous bank credit-February Erroneous bank charge-January Undeposited collections as of January 31 P 380,000 310,000 5,000 6,000 15,000 30,000 2,000 10,000 18,000 10,000 250,000 Required: Compute for the undeposited collections at the end of February. SOLUTION: Undeposited collections, jan. 31 Add: Deposits made by the company Book debits P 380,000 Less: Interest earned in Jan. 5,000 Collection by the bank in Jan. 15,000 Understatement of CR in Jan. (P20,000-2,000) 18,000 Overstatement of CD in Jan. (P10,000-P1,000) __9,000 Total Less: Deposits acknowledged by the bank Bank Credits P 310,000 Less: Interest earned in Feb. 6,000 Loan granted by the bank in Feb. 30,000 Erroneous bank credit - Feb. 18,000 Erroneous bank charge - Jan. —10,000 Undeposited collections, Feb. 28 185 P 250,000 —333,000 P 583,000 246,000 337,000Chapter 8 - Cash and Cash Equivalents ILLUSTRATION 3: Outstanding Checks | The following data are available for the Cash in bank of Rizza Company fo, | February of the current year: ‘A. Checks issued by the company during February, P150,000. B. Outstanding checks, January 31, P52,000. C. Customer's check representing receipts in January amounting P12,000 was erroneously recorded by the company as P21,000. | . Check of the company in January amounting to 20,000 wa, erroneously recorded by the company as P2,000. Checks paid by the bank in February, P130,000. Erroneous bank credit in January, P10,000. Erroneous bank charge in February, P12,000. Bank service charge, January, P2,000. Bank service charge, February, P3,000. Required: Compute for the following: 1. Outstanding checks on February 28. 2. Unadjusted book disbursements in February. | 3. Unadjusted bank disbursements in February. | 9 rmomm SOLUTION: Requirement No. 1 Outstanding checks, Jan. 31 52,000 ‘Add: Checks issued by the company - Feb. 150,000 Total 202,000" Less: Checks paid by the bank - Feb. 130,000 Outstanding checks, Feb. 28 72,000 —— Requirement No. 2 Checks issued by the company - Feb. 150,009 Add: Debit memo in January (bank service charge) 2,000 Errors in Jan. corrected in February's book disbursements: Overstatement of cash receipts in January for customer's check (P21,000 - P12,000) 9,000 Understatement of cash disbursements in January for customer's check (P20,000 - 2,000) Total unadjusted book disbursements Requirement No. 3 Checks paid by the bank - Feb. 130,009 Add: Debit memo in February (bank service charge) 3,000 Errors in January corrected in February's bank disbursements: Overstatement of cash receipts in January (erroneous bank credit January 31) Error in February affecting bank disbursements Overstatement of cash disbursements in February (erroneous 186Chapter 8 - Cash and Cash Equivalents bank charge) Total unadjusted bank disbursements 155,000 ILLUSTRATION 4: Outstanding Checks in the audit of the cash account of the Prudylyn Inc. the following information, relative to the credits per books and debits per bank, were disclosed by the records of the company and its bank statement with BPI: Credits per books in February P 200,000 Debits per bank statement in February 150,000 Check from customer in January amounting to P2,000 but was taken up in the book as 20,000 Check issued to supplier in January amounting to P10,000 but was taken up in the book as 1,000 Check issued to supplier in February amounting to P12,000 but was taken up in the booka 21,000 Check of the company recorded in the bank in January as 10,000 when the correct amount is 15,000 Amortization of PAG-IBIG housing loan automatically debited by the bank on January 31, as per automatic debit agreement, but taken up in the books of the depositor in February. 15,000 Amortization of PAG-IBIG housing loan automatically debited by the bank on February 28, as per automatic debit agreement, but taken up in the books of the depositor in March. 15,000 Erroneous bank credit - January 18,000 Erroneous bank charge - February 10,000 Deposits in January properly recorded by the company as 15,000 but was recorded in the bank as 51,000 Outstanding checks, January 31 15,000 Bank service charge for January 1,000 Bank service charge for February 2,000 Required: Compute for the outstanding checks at the end of February. SOLUTION: Outstanding checks, January 31 P 15,000 Add: Checks issued by the company this month Book credits P 200,000 Less: Overstatement of CR in Jan. (20,000-2,000) 18,000 Understatement of CD in Jan. (10,000-1,000) 9,000 Overstatement of CD in Feb. (21,000-12,000) 9,000 Amortization of PAG-IBIG housing loan inJan. 15,000 Bank service charge January 1.000 _148,000 187Chapter ash and Cash Equivalents | P 16: 3.095 Total he bank | Less: Checks paid by the ban! Bank debits P 150,000 Less: Understatement of CD in Jan. (P15,000 - P10,000) 5,000 Amortization of PAG-IBIG housing | loan in Feb. 15,000 Erroneous bank credit - January 18,000 Erroneous bank charge - February 10,000 Overstatement of deposit (P51,000-P15,000) 36,000 | Bank service charge Feb. —2.000 Outstanding checks, Feb. 28 Rana | Summary of Treatment for Proof of Cash Adjusted Balance Beg. Ending Method balance Receipts _—Disb. Balance Cash in bank per books xX XX mn Xx Credit Memo - last month XX (Xx) Credit Memo - this month XX XX Debit Memo - last month (xx) (xx) i Debit Memo - this month XX Xx) | Adjusted balance XX XxX. XX xX | TT Notes: ¥ Ending cash balance is equal to beginning balance plus receipts minyg| | disbursements. | ¥ ‘Credit memo last month” was added to the beginning cash balang| | because the receipts last month were understated resulting to the understatement of the beginning cash balance. Also, the book receipts during the current month were overstated brought about by the addition | | of this “Credit Memo last month”. Thus, the “Credit Memo last mont} | was deducted from the book receipts this month. Y The book receipts for the current month and the cash ending balance were understated because the “Credit Memo this month” was not ye| recorded. Thus, in the proof of cash presentation this amount was addeq | both to the book receipts and ending cash balance. ¥ “Debit memo last month” was deducted from the beginning cash balance | because the disbursements last month were understated resulting to the overstatement of the beginning cash balance. Also, the book| disbursements during the current month were overstated brought about by the addition of this amount. Thus, this amount was deducted from the book disbursements this month. | Y The book disbursements for the current month was understated while the cash ending balance was overstated because the “debit memo this month” was not added to the book disbursements. Thus in the proof of cash presentation, this amount was added to the book disbursements 188Chapter 8 - Cash and Cash Equivalents and deducted from ending cash balance. J Beg. Disburs Ending balance Receipts ements Balance Cash in bank per bank XX XX XX x DIT - last month XX on) DIT - this month XxX xX OC- last month (xX) (XX) OC- this month KY) Adjusted balance XX XX XX XX Legend: DIT - Deposit in transit; OC - Outstanding check Notes: ¥ Ending cash balance is equal to beginning balance plus receipts minus disbursements, ¥ ‘Deposit in transit last month” was added to the beginning cash balance because the receipts last month were understated resulting to the understatement of the beginning cash balance. Also, the bank receipts during the current month were overstated brought about by the addition of this “Deposit in transit last month”. Thus, the “Deposit in transit last month” was deducted from the bank receipts this month. ¥ The bank receipts for the current month and the cash ending balance were understated because the “Deposit in transit this month” was not yet recorded. Thus, in the proof of cash presentation, this amount was added both to the bank receipts and ending cash balance, ¥ “Outstanding checks last month” was deducted from the beginning cash balance because the disbursements last month were understated resulting to the overstatement of the beginning cash balance. Also, the bank disbursements during the current month were overstated brought about by the addition of this amount. Thus, this amount was deducted from the bank disbursement this month. ¥ The bank disbursements for the current month was understated while the cash ending balance was overstated because the debit memo this month was not yet recorded. Thus in the proof of cash presentation, this amount was added to the bank disbursements and deducted from ending cash balance. ERRORS (both on books and banks) ‘The amount to be presented herein is the DIFFERENCE between the correct amount and the erroneous amount) Beg. Rec. Disb. End. 1) Errors last month corrected this month: a) Overstatement of CR 0X) (xX) b) Understatement of CR XX (XX) c) Overstatement of CD XX (XX) 4) Understatement of CD ea) (xX) 189Chapter 8 - Cash and Cash Equivalents ‘Shapter 8 = Cash and Cash Equivalents 2) Errors last month not yet corrected this month: a) Overstatement of CR b) Understatement of CR XX c) Overstatement of CD d) Understatement of CD (xx) 3) Errors this month not yet corrected: a) Overstatement of CR (net amount) (xX) b) Understatement of CR (net amount) XX c) Overstatement of CD (net amount) d) Understatement of CD (net amount) Legend: CR- Cash Receipts; CD-Cash Disbursements BE BREE Buxs FREQUENTLY ENCOUNTERED TRICKS IN PROOF OF CASH Note: All amounts are assumed figures. Current month (end) is Februgy while previous period (beginning) is assumed January. ‘Adjusted balance method-BOOK | BOOKS| February | BOOK) Beg. | Rec. | Disb. | Enq 1. [NSF check amounting to | (3,399) (3,399) 3,399 returned in February. This was deposited in January. 2, [NSF check amounting to (8,900) (850 8,900 deposited in February and returned in March. (see ‘a. Returned in January &| (300) | 300 recorded in February, P300 | b. Returned in February & 500 | 500 1 recorded February, P500 4. | Unrecorded disbursements of | (800) (800) January corrected in February, P800. | 5. |Unrecorded receipts of | 1,000 | (1,000) January corrected in February, P 1,000. 6. | Unrecorded disbursements of | (1,200) Te January not yet corrected in February, P1,200. 7. |Unrecorded receipts of | 1,400 400) January not yet corrected in | February, P1,400. | note) | 3. | NSF check recorded as reduction of Cash Receipts 190Chapter 8 - Cash and Cash Equivalents ———T-300KS | Adjusted balance method-BOOK [BOOKS| February | BOOKS Rec._| Disb. 8. | Unrecorded disbursements for as 1,600 | (1,600) the month of February, P1,600, 9. | Unrecorded receipts for the 7,800 4,800 month of February, P1,800, 10 | Post-dated or unreleased (2,000) | 2,000 check of the company included as outstanding checks for the |__| month of February, P2,000. Post-dated check from custo- (1.200) (1,200) mer in February recorded as receipts in February, P1,200. 12 | Cancellations of company’s 2,600 | (2,600) checks recorded by a reduc- tion of cash disbursements, 2,600. 13 | Check of the company issued | 2,700 2,700 in January was mutilated and returned by the payee. A replacement check was issued, Both checks were entered in the check register but no entry was made to cancel the mutilated check, 2,700. (in addition, this should not be included as part of outstanding checks in January) 14 | Check issued in January and | 2,700 2,700 was included in the out- standing checks in January was recorded for P3,000 but when the bank statement was received in February the correct amount of this check is 300. No correction was made in February. (P300 should be included as outstanding checks in January) 75 | The company issued a stop (3.200) | (3,200) payment order to the bank in February for check issued in February which was not received by the payee. A new check was written and recorded in the check register 191Ny Chapter 8 - Cash and Cash Equivalents Adjusted balance method-BOOK | BOOKS| February EN Beg. | Rec. | Disb, in February. The old check was ke’ written off by a journal entry also in February, P3,200. Adjusted balance method - BANK | BANK February | Bayps Beg | Rec. | Dish] wt 1. | Customers NSF check | (3,400) | 3,400 returned by bank in January and redeposited and cleared in February (no entry in January and February to record the NSF check), P3,400 2. | Payment directly from the 1,000 | 1,000 | -~ collections (paid out in currency), 1,000, (see explanation below) 3. | Erroneous bank credit made in (3,100) | (3,100) February corrected by Debit/Disbursements also in February, P3,100. 4. | Customer's dishonored checks (2,400) | (2,400) | in February are recorded as reduction of cash receipts. The dishonored checks are. redeposited also in February and are recorded as regular receipts, P2,400. 5. | NSF check amounting to (2,000) | (2,000) [——~ 2,000 returned this month and redeposited this month (no entry was made in the books both on the return and redeposit) - see note below Enq) Note: This is the traditional treatment in the textbooks. However, as the chee, received by the company was returned due to insufficiency of funds, effective) the company did not receive payment at all, Thus, the amount of returned ch, should be deducted from the Book Balance End and from the Book Receipts (i recorded) and added back to receivables as these are stil collectible from i. customer. PAID OUT IN CURRENCY (PAYMENT OUT OF COLLECTION) According to imprest system, all cash collection received by the compst) should be deposited intact to the bank, and all disbursements should t: made through the use of check, except for payment of small 2 192Chapter 8 - Cash and Cash Equivalents miscellaneous items. Therefore payment directly out of the collection is a violation of this internal control. For purposes of accounting all the receipts and disbursements during a certain period, the following treatment should be presented in the proof of cash starting from the unadjusted cash balance- bank: Beg. Rec. Disb. End. Unadjusted cash in bank - bank XX XX XX XX Paid out of collection xX XX Note that in the presentation, the payment out of collection is assumed to have been deposited in the bank and a check was issued for the payment. ILLUSTRATION: Proof of Cash Data concerning the cash records of Lyndon Company for the months of September and October of the current year follow: a) Unadjusted book balance on September 30 amounted to P2,258,000 b) Total receipts per book in October, P1,400,000. c) Total disbursements per book in October, P2,400,000. d) Unadjusted bank balance on September 30 amounted to P2,100,000. e) Total credits per bank in October amounted to P1,200,000. f) Total debits per bank in October amounted to P2,500,000. g) NSF checks on September 30 amounted to 60,000 while on October 31 amounted to P40,000. h) Collection of accounts receivable not recorded by the company on September 30, P30,000 and P50,000 on October 31. i) Erroneous bank charge on September 30, P10,000 and P18,000 on October 31. j) Erroneous bank credit on September 30, P7,000 and P9,000 on October 31. k) Understatement of check in payment of rent payable on September 30, 90,000 and P120,000 on October 31. I) Deposit in transit on September 30, P130,000. m) Outstanding checks on October 31, 30,000. Required: Based on the above data, answer the following questions: 1. How much is the deposit in transit October 31? 2. How much is the outstanding checks September 30? 3, How muchis the adjusted cash in bank balance September 30? 4. How much is the adjusted cash receipts during October? 5. How much is the adjusted cash in bank balance October 31 6. Provide the adjusting journal entries. SOLUTION: Requirement No. 1 Deposit in transit, beginning P 130,000 Add: Deposits made by the company 193Chapter 8 - Cash and Cash Equivalents Book receipts 1,400,000 Less: Credit last month — 30,000 1.370.009 Total 1,500,000 Less: Deposits acknowledged by the bank Bank receipts 1,200,000 Less: Credit memo this month 50,000 Erroneous bank charge - September 10,000 Erroneous bank credit - October 9.000 1.131.009 Deposit in transit, end P.369,009 Requirement No. 2 Outstanding checks, beginning (squeeze) P 95,009 Add: Checks issued by the company Book disbursements 2,400,000 Less: Debit last month 60,000 Understatement of check in payment of rent-September 90,000 Add: Understatement of check in Payment of rent - October 120,000 2,370,009 Total 2,465,009 Less: Checks paid by the bank Bank disbursements 2,500,000 Less: Debit memo this month 40,000 Erroneous bank charge - October 18,000 Erroneous bank credit - September 7,000, Outstanding checks, end P 30,009 Requirement Nos, 3-5 | Balance October Balance Sept.30 Receipts Dis! Oct.31 | Bank bal. 2,100,000 1,200,000 P2,500,000 P 800,009 | Deposit in transit | Sept. 30 130,000 (130,000) Oct. 31 369,000 369,000 Outstanding checks Sept. 30 (95,000) (95,000) | Oct. 31 30,000 (30,000) Erroneous bank charge Sept. 30 10,000 (10,000) Oct. 31 (18,000) 18,000 Erroneous bank credit Sept. 30 (7,000) (7,000) Oct. 31 ——— (9,000) : (9,000) Adjusted bal. 2,138,000 P1,420,000 2,410,000 _P1,148,000 194Chapter 8 - Cash and Cash Equivalents Bala October Balance Se 30 Receipts Disb. Oct. 31 Book balance 2,258,000 P1,400,000 2,400,000 P1,258,000 NSF checks Sept. 30 (60,000) ( 60,000) Oct. 31 40,000 (40,000) Credit Memo Sept. 30 30,000 (30,000) Oct. 31 50,000 50,000 Understatement of checks in payment of rent Sept. 30 (90,000) (90,000) Oct. 31 : - 120,000 (120,000) Adjusted bal. 22,138,000 P1,420,000 2,410,000 1.148000 Requirement No. 6: Adjusting Entries Debit Credit 1) Accounts receivable 40,000 Cash in bank 40,000 2) Cash in bank 50,000 Accounts receivable 50,000 3) Rent payable 120,000 Cash in bank 120,000 195Chapter 8 - Cash and Cash Equivalents CHAPTER 8: REVIEW QUESTIONS - COMPUTATIONAL PROBLEM 8-1 Cash and Cash Equivalents The following pertains to Kerry Corporation on December 31, 2021: Postage stamps 500 Credit memo from a vendor for a purchase return 10,000 Current account at BPI (50,000) Current account at Metrobank 1,000,000 Employees postdated check 2,000 Foreign bank account - restricted (in equivalent pesos) 500,000 IOU from controller's sister 5,000 Listed stock held as temporary investments 7,500 Payroll account 250,000 Petty cash fund (P2,000 in currency and expense receipts 5,000 for P3,000) Postal money order 15,000 Traveler's check 25,000 Treasury bills, due 1/31/2022 (purchased 01/31/2021) 150,000 Treasury bills, due 3/31/2022 (purchased 12/31/2021) 100,000 Treasury warrants 150,000 Additional information: 1, Check of P100,000 drawn against Metrobank account in paymeng accounts payable was recorded on December 31, 2021 but malleg “ suppliers on January 5, 2022. ‘| 2. Check of P50,000 drawn against Metrobank account dated January 15, my mn Bayment of accounts payable was recorded and mailed on December 3, Check of 25,000 drawn against Metrobank account dated January 15, 203, in payment of accounts payable was recorded and mailed on January jg 2021. As of the reporting period, the same has not been encashed by ty payee and still outstanding. How much cash and cash equivalents should Kerry Corp. report on December 31, 2021 statement of financial position? : a. P1,565,000 ¢. 1,717,000 a. P1,700,000 d. P1,865,000 PROBLEM 8-2 Cash and Cash Equivalents The following pertains to Kerry Corporation on December 31, 2021: Postage stamps P 1,000 Employees postdated check 4,000 10U from controller's sister 10,000 Credit memo from a vendor for a purchase return 20,000 Traveler's check 50,000 Postal money order 30,000 Petty cash fund (P4,000 in currency and expense receipts 196Chapter 8 - Cash and Cash Equivalents for P6,000) 10,000 Treasury bills, due 3/31/2022 (purchased 12/31/2021) 200,000 Treasury bills, due 1/31/2022 (purchased 01/31/2021) 300,000 Listed stock held as temporary investments 15,000 Current account at Metrobank 2,000,000 Current account at BPI (100,000) Payroll account 500,000 Foreign bank account - restricted (in equivalent pesos) 1,000,000 ‘Treasury warrants 300,000 How much cash and cash equivalents should Kerry Corp. report on the December 31, 2021 statement of financial position? a. 3,084,000 c. P2,784,000 b. 2,790,000 d. P2,704,000 PROBLEM 8-3 Cash and Cash Equivalents The cash account of Ria on December 31, 2021 has a balance of P151,000 and it consists of the following: Bills and coins on hand P 52,780 Traveler's check 22,400 Credit memo from supplier's for purchase returns 6,500 Postage stamps 120 Petty cash including paid cash vouchers of P1,650 2,000 Balance in Savings Account with a bank closed by the BSP 36,000 Customer's check dated January 15, 2022 8,000 Money order '800 10U of an employee 400 Checking Account Balance in Bank of Philippine Island _ 22,000 Total 151,000 The correct cash and cash equivalents balance on December 31, 2021 is a, P98,900. ¢, P97,530. b. P98,730. d. 98,330. PROBLEM 8-4 Cash and Cash Equivalents Assume the following data of Dianne Corporation of its cash and short-term, highly liquid investments for December 31, 2021: Cash on hand 80,000 Checking account No. 143 ~ BPI 200,000 Checking account No. 155 - BPI (30,000) Date Maturity Securities: Acquired Date Amount 120-day Certificate of Deposit 12/10/2021 01/31/2022 600,000 BSP-Treasury Bills (No.1) 11/30/2021 04/30/2022 5,000,000 BSP-Treasury Bills (No.2) 10/31/2021 01/20/2022 1,000,000 180 days Commercial Paper 12/01/2021 06/20/2022 __1,400,000 197‘N Chapter 8 - Cash and Cash Equivalents Money Market Funds 11/21/2021 02/10/2022 _2,000, 007° The correct cash and cash equivalents balance on December 31, 2021 is a. 3,850,000 cc, P5,250,000 b. 3,880,000 d. P5,280,000 PROBLEM 8-5 Cash and Cash Equivalents The statement of financial position of a company presents the followin, financial assets on December 31, 2021: © Bank cheque account = P58,400. © Bank savings account (collectible immediately) = 23,440. © Cash = 10,000. * Common stocks of Entity Z, one of the most traded assets in Country 4, stock exchange, purchased by the airline to speculate = P2,715. © Oilprice derivative entered into by the entity to hedge the commodity, risk of the anticipated future purchase of oil for use in the entity's peratin, business = P6,720. | © Agold price derivative entered into by the entity to speculate = P9,880, Treasury bonds issued by the government of Country A = P8,500. The entiy | acquired the bonds from the government one week before the entity, | reporting date. The bonds mature 2 months after the date of acquisition (, f they are two-month bonds from date of issue). © Treasury bonds issued by the government of Country A = P6,300, The ent acquired those bonds from the government in the previous anny | reporting period. The bonds mature 15 months after the date of acquisito, (ie, they are 15-month bonds). In the absence of evidence to the contrary, the entity's total cash and cag, equivalent on December 31, 2021 is: a. P98,560 c. P109,775 | b. 100,340 d. 107,060 | PROBLEM 8-6 Cash and Cash Equivalents The December 31, 2021 trial balance of Agee Company includes the following | accounts: Petty cash fund 70,000 Current account - Metro Bank 4,000,000 Current account - BPI (overdraft) (250,000) 120-day Money market placement - RCBC 1,000,000 Time deposit - PNB 2,000,000 4 Additional information: © The petty cash fund includes unreplenished December 2021 petty cat expense vouchers for P15,000 and an employee check for P5,000 datei January 31, 2022. 198Chapter 8 - Cash and Cash Equivalents * Acheck for P100,000 was drawn against Metro Bank current account dated and recorded December 27, 2021 but delivered to payee on January 10, 2022. © The PNB time deposit is set aside for land acquisition in early January 2022. ‘What should be reported as “cash and cash equivalents” on December 31, 2021? a. 5,130,000 c. P4,150,000 b. P5,150,000 d. P4,880,000 PROBLEM 8-7 Effective Interest Rate Luke Company is in need of 3,375,000 to finance its building expansion program. Luke is currently negotiating a loan with Metro Bank which requires the company to maintain a compensating balance of 5% of the loan principal on deposit in a current account at the bank. Luke, Inc. currently maintains a balance P50,000 in its current account. The current account earns interest of 4% per annum; the interest rate on the loan is 12% per annum. Questions: Based on the above data, answer the following: 1. Whatis the principal amount of the loan? a. 3,375,000 ¢. P3,500,000 b. 3,325,000 d. P3,480,000 2. Whatis the effective interest rate on the loan? a 8% c. 12.30% b. 12.91% d. 12% PROBLEM 8-8 Petty Cash Fund As part of your engagement to audit the financial statements of ABC Company for the year ended December 31, 2021, you were assigned to verify the petty cash fund and the cash on hand in the morning of January 3, 2022. You began to count at 9:00 A.M. in the presence of W. Ally, the petty cash custodian. In the course of your counting, you found the following items: Bills: 10 two-hundreds, 20 one-hundreds, 40 twenties Coins: 10.00 10 rolls (10 pieces to a roll) 5.00 9rolls (50 pieces to a roll) 1.00 8rollsand 4 loose (100 pieces to a roll) 0.25 7rollsand 10 loose (200 pieces to a roll) 0.10 Srollsand20loose (300 pieces toa roll) 0.05 4rollsand 10 loose (200 pieces toa roll) Checks: Maker Date Payee Amount Jose Manalo, Manager 12/05/2021 ABC Company 800 W. Ally, petty cash custodian 12/28/2021 ABC Company 500 199| : Jose Manalo's check was returned on December 29, 2021 for Insuffite of fund. Chapter 8 - Cash and Cash Equivalents 1O.U's Date Amount A.Braham, janitor 12/19/2021 250 R. Tica, clerk 12/20/2021 150 P. Du, Bookkeeper 12/22/2021 200 Petty cash vouchers for replenishment: Payee Date Account charged Amount J.Cruz, messenger 12/14/2021 Advances to employees 12549 Cid Bookstore 12/15/2021 Supplies 1509, Dalin Liner 12/19/2021 Freight-out 1924) | Bureau of Posts (stamps) 12/20/2021 Supplies 3009) A. Bala, carpenter 12/21/2021 Repairs 450,09 B.Go 01/02/2022 Miscellaneous expense 15449 Unused stamps: Various denominations 50.00 Additional information: 1. The balance of petty cash fund per books is P12,000. 2. Cash sales of January 2, 2022 amounted to P8,000 per sales records, yg cash receipts book and deposit slip showed that only P6,600 was deposit in the bank on January 3, 2022. t 3. The following employees’ pay envelopes have been opened and the m, r removed. Each envelope was marked “unclaimed.” ™ D. Bill P400 G.Ng P200 Required: 1. Prepare working papers showing your cash count. | 2, Prepare necessary adjusting journal entries as of December 31, 2021, 3. Determine the amount at which the Petty Cash Fund will be stated in th statement of financial position as of December 31, 2021. PROBLEM 8-9 Petty Cash Fund You are examining the accounts of Raymund Beauty Salon. Your count of, imprest cash fund, made at 8:30 aim. on January 3, 2021, in the presence j Frances petty cashier, revealed: Coins Bills Quantity Denomination Quantity Denomination 50 1.00 3 500 60 0.25 5 100 20 20 12 10 200Chapter 8 - Cash and Cash Equivalents Checks: Date Payee Maker Amount December 26 Cash Al, Beautician P 5,000 29 Raymund Rex, Hairdresser 29 Raymund Zev, customer Unused stamps: Various denominations P70 Vouchers: Date Nature of Disbursements December 15 Transportation 65 16 Office supplies 70 17 Xerox fees 80 28 Postage 150 January 2 Newspaper 10 2 Freight charges 50 10Us Date Maker December 20 — Rhad, employee 50 23 Andrix, 100 ‘The balance of the Petty Cash account, December 31, 2021, was P5,000. Sales invoices (for cash sales, all in cash, no checks) Invoices #143 December 30 4,000 #144 December 31 5,100 #145 January 2 3,050 Required: Compute the amount of cash shortage. PROBLEM 8-10 Bank Reconciliation The accounting period of Laurieleen Company ends on December 31. The following information is available about the company's cash. Laurieleen Company Bank Reconciliation October 31 Balance per bank statement 18,005 Add Deposit in transit 1790 Deduct: Outstanding checks No. 143 P 4,563 No. 144 2118 _ 6681 Correct cash balance P3414 Balance per books 11,534 Add: Note collected by bank Principal P1,500 201Chapter 8 - Cash and Cash Equivalents Interest 100 1.600 Total P13,124 Deduct Bank service charge ——20 Correct cash balance 213,114 PASSABLE NATIONAL BANK GENERAL ACCOUNT: LAURIELEEN COMPANY Credits Balance brad et P18,005 1/01 1,790 19,795 11/02 4,563 15,232 11/04 2,118 5,967 19,081 11/04 4,567 14,514 11/05 963 13,551 11/06 3,410 16,961 11/07 2,515 14,446 uit 1,037 15,483 11/13 2,264 13,319 11/18 3,325 9,894 11/24 964 4,255 13,185 11/28 619 750 CM 13,316 11/29 3,000 500 CM —10,816 11/29 35 DM 10,781 11/30 665 NSF 10,116 11/30 22_ SC 10,094 Total 25,620 17,709 Legend: DM: Debit Memo NSF: No sufficient fund check CM: Credit Memo SC: Service Charge Laurieleen Company's Cash Account Taken from General Ledger Cash Balance, Oct 31 11,534 | Balance, Nov. 30 8228 18,269 | CD Journal Nov. 30 21575 Cash Receipts; CD: Cash Disbursements Information taken from Laurieleen Company: Cash Receipts Journal Cash Disbursements Journal Date Cash Debit Date CheckNo. Cash Credit 11/03 5,967 11/01 145 4,567 11/06 3,410 11/04 146 963 1/11 1,037 11/05 147 2,515 11/23 4,255 11/10 148 3,264 11/30 3600 /i7_—149 3.325 18269 © 11/22 150 694 202Chapter 8 - Cash and Cash Equivalents 127,181 619 11/28 152 760 11/29 153 3,000 11/30 154 1868 21,575 Additional Information: 1) After preparing the October 31 reconciliation, Laurieleen failed to record the necessary journal entries. 2) The NSF check had been received during November from a customer on account. Laurieleen has not yet recorded the return of the check. 3) The credit memos shown on the bank statement pertain to P750 of bond interest that Laurieleen earned during the current accounting period and that the bank collected on the company’s behalf (collection not yet recorded on Laurieleen’s books) and a P50 collection made for Dulawan Company that the bank erroneously credited to Laurieleen’s account. 4) The P35 debit memo shown on the bank statement pertains to the rental of a safe deposit box during November. 5) Laurieleen made two errors in recording cash payments during November: CheckNo. = Actualamountofcheck Amount recorded 148 2,264 3,264 150 964 694 Check No 148 was issued to purchase equipment, check No. 150 was for advertising expense. Questions: Based on the above data and the result of your audit, compute for the following: 1. Deposit in transit on November 30 a. P2,600 c. P1,600 b. 3,600 4. P600 2. Outstanding checks on November 30 a. 72,628 c. P3,268 b. 2,826 d. P1,628 3. Adjusted receipts in November a. P17,519 ©. PI5419 b. 719,019 4. P21,309 4. Correct cash balance on November 30 a. P10,094 c. P11,066 b. P13,694 d. 10,566 5. Assuming each reconciling item will be given an adjusting entry, how many adjusting entries will be made on November 30 a 8 6 b 4 a5 203) Chapter 8 - Cash and Cash Equivalents PROBLEM 8-11 Deposit in Transit In your audit of the cash account of Karen Mae Company, you have ascera, the following data relative to the debits per books and credits per bank; “4 Book debits in February 400, Bank credits in February 360 CM for interest earned in January but taken up in the books in“) February 5 CM for interest earned in February but taken up in the books in *% March Check from customer in January amounting to P40,000 but was 0, taken up in the books as 4 Check from customer in February amounting to 20,000 but was" taken up in the books as : Check by the company issued to supplier in January amounting to" P3,000 but was taken up in the books as Erroneous bank credit-February a) Erroneous bank charge-January A Deposit in transit-January 31 50, ‘ How much is the undeposited collections at the end of February? : a. 47,500 c. P15,500 b. 31,500 d. 46,500 PROBLEM 8-12 Outstanding Checks Based on the following information, the causes of the discrepancies betw, book credits and bank debits are ascertained: me Book credits in May py Bank debits in May Oe Check issued on May 29 for P5,700 erroneously fe! recorded in the books of the depositor as 15 Customer's DAIF check, returned by the bank of the depositor in May ay April bank service charges, taken up in the books in May 3 Payment of VISA credit card automatically debited by the bank on May 25, as per ADA, but taken up in the books of the depositor in June 3.0) Outstanding checks as of May 31 45m How much is the outstanding checks at the beginning of the period? a. P4500 c. P12,880 | b. 5,300 d. P11,880 204Chapter 8 - Cash and Cash Equivalents PROBLEM 8-13 Basics of Proof of Cash Data regarding the cash in bank for the current year of Basic Company follow: Jan. 31 Feb. 28 Cash per ledger 250,000 290,000 Cash receipts for February 300,000 Unadjusted bank statement 237,500 276,800 Bank disbursements 255,700 Credit Memo for note collected 30,000 35,000 Bank service charge 7,500 4,200 Deposit in transit 50,000 60,000 Outstanding checks 15,000 16,000 Required: Compute for the adjusted balance of the following: 1, Cashin bank, January 31 2. Cash receipts 3. Cash disbursements 4. Cashin bank, February 28 PROBLEM 8-14 Basics of Proof of Cash Data regarding the cash in bank for the current year of Launch Attack Company follow: Jan.31 Feb, 28 Cash per ledger 250,000 290,000 Cash receipts for February 300,000 Unadjusted bank statement 248,100 282,400 Bank disbursements 269,600 Overstatement of customer's checks per books 4,000 3,000 Overstatement of company’s checks per books 300 900 Erroneous bank credit 5,000 4,000 Erroneous bank charge 3,200 9,500 Required: Compute for the adjusted balance of the following: 1, Cashin bank, January 31 2, Cash receipts 3. Cash disbursements 4. Cashin bank, February 28 PROBLEM 8-15 Basics of Proof of Cash Your client, Aira Marie Zhon Company, presented you the following data: Jan.31 Feb. 28 Cash per ledger 200,000 270,000 Cash receipts for February 150,000 Bank statement balance 203,300 273,200 Total credits per bank statement in February 157,700 Credit Memo for note collected 10,000 15,000 NSF check 2,000 3,000 205