Pamantasan ng Lungsod ng Valenzuela

College of Accountancy and Business Administration

Department of Accountancy

Conceptual Framework and Accounting Standards [FAR 2]

Academic Year 2022 – 2023, 1st Semester
COURSE FILE 06 [CF06]
Proof of Cash

TOPIC LEARNING PLAN

Week Number and Hours
Essential Question/s
Intended Learning Outcomes
Possible Learning Delivery Modes
Assessment Tasks
Reference
12-13 (6 hours)
How does a two- date bank reconciliation being completed and how does
it facilitate the proper presentation of cash in bank?
• Compute deposit in transit with consideration of various past and
current reconciling items
• Compute outstanding checks with consideration of various past and
current reconciling items
• Distinguish the various methods of applying proof of cash
Interactive Discussion, Reporting, Recitation, Situational Cases
Theoretical and situational seatwork/ exercise
Valix, C.T., Peralta, J.F. & Valix, C.A.M. (2021). Intermediate Accounting
(Volume 1). Chapter 3 – Proof of Cash. GIC Enterprises & Co., Inc.

DEFINITION AND TYPES

Proof of Cash – This process involves reconciliation of two ending balances of two different periods with inclusion
of total receipts and disbursements in between these two balances. This, also known as the two-date bank
reconciliation, has three types which are as follows:
1. Adjusted Balance Method – The goal of this type of proof of cash is to bring all the balances of the depositor
and bank records from unadjusted balances to adjusted balances.
2. Book to Bank Balance Method – The goal of this type of proof of cash is to bring the unadjusted book
balances to unadjusted bank balances. Bank reconciling items are treated in ‘reverse’.
3. Bank to Book Balance Method – The goal of this type of proof of cash is to bring the unadjusted bank
balances to unadjusted book balances. Book reconciling items are treated in ‘reverse’.
Book Debits – These refer to all transactions recorded by the depositor with a debit to cash in bank. These, also
known as book receipts, include (a) deposits recorded by the entity; and (b) credit memos of the previous period
(unless otherwise stated).
Book Credits – These refer to all transactions recorded by the depositor with a credit to cash in bank. These, also
known as book disbursements, include (a) disbursement checks recorded by the entity; and (b) debit memos of the
previous period (unless otherwise stated).
Bank Debits - These refer to all transactions recorded by the bank with a debit to equity account. These, also known
as bank disbursements, include (a) disbursement checks acknowledged by the bank; and (b) debit memos of the
current period.
Bank Credits – These refer to all transactions recorded by the bank with a credit to equity account. These, also
known as bank receipts, include (a) deposits acknowledged by the bank; and (b) credit memos of the current period.

Adjusted Balance Method

Book Prev. + Dr. – Cr. = Cur. Bank Prev. + Cr. – Dr. = Cur.
Unadjusted XX XX XX XX Unadjusted XX XX XX XX
CM– Prev. XX (XX) DIT– Prev. XX (XX)
CM– Cur. XX XX DIT– Cur. XX XX
DM– Prev. (XX) (XX) OC– Prev. (XX) (XX)
DM– Cur. XX (XX) OC– Cur. XX (XX)
Adjusted XX XX XX XX Adjusted XX XX XX XX
Note: Prev. stands for previous period; Cur. Stands for current period.
Notice that in the Debit or Credit column of either the book or bank, reconciling items of the previous period are
marked as deductions. The rationale for such deduction is that reconciling items of the previous period are ‘deemed’
recorded in the current period. These should have been recorded in the previous period that’s why these are being
‘removed’ or deducted from either debit or credit column.
On the other hand, reconciling items of the current period are marked as additions as shown in either Debit or Credit
column of both the book and the bank. This is done because these items should be recorded in the current period
that’s why these are being ‘included’ or added from either debit or credit column.
The adjusted balances under book or bank should all be equal.

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 FAR 2 – Proof of Cash

Other methods
Book to Bank Prev. + Dr. – Cr. = Cur. Bank to Book Prev. + Cr. – Dr. = Cur.
Unadjusted-Book XX XX XX XX Unadjusted-Bank XX XX XX XX
CM– Prev. XX (XX) DIT– Prev. XX (XX)
CM– Cur. XX XX DIT– Cur. XX XX
DM– Prev. (XX) (XX) OC– Prev. (XX) (XX)
DM– Cur. XX (XX) OC– Cur. XX (XX)
DIT– Prev. (XX) XX CM– Prev. (XX) XX
DIT– Cur. (XX) (XX) CM– Cur. (XX) (XX)
OC– Prev. XX XX DM– Prev. XX XX
OC– Cur. (XX) XX DM– Cur. (XX) XX
Unadjusted-Bank XX XX XX XX Unadjusted-Book XX XX XX XX
Like in one-date bank reconciliation, bank reconciling items are reversed in effect under book to bank method while
book reconciling are reversed in effect under bank to book method.

PRACTICAL RULES IN ACCOMPLISHING THE PROOF OF CASH

1. The first and last column of the proof of cash is solved like a typical bank reconciliation and observes the
same treatment on reconciling items including error.
2. Identification of the period when the reconciling item relates is necessary to properly compute the adjusted
balances of first and fourth column.
3. The second and third column is solved by (1) relating the items as either receipt (second column) or
disbursement (third column) transaction and (2) understanding whether the reconciling item increases or
decreases the affected column.
4. As a tip in marking the effect of the reconciling item on either receipt or disbursement column, one needs
to consider the effect of that item to either previous or current balance column. If the effects are written
side by side, it should show opposite sign (+ / -).

Illustrative Problem 1 – AAA Company had the following information for the months of January and February,
2022:
January 31, 2022 February 28, 2022
Cash in Bank per General Ledger 226,500 215,000
Cash in Bank per Bank Statement 288,000 281,000
Total receipts per book 705,000
Total disbursements per bank 684,000
Customer collection by the bank 55,000
Delivered checks but not yet presented to bank 80,000
NSF Check 23,500
Midnight Deposit 15,000
Matured time deposit credited to account 33,000
Certified disbursement checks 12,000 15,000
Interest expense to outstanding loan 11,000
Disbursement checks still in payees’ hands 57,000
Undeposited customer collections 21,000
Required: compute for the adjusted (1) January 31, 2022 cash in bank balance, (2) total receipts, (3) total
disbursements, and (4) February 28, 2022 cash in bank balance

Illustrative Problem 2 – BBB Company had the following information for the months of March and April, 2022:
March 31, 2022 April 30, 2022
Cash in Bank per Book 170,000 702,000
Total book debits 1,110,000
Total book credits 578,000
Outstanding checks 105,000 268,000
Auto-debited payment of liability and interest 40,000
Deposit in transit 37,000
Bank service charge 12,000 13,000
End-of-month deposit 43,000
Interest income 46,000
Proceeds of bank loan 261,000
Required: Compute for the (1) March 31, 2022 cash in bank per bank balance, (2) total bank debits, (3) total bank
credits, and (4) April 30, 2022 cash in bank per bank balance

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 FAR 2 – Proof of Cash

Illustrative Problem 3 – CCC Company provided to you the following data:

May June
Cash in Bank per bank statement 280,000 337,000
Total bank debits 532,000
Total bank credits 589,000
Deposit in Transit 64,000 53,000
Credit Memo 19,000 37,000
Outstanding Checks 32,000 41,000
Debit Memo 3,500 21,000
Required: Compute for the (1) May cash in bank per book balance, (2) total book debits, (3) total book credits, and
(4) June cash in bank per book balance

Illustrative Problem 4 – DDD Company provided the following information:

July August
Cash balance per bank 545,500 493,000
Total receipts per bank 249,000
Total disbursements per bank 301,500
Debit Memo 45,000 65,000
Deposit in Transit 19,000 37,000
Credit Memo 15,000 22,000
Outstanding Checks 3,500 21,000
Required: Compute for the following:
a. Adjusted balances of (1) July cash in bank balance, (2) August receipts, (3) August disbursements, and (4) August
cash in bank balance
b. Balances per book of (1) July cash, (2) August receipts, (3) August disbursements, and (4) August cash

Illustrative Problem 5 – EEE had the following data for the month of September and October, 2022:
September October
Cash balance per company 672,000 718,000
Cash balance per bank 578,500 465,000
Deposits recorded by company 422,000
Checks recorded by company 314,000
Deposits recorded by bank 444,000
Checks recorded by bank 326,500
Credit Memo 43,000 37,000
Debit Memo 105,000 268,000
Deposit in Transit 55,000 33,000
Outstanding checks 23,500 11,000
Required: compute for the following:
a. Unadjusted receipts per (1) book and (2) bank, and unadjusted disbursements per (3) book and per (4) bank.
b. Adjusted (1) September cash in bank balance, (2) total receipts, (3) total disbursements, and (4) February 28,
2022 cash in bank balance

Illustrative Problem 6 – This is a continuation of FFF Company which showed you the following April 2022 data:
FFF Company’s Total Debits and Credits for the month of April 2022
Cash in Bank
April 2, 2022 – 24916718 240,000 800 April 2, 2022 - SC
April 2, 2022 – Interest 1,500 1,200 April 2, 2022 - Interest
April 8, 2022 – 4004 135,000 67,000 April 10, 2022 - 401
April 29, 2022 – 4005 267,000 129,000 April 16, 2022 – 402
April 29, 2022 – 4006 12,000 33,000 April 21, 2022 - 403
Total Debits 655,500 231,000 Total Credits
Bank Statement, April 2022
Description Debits Credits Total
Opening Balance – April 1, 2022 785,500
April 4, 2022 – Check 304 19,000 766,500
April 4, 2022 – Deposit Ref # 3165 105,000 871,500
April 8, 2022 – Deposit Ref # 4004 135,000 1,006,500
April 27, 2022 – Check 403 33,000 973,500
April 30, 2022 – Interest 12,000 985,500
April 30, 2022 – Service Charge 5,400 980,100
April 30, 2022 – Principal and Interest of Loan 24916718 108,100 872,000
Required: compute for the adjusted (1) March 31, 2022 cash in bank balance, (2) total receipts, (3) total
disbursements, and (4) April 30, 2022 cash in bank balance

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 FAR 2 – Proof of Cash

RULES ON TREATING ERRORS

Treatment of errors in accomplishing the proof of cash is much the same as the treatment applied in one-date bank
reconciliation (Kindly refer to previous course file), with additional questions in mind to be answered. Under proof
of cash, you should identify the (a) period when the error was committed, and(b) its cause.
If the error was committed in the previous period, correction should be placed in the previous period column.
If the error was committed in the current period, correction should be placed in the current period column.
When committed, an error will either result to an understatement or overstatement to receipt column or disbursement
column. If the error causes understatement, the adjustment is applied on the column originally identified (receipt or
disbursement). If the error causes overstatement, the adjustment is applied on the opposite column of what is
originally identified (receipt or disbursement).
Also, you need to identify whether the error was corrected.

DEPOSIT IN TRANSIT AND OUTSTANDING CHECK COMPUTATION

Deposit in Transit, Previous / Beginning XX
Add: Deposits Recorded by the Book:
Total Book Receipts XX
Credit Memo, Previous (XX)
Book Error, Previous Month:
Understatement of book receipts corrected this month (XX)
Overstatement of book disbursements corrected this month (XX)
Book Error, Current Month:
Understatement of book receipts not yet corrected XX
Overstatement of book receipts not yet corrected (XX) XX
Total
Less: Deposits Acknowledged by the Bank:
Total Bank Receipts XX
Credit Memo, Current (XX)
Bank Error, Previous Month:
Understatement of bank receipts corrected this month (XX)
Overstatement of bank disbursements corrected this month (XX)
Bank Error, Current Month:
Understatement of bank receipts not yet corrected XX
Overstatement of bank receipts not yet corrected (XX) (XX)
Deposit in Transit, Current / Ending XX

Outstanding Checks, Previous / Beginning XX

Add: Checks Recorded by the Book:
Total Book Receipts XX
Debit Memo, Previous (XX)
Book Error, Previous Month:
Understatement of book disbursements corrected this month (XX)
Overstatement of book receipts corrected this month (XX)
Book Error, Current Month:
Understatement of book disbursements not yet corrected XX
Overstatement of book disbursements not yet corrected (XX) XX
Total
Less: Checks Acknowledged by the Bank:
Total Bank Disbursements XX
Credit Memo, Current (XX)
Bank Error, Previous Month:
Understatement of bank disbursements corrected this month (XX)
Overstatement of bank receipts corrected this month (XX)
Bank Error, Current Month:
Understatement of bank disbursements not yet corrected XX
Overstatement of bank disbursements not yet corrected (XX) (XX)
Outstanding Checks, Current / Ending XX

Illustrative Problem 7 – GGG Company showed the following data for the months of June and July, 2022:
June 30 July 31 June 30 July 31
Cash account balance 488,000 373,000 Deposit in Transit 24,000 ?
Bank Statement balance 535,000 339,000 Outstanding Checks 26,000 ?
Debit Memos 13,000 14,000 Credit Memos 11,000 12,000
Other Items:
A. P 2,000 June customer check and deposited and cleared in June by bank was recorded in July by entity.
B. P 20,000 check issued by GGG last June was incorrectly charged by bank in June as P 2,000.

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 FAR 2 – Proof of Cash

C. P 5,000 July deposit of another entity was incorrectly charged to account of GGG.
D. P 3,000 July check of GGO company was incorrectly charged to account of GGG.
E. P 30,000 July deposit of GGG was incorrectly recorded by bank as P 3,000.
F. P 10,000 check issued by GGG in July was not found in the company records.
G. P 1,000 customer check properly acknowledged by the bank in June was by GGG in June as P 10,000.
H. P 4,000 check issued by GGG was incorrectly recorded by GGG in June as P 40,000.
I. Disbursement in July per bank statement amounted to P 431,000.
J. Cash receipts in July per GGG records were equal to P 410,000.
Required: Compute for the following:
(1) July 31 balances of Deposit in Transit and Outstanding Check
(2) Adjusted balances of June 30 Cash in bank, July Receipts, July Disbursements and July 31 Cash in Bank

Illustrative Problem 8 – HHH Company showed the following data for the months of June and July, 2022:
June 30 July 31 June 30 July 31
Bank Statement balance 674,000 972,000 Debit Memos 46,000 43,000
Deposit in Transit ? 67,000 Credit Memos 49,000 48,000
Outstanding Checks ? 71,000 Bank Receipts 438,000
Book Receipts 374,000 Book Disbursements 194,000
Other Items:
A. P50,000 check issued by HHH in June was recorded by HHH in June as P 5,000.
B. P 30,000 June customer check was incorrectly recorded by bank in June as P 3,000.
C. P 2,000 July check issued by HHH was incorrectly recorded by HHH for P 20,000.
D. P 4,000 July customer check was incorrectly recorded by HHH for P 5,000.
E. P 5,000 check issued by HHH in July was properly encashed from the bank. The bank fails to record the check
amidst accepting the check.
F. P 4,000 July customer check properly acknowledged by bank was neglected by HHH to record.
G. P 5,000 check correctly issued by HHH in June was charged in June by the bank to account to HHH as P 45,000.
H. P 10,000 deposit of HHH last June was incorrectly acknowledged by bank in June for P 19,000.
Required: Compute for the following:
(1) July 31 balances of Deposit in Transit and Outstanding Check
(2) Adjusted balances of June 30 Cash in bank, July Receipts, July Disbursements and July 31 Cash in Bank
(3) Unadjusted June 30 and July 31 cash in bank balances per book

Illustrative Problem 9 – JJJ Company provided you the following data for June and July, 2022:
June 30 July 31 June 30 July 31
Bank Statement Balance 186,000 230,000 Cash account balance 144,000 364,000
Deposit in Transit 111,000 ? Outstanding Check ? 43,000
Other Items:
A. Entity recorded as cash receipt a customer’s note receivable of P 100,000 placed with the bank for collection on
July 31. The note was not collected until subsequent month.
B. Check of another entity erroneously charged by bank in June against JJJ’s account worth P 10,000.
C. The bank has June unrecorded receipts worth P 20,000 which were not yet corrected by July.
D. The bank has June unrecorded disbursements worth P 33,000 which were not yet corrected by July.
E. The entity recorded in July a P 3,000 check payable to a payee as July disbursement. The payee would be able
to encash the check by August.
F. The entity recorded in July a P 19,000 post-dated customer check as July receipt.
G. A P 13,000 June check drawn by the entity was mutilated and returned by the payee. A replacement check of the
same amount was issued and recorded. The cancellation of the mutilated check was not recorded.
H. The company issued a stop payment order to the bank in July for a P 1,000 check issued in July which was not
received by the payee. A new check was written and recorded in July while the old check was written off by an
entry in July.
I. JJJ made a payment directly from the customer collections worth P 90,000. The bank is no longer informed of
the July transaction which JJJ recorded.
J. Erroneous bank credit of P 36,000 made in February corrected on the same month occurred.
K. Customer’s NSF check worth P 7,000 was returned in June. This was recorded by JJJ in July as a reduction of
cash receipts.
L. Customer’s NSF check worth P 21,000 was returned in July. This was recorded by JJJ in July as a reduction of
cash receipts.
M. Customer’s NSF check worth P 5,000 returned in June and redeposited in July (no entry made on book in either
June or July)
N. Customer’s check deposited July 10, returned by bank on July 16 marked NSF, and re-deposited immediately;
no entry made on books for return or redeposit- 6,000.
O. July Book debits were P 1,063,000 while July Bank debits were P 918,000.
Required: Compute for (1) July 31 Deposit in Transit, (2) June 30 Outstanding check and adjusted balances of (3)
June 30 cash in bank, (4) July receipts, (5) July disbursements and (6) July 31 cash in bank.

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