Course Code: Course Title

Module #4: INTERMEDIATE ACCOUNTING 1

Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

Lesson title: Cash and Cash Equivalents (continuation) Materials:

Learning Targets: Calculator, Reviewer Notebook,
At the end of the module, students will be able to: Textbook
1. Account for post-dated checks, stale checks,
deposit in foreign banks, compensating balance References:
and bank overdraft. Millan, Zeus Vernon B.; Intermediate
2. Describe the internal control over cash. Accounting 1
3. Account for petty cash funds and cash
shortages/overages.

A. LESSON PREVIEW/REVIEW
Introduction
Welcome back to ACC 106 - Intermediate Accounting 1! Let’s have your fourth day in Intermediate
Accounting by expanding your knowledge in financial reporting of cash and cash equivalents as we
continue the last part of this topic. Answer the pre-test below to check your understanding of the topic.
Write True or False:

__________1. Savings accounts are usually classified as cash on the balance sheet.
__________2. Certificates of deposit are usually classified as cash on the balance sheet.
__________3. Companies include post-dated checks and petty cash funds as cash.
__________4. Cash equivalents are investments with original maturities of six months or less.
__________5. Bank overdrafts are always offset against the cash account in the balance sheet.

B. MAIN LESSON

Lesson Content
Make sure to highlight or underline the important parts!

Account for post-dated checks, stale checks, deposit in foreign banks, compensating
balance and bank overdraft.

POSTDATED CHECKS -not currently available for immediate use

Postdated Check Received From a Exclude from cash.
Customer

Postdated Check Drawn Include in cash.

Unreleased/ Undelivered check Include in cash

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Name: ___________________________________________________________ Class number: _______

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Stale checks Include in cash.

COMPENSATING BALANCE - minimum amount that must be maintained in an entity’s bank

account as a support for funds borrowed.

LEGALLY RESTRICTED NOT LEGALLY

RESTRICTED

TREATMENT Excluded from cash, part of Included in cash

current/noncurrent assets
depending on the restriction

PRESENTATION Disclosed in the notes Disclosed in the notes

* Compensating balances increase both the yield rate for the lender and the effective interest rate
for the borrower.

DEPOSIT IN FOREIGN BANKS

RESTRICTED UN RESTRICTED
TREATMENT Excluded from cash Included in cash

MEASUREMENT As receivable subject to Face amount translated at the

appropriate allowances current exchange rate as of the
reporting date.

PRESENTATION Statement of Financial Position Statement of Financial Position

(SFP) (SFP)

The nature of restriction is

disclosed in the notes.

BANK OVERDRAFT - possible in checking accounts (not in savings/time deposits) where a

negative (credit) balance occurs in the cash in bank account resulting from overpayment of checks

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Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

in excess of the deposit.

General PRESENTATION OF BANK OVERDRAFT: CURRENT LIABILITIES

OFFSETTING
2 OR MORE ACCOUNTS IN THE SAME
BANK
The overdraft may be offset, provided the
other bank account is restricted.
2 OR MORE ACCOUNTS IN DIFFERENT
BANKS
Offsetting is not allowed.

Describe the internal control over cash.

INTERNAL CONTROL OVER CASH

Cash is susceptible to theft and fraud. It has high inherent risk compared to other assets.

Examples of internal controls over cash:

 Segregation of Incompatible Duties

 Imprest System
 Bank Reconciliation
 Cash Counts
 Minimum Cash Balance
 Lockbox Accounts
 Non Encashment of Personal Checks from Petty Cash Fund
 Voucher System

Account for petty cash funds and cash shortages/overages.

ACCOUNTING FOR CASH:
SHORTAGES AND OVERAGES
CASH OVERAGE
Count > Records
Count is greater than the
records

CASH SHORTAGE
Count < Records
Count is less than the records

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Section: ____________ Schedule: ____________________________________ Date: ______________

PETTY CASH FUND - money set aside for small amounts of cash disbursements.
 Imprest System
 Fluctuating Fund System

Transactions: (Master the journal entries on the following)

 Establishment of Petty Cash Fund
 Disbursements Out of the Petty Cash Fund
 Replenishment of Petty Cash Disbursements
 Adjustment for Unreplenished Fund at the Reporting Date
 Subsequent Changes in Ledger Balance of Petty Cash Fund

Skill-building Activities
Let’s try to practice what you have learned! Check your answers against the Key to Corrections found
at the end of this SAS. Write your score on the space provided.

Part I. True or False. Write TRUE if the statement is correct; Otherwise, write FALSE.
__________1. Short-term, highly liquid investments may be included with cash on the balance
sheet.
__________2. All claims held against customers and others for money, goods, or services are
reported as current assets.
__________3. Checks drawn which are post-dated should be reverted back to cash even if the
checks are already delivered to payees.
__________4. A compensation balance that is legally restricted as to withdrawal can be included
as part of cash and cash equivalents.
__________5. A bank overdraft should always be offset from another bank account with a positive
balance.

Part II. Multiple Choice. Encircle the Letter of Your Choice.

1. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.'s
2. Which of the following is considered cash?
a. Certificates of deposit (CDs)
b. Money market checking accounts
c. Money market savings certificates
d. Post-dated checks

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 Course Code: Course Title
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Section: ____________ Schedule: ____________________________________ Date: ______________

3. Travel advances should be reported as

a. supplies
b. cash because they represent the equivalent of money.
c. investments
d. none of these
4. Which of the following items should not be included in the Cash caption on the balance sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
5. All of the following may be included under the heading of "cash" except
a. currency
b. money market funds
c. checking account balance
d. savings account balance
6. In which accounts are post-dated checks received classified?
a. Receivables.
b. Prepaid expenses.
c. Cash.
d. Payables.
7. In which account are postage stamps classified?
a. Cash.
b. Office supplies.
c. Receivables.
d. Inventory.
8. What is a compensating balance?
a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
d. Minimum deposits required to be maintained in connection with a borrowing arrangement.
9. Under which section of the balance sheet is "cash restricted for plant expansion" reported?
a. Current assets
b. Non-current assets
c. Current liabilities
d. Stockholders' equity
10. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amounts of cash and
a. is acceptable as a means to pay current liabilities
b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation
d. is so near its maturity that it presents insignificant risk of changes in interest rates

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Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

11. Bank overdrafts, if material, should be

a. reported as a deduction from the current asset section
b. reported as a deduction from cash
c. netted against cash and a net cash amount reported
d. reported as a current liability
12. Deposits held as compensating balances
a. usually do not earn interest
b. if legally restricted and held against short-term credit may be included as cash
c. if legally restricted and held against long-term credit may be included among current assets
d. none of these
13. What is the proper accounting treatment for a stale check?
a. Revert back to cash and accounts payable.
b. Revert back to cash and a credit to gain.
c. Ignored
d. Either a or b
14. Which one of the following statements is incorrect?
a. The accounting function should be separated from the custodianship of a company’s assets.
b. Certain clerical personnel in a company should be rotated among various jobs.
c. The responsibility for receiving merchandise and paying for it should usually be given to one
person.
d. A company’s personnel should be given well-defined responsibilities.
15. Karen Company provided the following information on December 31, 2016:
Cash on hand P500,000
Petty cash fund 20,000
Security bank current account 3,000,000
BDO current account No. 1 400,000
BDO current account No. 2 (50,000)
BSP treasury bill - 60 days 4,000,000
BPI time deposit - 30 days 1,000,000

The cash on hand included a customer post-dated check of P100,000 and postal money order of
P40,000. A check for P300,000 was drawn against the Security Bank account, dated January 15,
2017, delivered to the payee and recorded December 31, 2016. The BPI time deposit is set aside
for acquisition of equipment. What total amount of cash and cash equivalents should be reported on
December 31, 2016?
a. P7,470,000
b. P7,770,000
c. P8,070,000
d. P9,070,000

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 Course Code: Course Title
Module #4: INTERMEDIATE ACCOUNTING 1

Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

Check for Understanding

To better test your knowledge on the topic, encircle the best answer below without looking in your
content notes. Be honest at all times. Your teacher will provide you the key answer in this activity.

MULTIPLE CHOICE- ENCIRCLE THE LETTER OF YOUR CHOICE.

1. Consider the following: Cash in Bank – checking account of 13,500, Cash on hand of
500, Post-dated checks received totaling 3,500, and Certificates of deposit totaling
124,000. How much should be reported as cash in the balance sheet?
a. 13,500.
b. 14,000.
c. 17,500.
d. 131,500.

2. On January 1, 2010, Lynn Company borrows 2,000,000 from National Bank at 11% annual
interest. In addition, Lynn is required to keep a compensatory balance of 200,000 on deposit
at National Bank which will earn interest at 5%. The effective interest that Lynn
pays on its 2,000,000 loan is
a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.

3. Kennison Company has cash in bank of 10,000, restricted cash in a separate account of
3,000, and a bank overdraft in an account at another bank of 1,000. Kennison should
report cash of
a. 9,000.
b. 10,000.
c. 12,000.
d. 13,000.

4. Kaniper Company has the following items at year-end:

Cash in bank 20,000
Petty cash 300
Short-term paper with maturity of 2 months 5,500
Postdated checks 1,400

Kaniper should report cash and cash equivalents of

a. 20,000.
b. 20,300.
c. 25,800.

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Section: ____________ Schedule: ____________________________________ Date: ______________

d. 27,200.

5. Lawrence Company has cash in bank of 15,000, restricted cash in a separate account of
4,000, and a bank overdraft in an account at another bank of 2,000. Lawrence should
report cash of
a. 13,000.
b. 15,000.
c. 18,000.
d. 19,000

6.Steinert Company has the following items at year-end:

Cash in bank 30,000
Petty cash 500
Short-term paper with maturity of 2 months 8,200
Postdated checks 2,100

Steinert should report cash and cash equivalents of

a. 30,000.
b. 30,500.
c. 38,700.
d. 40,800

7. As of December 31, 20x1, the petty cash fund of TUMULT COMMOTION Co. with a general
ledger balance of P15,000 comprises the following:

Coins and currencies P 2,550

Petty cash vouchers:
Gasoline for delivery equipment P3,000
Medical supplies for employees 2,040 5,040
IOU’s:
Advances to employees 2,220
A sheet of paper with names of several employees
together with contribution to bereaved employee,
attached is a currency of 2,400
Checks:
Check drawn to the order of the petty cash custodian 3,000
Personal check drawn by the petty cash custodian 2,400

The entry to record the replenishment of the petty cash fund includes
a. A debit to cash short/overage account of P2,190 and a credit to cash on hand of P9,450.
b. A credit to cash short/overage account of P810 and a credit to cash of P12,450.

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Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

c. A debit to cash short/overage account of P810 and a credit to petty cash fund of
P12,450.
d. A debit to cash short/overage account of P2,190 and a credit to cash in bank of P9,450.

8. On April 1, Jennifer Company established an imprest system petty cash fund for P 10,000
by writing a check drawn against the general checking account. On April 30, the fund contained
the following:
Currency and coins 3,000.00
Receipts for office supplies 4,000.00
Receipts for postage still unused 2,000.00
Receipts for transportation 600.00

On April 30, the entity wrote a check to replenish the fund. What is the amount of replenishment
under the imprest fund system?
a. P 10,000
b. P 6,600
c. P 7,000
d. P 3,000

9. ABC Company provided the following account balances on December 31, 2016:
Cash in bank P2,250,000
Cash on hand 125,000
Cash restricted for addition to plant expected to
be disbursed in 2017 1,600,000
Cash in money market account 750,000
Treasury bill purchased November 1, 2016 maturing
January 31, 2017 3,500,000
Treasury bill purchased December 1, 2016 maturing
March 31, 2017 2,000,000

Cash in bank included P600,000 of compensating balance against short-term borrowing

arrangement. The compensating balance is legally restricted as to withdrawal. What total
amount should be reported as cash and cash equivalents on December 31, 2016?
a. P6,025,000
b. P6,625,000
c. P8,225,000
d. P8,625,000

10. The following information is shown in the accounting records of Manolito Company for the
year 2019:
Balances as of January 1:
Cash P620,000

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Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

Accounts receivable 670,000

Merchandise inventory 860,000
Accounts payable 530,000
Balances as of December 31:
Accounts receivable 910,000
Merchandise inventory 780,000
Accounts payable 480,000

Total sales and cost of goods sold for 2019 were P7,980,000 and P5,830,000, respectively.
All sales and all merchandise purchases were made on credit. Various operating expenses
of P1,070,000 were paid in cash. Assume that there were no other pertinent transactions.
The cash balances on December 31, 2019 would be:
a. P1,080,000
b. P1,490,000
c. P2,560,000
d. P3,050,000

C. LESSON WRAP-UP

Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just completed.

Thinking about Learning

From a rating of 1-10, determine if you have learned all the learning objectives. What is the reason for
your rating?
________________________________________________________________________________
________________________________________________________________________________

What part of the module gave you a hard time to comprehend?

________________________________________________________________________________
________________________________________________________________________________

Any other questions or concerns you want to raise?

________________________________________________________________________________
________________________________________________________________________________

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Section: ____________ Schedule: ____________________________________ Date: ______________

Assignment
To enhance your knowledge regarding the topic, answer Problems 1, 2, and 3 in your book. Your
teacher will provide the key answers later on.

FAQs
1. How important is separation of duties in internal control over cash?

Separation of duties is the number one tool endorsed by American Institute of Certified Public Accountants, the
governing body of CPAs. The key to this function is that the staff members receiving or managing the collection
of money does not get involved in the disbursement of money. For cash receipts, ideally, all payments would
arrive in the mail and the person opening the mail stamps the received date or places the company’s ‘For Deposit
Only’ stamp on the back of the check. The check(s) is logged in a spreadsheet and totalled for that day. From
there the check(s) is transferred to another staff member to copy and prepare the deposit ticket. The deposit is
made on the same day as receipt or first available opportunity the next morning. Try not to have checks lying
around overnight. If involved in retail, restaurant, or some cash service business, the cash register should be
reconciled by the register operator and then reconciled by management that same day while the operator
watches. To ensure that the cashier did their job correctly, have a policy notice to the customer that basically
states that if the customer does not get a receipt, the purchase is free. This forces the cashier to create a sales
ticket. In your smaller business operations, this is difficult to achieve because there isn’t enough staff to comply
with the separation of duties. The best backup is the two person rule.
(Reference:https://businessecon.org/effective-internal-controls-for-cash/)

KEY TO CORRECTIONS
Introduction/Review/Pre-test

1. TRUE 2. FALSE 3. FALSE 4. FALSE 5. FALSE

Nos. 1 and 3- Savings accounts and petty cash funds are classified as cash on the balance sheet.
Nos. 2 and 3- Certificates of deposit and post dated checks are not classified as cash.
No. 4- PAS 7 states that “only highly liquid investments that are acquired three months before maturity
can qualify as cash equivalents”.
No. 5- An entity that maintains two or more accounts in one bank and one account results in an
overdraft, such overdraft may be offset against the other bank account with debit balance.

Skill-building Activities. MULTIPLE CHOICE

Part 1:
1. TRUE 2. TRUE 3. TRUE 4. FALSE 5. FALSE

No. 4- If the deposit is legally restricted because of formal compensating balance agreement, the
compensating balance is classified separately as “cash held as compensating balance” under current assets if
the related loan is short-term.

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Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

Part 2:
1. D 6. A 11. D
2. B 7. B 12. D
3. D 8. D 13. D
4. D 9. B 14. C
5. B 10. D 15. C

No. 15- Cash on hand P500,000

exclude post-dated check (100,000) P400,000
Petty cash fund 20,000
Security bank current account 3,000,000
add back post-dateD check 300,000 3,300,000
BDO current account No. 1 400,000
BDO current account No. 2 (50,000)
BSP treasury bill - 60 days 4,000,000
P8,070,000

Check for Understanding. Your teacher will provide the key answers in this activity.

1. B 6. C

2. D 7. D

3. B 8. C

4. C 9. A

5. B 10. B

No. 1- Consider Cash in Bank–checking account of 13,500 and Cash on hand of P500 in the computation of
cash in the balance sheet.

No. 4- Cash in bank 20,000

Petty cash 300
Short-term paper with maturity of 2 months 5,500
P25,800

No. 9- Exclude the P600,000 compensating balance that is legally restricted, exclude the Cash restricted for
addition to plant P1,600,000 and also the Treasury bill purchased that are acquired more than three months
before maturity amounting to 2,000,000.

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Module #4: INTERMEDIATE ACCOUNTING 1

Name: ___________________________________________________________ Class number: _______

Section: ____________ Schedule: ____________________________________ Date: ______________

No. 10-Accounts Receivable: Beginning Balance + Credit Sales - Ending Balance = Cash Collections
Cash Collections= P670,000 + 7,980,000 - 910,000= P7,740.000
Merchandise Inventory: Cost of Goods Sold + Ending Balance -Beginning Balance=Credit Purchases
Credit Purchases= P5,830,000 + 780,000 - P860,000 = P5,750,000
Accounts Payable: Beginning Balance + Credit Purchases - Ending Balance= Cash Payments
Cash Payments= P530,000 + 5,750,000 - 480,000= P5,800,000
Cash, Ending Balance= Beginning Balance+ Collections- Payments
Cash, Ending Balance= P620,000+ 7,740,000 - 5,800,000- 1,070,000 = P1,490,000

Assignment.
To the teacher: Please refer to the solution manual of the book.

“Put your best foot forward.”

-Nothing Follows-

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