INTERMEDIATE ACCOUNTING 1 Petty Cash Fund

Current Assets  Payments for small amount where check payments are seen
An entity shall classify an asset as current when: impracticable.
 It expects to realize the asset, or intends to sell or consume it, in  Imprest Fund System
its normal operating cycle;  Fluctuated Fund System
 It holds the asset primarily for the purpose of trading; Activity 01: Classify the following if they should be reported as: Cash,
 It expects to realize the asset within twelve months after the Cash Equivalent, Current Asset (other than cash), Noncurrent Asset,
reporting period; or Current Liability
 The asset is cash or a cash equivalent unless the asset is 1. Cash available for immediate use = Cash
restricted from being exchanged or used to settle a liability for at 2. Three-month BSP Treasury Bill = Cash Equivalent
least 12 months after the reporting period. (PAS 1, paragraph 66) 3. Compensating balances related to short-term borrowings which
(International Accounting Standard 1: Presentation of Financial Statements) are legally restricted = Current Asset
4. Time deposits with maturities more than three months but less
Cash and Cash Equivalents than one year = Current Asset
Cash Items 5. Cash set aside for the payment of dividends = Cash
 Cash is measured at face value. 6. Cash set aside on December 31 for the purchase of land
 To qualify as cash presented as a current asset, cash items expected to be executed in the next two months = Noncurrent
must be generally unrestricted. Asset
 Cash items include: 7. Bank overdraft = Current Liability
1) Cash on Hand (cash currently on hand, undeposited 8. Investment in equity securities = Noncurrent Asset
collections, customers and managers’ checks, bank drafts, 9. Bank drafts and money orders = Cash
and money orders) Problem #01: The following information was provided to you by West
2) Cash in Bank without restrictions on withdrawals Company.
3) Working Funds (petty cash fund, change fund, dividend  Cash on hand - P400,000
fund, payroll fund)  Cash in Islands Bank, Account 1 - P500,000
Cash Equivalents  Cash in Islands Bank, Account 2 - P100,000
 Short-term highly liquid investments that are readily convertible  Payroll Fund - P100,000
into cash.  Change Fund - P3,000
 Apply the THREE-MONTH Rule for cash equivalents where the  Dividend Fund - P50,000
duration is from the date of purchase up to the date of maturity.  Petty Cash Fund - P10,000
 Three months time deposits and commercial papers.  Three-month BSP Treasury Bill - P200,000
 BSP treasury bills purchased three months before How much should be reported as cash in the December 31, 2023
maturity date. Statement of Financial Position?
Temporary Investments of Cash Solution:
If excess cash is invested to earn interest income, the actual cash Cash to be reported: P1,163,000
invested shall be classified as follows: Problem #02: The following information was provided to you by Riddle
With a term of three Company
Cash Equivalents
months or less  Cash on hand - P1,000,000
More than three Cash in Malayon Bank, Account 1 - P300,000
Short-term Investments as Current Assets, 
months but less than Cash in Malayon Bank, Account 2 - (P40,000)
but not as cash. 
a year  Cash in Design Bank - P400,000
Long-term Investments as Noncurrent Cash in Resign Bank - (P20,000)
More than one year 
Assets, most certainly not as cash.  Change funds - P3,000
Compensating Balances  Cash set aside for payment of payroll to be paid in January 31,
No legal restrictions 2024 - P122,000
Cash
to withdraw  Cash set aside for purchase of equipment to be paid within one
With legal Cash held as compensating balance or year - P500,000
restrictions on long-term investment, depending if the  Cash set aside for plant expansion - P1,000,000
withdrawal related loan made is short-term or long-term  Three-month BSP Treasury Bill - P300,000
Postdated Checks How much should be reported as cash and cash equivalents in the
 Shall be reverted back to cash as at the end of the reporting December 31, 2023 Statement of Financial Position?
period. Solution:
Cash Short or Over Cash and Cash Equivalents to be reported: P2,085,000
 Temporary Valuation Account Problem #03: Skribikin Company has cash of P600,000 on hand as at
 Cash count < recorded cash = Cash Shortage December 31, 2023. The entity also currently holds a 60-day BSP
 Cash shortages are initially debited to CSO account and treasury bill worth P2,400,000. Items related to the entity’s bank
credited to cash. accounts are as follows:
 These shortages are then credited to the CSO account  Secure Na Me Bank P1,200,000
where the amount of the shortage is debited to the  Bank of the Nation 1 P300,000
“reason” for the shortage.  Bank of the Nation 2 (overdraft) P50,000
 Cash count > recorded cash = Cash Overage A check for P300,000 for a payment of an account payable was drawn
 Cash overages are initially credited to CSO account and against the Secure Na Me Bank account. The check was dated
debited to cash. January 20, 2024 which the entity had it delivered to the payee and
 These overages are then debited to the CSO account had the same recorded at year-end. Other items include P60,000
where the amount of the overage is credited to the postal money order and P150,000 customer postdated check, both of
“reason” for the overage. which are duly recorded by the company as part of cash on hand.
Internal Control on Cash: Imprest System How much shall be reported as cash and cash equivalents in the
 Cash Receipts > deposited altogether Statement of Financial Position as at December 31, 2023?
 Cash Payments > made through checks. Solution:
Cash and Cash Equivalents to be reported: P4,600,000
 Bank Reconciliation Statement and Proof of Cash Book-to-Bank Method
Cash in Bank Ledger Balance
 Cash Receipts > deposited altogether ＋ Collections by the Bank
 Cash Payments > made through checks ＋ Interest Earned
Sources of Details about Cash in Bank
－ NSF Checks
 Cash-in-bank ledger account of the entity
 Bank statement issued by the bank － Service Charge
Bank Statement Increase in entity’s cash Credit Side ＋/－ Book Error
(Reverse) Decrease in entity’s cash Debit Side － Deposit in Transit
Increase in cash Debit Side ＋ Outstanding Checks
Ledger
Decrease in cash Credit Side ＋/－ Bank Error
Bank Reconciliation Statement = Bank Balance
 A bank reconciliation statement is prepared by an entity to Problem #01: The following information was made available for the
reconcile the cash-in-bank account balance in the entity’s books month of January 2024 (Sunny Company = SNSD Bank).
versus the balance as reported by the bank in the bank  The bank statement at the end of the month shows P10,000.
statement.  Deposits not yet reflected in the bank statement, P84,000.
Bank Balance Reconciling Items  Checks issued but not yet encashed by the holders that are
Deposits in Cash that has been received by an entity already recorded as a credit to the cash-in-bank, P65,000
Transit and was recorded in the cash-in-bank  The bank made an error of debiting the account of Sunny
account balance as a deposit. However, this Company which was actually a debit for Somi Company, P4,000.
＋
deposit that has been sent to the bank is not  The ledger shows a cash-in-bank balance of P12,000.
yet processed and posted by the bank, thus  Notes receivable collected by the bank for Sunny amounted to
not reflecting in the bank statement. P16,000.
Outstanding Checks that the company has issued and  Interest earned by Sunny from keeping their cash at SNSD Bank
Checks was recorded as a credit entry in the entity’s is P5,000.
cash-in-bank account. However, these SNSD Bank charged Sunny P1,000 service charges directly
－ 
checks were not yet presented for payment debited to their account as seen in the bank statement.
and has not yet cleared from the bank  Sunny Received a check from Jiyeon Company amounting to
account from which it is drawn. P7,000 but it was drawn against insufficient funds.
Bank Errors Erroneous debits and credits by the bank in There was a bank-related transaction that erroneously credited
＋/－ 
the entity’s account. the ledger balance of cash-in-bank account amounting to
Ledger Balance Reconciling Items P8,000.
Credit Items credited by the bank to the bank Prepare a BANK RECONCILIATION STATEMENT
Memos account of the entity not yet recorded by the Problem #02: Intermediate Accounting 1, 2019 edition (Valix, Peralta, Valix)
firm in their books. These include notes Bank of the Islands - Apathy Company (Account 100678988781)
＋
receivable collected by the bank in behalf of Date
Check
Withdrawal Deposits Balance
No.
the entity and interest earned in putting their
cash in the bank. Dec 2 100,000 100,000
Debit Items charged against the company’s bank Dec 18 104 10,000 90,000
Memos account not yet recorded in the company’s Dec 20 101 5,000 85,000
ledger. These includes NSF (Not Sufficient Dec 22 106 25,000 60,000
Funds) Check which are checks deposited － Dec 27 50,000 110,000
but were returned by the bank because the Dec 29 10,000 120,000
source account has insufficient balance. It Dec 29 103 40,000 80,000
also includes bank service charges. Dec 29 CM 30,000 110,000
Book Errors Erroneous debits and credits in the entity’s Dec 31 SC-DM 2,000 108,000
＋/－
ledger. Cash In Bank - Bank of the Islands 100678988781
Adjusted Balance Method DEC 01 Deposit 100,000 DEC 04 CHK 101 5,000
Ledger Balance DEC 21 Deposit 50,000 DEC 06 CHK 102 15,000
＋ Notes collected by the bank DEC 27 Deposit 10,000 DEC 08 CHK 103 40,000
Bank Balance ＋ Interest earned DEC 31 Deposit 80,000 DEC 08 CHK 104 10,000
DEC 10 CHK 105 30,000
＋ Deposit in Transit － NSF Checks
DEC 14 CHK 106 25,000
－ Outstanding Checks － Service Charge DEC 28 CHK 107 50,000
＋/－ Bank Error ＋/－ Book Error Problem #04: Kitty Company had the following information:
= Adjusted Balance = Adjusted Balance Apr 30 May 31
Bank-to-Book Method Bank statement balance 2,756,000 3,471,000
Bank Balance Deposits in transit 40,000 65,000
＋ Deposit in Transit Outstanding checks 80,000 22,000
－ Outstanding Checks Credits in the bank statement for May 4,000,000
Debits in the bank statement for May 3,285,000
＋/－ Bank Error
Ledger balance 2,352,000 3,185,000
－ Collections by the Bank Notes collected by the bank 382,000 356,000
－ Interest Earned Interest earned 30,000 16,000
＋ Service Charge NSF checks 40,000 25,000
＋ NSF Checks Bank service charges 8,000 18,000
＋/－ Book Error Cash receipts during May 4,065,000
Cash disbursements during May 3,232,000
= Ledger Balance
Prepare the entity’s proof of cash