AE6

Chapter 1
Solutions to Illustrative Problems

Illustrative Problem 1 & 2 - already discussed 2. Adjusting entries on December 31, 2024:
Illustrative Problem 3
1. Adjusting entries on December 31, 2024: Accounts Receivable 50,000
Advances to employees 10,000
Cash on hand 50,000
Cash short/over 5,000
To record adjustments on cash on hand:
(1) Customer check returned by bank due to insufficient
Petty cash fund 15,000 fund (NSF) is deducted since the amount is not
encashed during 2024
To record adjustments on Petty cash fund (PCF) (2) Postdated customer check is deducted since the
(1) Employee IOUs are documents written by employee for amount is not encashed during the 2024
their advances from the PCF that they have not yet repaid or
reimbursed, thus, needed to remove from PCF balance on Advances to officers 2,000
reporting date
(2)Currency in envelope marked collections for Christmas
party is ignored as it does not represent expenses directly paid Expenses 12,000
from the PCF
(3) Cash short/over is P5,000 (P50,000 PCF - P33,000 check - Cash short or over 1,000
P10,000 employee IOUs - P2,000 currency & coins).
Petty cash fund 15,000
Cash in bank 500,000
To record adjustments on petty cash fund:
Accounts Payable 500,000 (1) Officers IOU are documents written by officers for their
advances from the PCF that they have not yet repaid or
CIB adjustments includes undelivered check of P200,000 and reimbursed, thus, needed to remove from PCF balance on
postdated check of P300,000 reporting date
(2) Unreplenished expenses are recorded as deduction from
PCF balance at the end of reporting period and reverse next
period
2. P5,535,000 (3) Cash short/over is P1,000 (P20,000 PCF - P12,000
unreplenished PCF vouchers - P2,000 officer IOUs - P5,000
Cash on hand P1,000,000 currency & coins).

Petty cash fund 35,000 Cash in bank - Philippine Bank 70,000

(50,000-15,000)
Accounts Payable 70,000
Cash in bank 4,500,000
(4,000,000+500,000) To record adjustments on cash in bank:
(1) undelivered check - P25,000
Cash balance P5,535,000 (2) postdated check - P45,000

Illustrative Problem 4 Illustrative Problem 5

1. P9,375,000
Fluctuating Fund System Imprest Fund System

Cash on hand P150,000 1 Petty Cash Fund 20,000 Petty Cash Fund 20,000
(200,000 - 50,000)
Cash in bank 20,000 Cash in bank 20,000
Petty Cash Fund 5,000
(20,000 - 15,000) 2 Postage 3,000 No entry
Supplies 11,000
Transportation 2,400
Philippine Bank Current account 5,070,000 Miscellaneous Expense 1,600
(5,000,000 + 70,000)
Petty Cash Fund 18,000

City Bank current account 3,900,000 3 Petty Cash Fund 18,000 Postage 3,000
(4,000,000 - 100,000) Cash in bank 18,000 Supplies 11,000
Transportation 2,400
Miscellaneous Expense 1,600
Asia bank saving account 250,000
Cash in bank 18,000
Total cash and cash equivalents P9,375,000
Petty Cash Fund 5,000 Petty Cash Fund 5,000

**Asia Bank time deposit 120 days is not included since it

Cash in bank 5,000 Cash in bank 5,000
is more than 3 months
 Alternatively , you can combine the journal entries for No. 3: Dec 31 Postage 2,000 Postage 2,000
Supplies 4,000 Supplies 4,000
Transportation 2,000 Transportation 2,000
Petty Cash Fund 23,000 Petty cash fund 5,000
Cash in bank 23,000 Postage 3,000
Supplies 11,000 Petty Cash fund 8,000 Petty Cash fund 8,000
Transportation 2,400
Miscellaneous Expense 1,600
**Fluctuating fund system has entries on Dec 31 since the disbursement
Cash in bank 23,000
record also happens to be Dec 31

2024
**no entries for month-end adjustments/reversal under imprest fund Jan 1 No entry Petty Cash Fund 8,000
system since it is not clear in the problem when is the closing date
Postage 2,000
Illustrative Problem 6 Supplies 4,000
Transportation 2,000

**Reversal entries only required on Imprest fund system

Fluctuating Fund System Imprest Fund System
Jan 15 Postage 1,000 Postage 3,000
1 Petty Cash Fund 20,000 Petty Cash Fund 20,000 Supplies 3,000 Supplies 7,000
Transportation 1,000 Transportation 3,000
Miscellaneous expense 1,000 Miscellaneous expense 1,000
Cash in bank 20,000 Cash in bank 20,000

Petty Cash fund 6,000 Petty Cash fund 14,000

2 Postage 3,000 No entry
Supplies 6,000
Petty Cash Fund 10,000 Petty Cash Fund 10,000
Petty Cash Fund 9,000
Cash in bank 10,000 Cash in bank 10,000
3 Transportation 2,000 No entry
Accounts payable 7,000 **Under a fluctuating fund system, only the increase from the previous period
amount of unreplenished expenses is recorded (e.g., postage: December 31 -
Petty Cash Fund 9,000 $2,000; January 15 – $3,000; increase by $1,000). In contrast, under an
imprest fund system, the full amount of unreplenished expenses is recorded
4 Petty Cash Fund 18,000 Postage 3,000 since the previous period amount is reversed.
Cash in bank 18,000 Supplies 6,000
Transportation 2,000
Accounts payable 7,000

Cash in bank 18,000

Petty Cash Fund 10,000 Petty Cash Fund 10,000

Cash in bank 10,000 Cash in bank 10,000

Alternatively , you can combine the journal entries for No. 4:

Petty Cash Fund 28,000 Petty cash fund 10,000

Cash in bank 28,000 Postage 3,000
Supplies 6,000
Transportation 2,000
Accounts payable 7,000

Cash in bank 28,000

**no entries for month-end adjustments/reversal under imprest fund

system since it is not clear in the problem when is the closing date

Illustrative Problem 7

Fluctuating Fund System Imprest Fund System

2023
Nov. 2 Petty Cash Fund 20,000 Petty Cash Fund 20,000

Cash in bank 20,000 Cash in bank 20,000

29 Postage 2,000 Postage 2,000

Supplies 6,000 Supplies 6,000
Transportation 5,000 Transportation 5,000
Miscellaneous expense 3,000 Miscellaneous expense 3,000

Petty Cash Fund 16,000 Cash in bank 16,000

Petty Cash Fund 16,000

Cash in bank 16,000

**Fluctuating and Imprest fund system both have entries for Nov 29 since the
replenishment date and disbursement date are the same