CASH AND CASH EQUIVALENTS

• Cash includes money and any other negotiable instrument that is

payable in money and acceptable by the bank for deposit and
immediate credit.
• Cash includes dated checks, bank drafts, and money orders. These
are acceptable by the bank for deposit or immediate credit.
Cash includes:
 Money
 Negotiable instrument that is
- Payable in money
- Acceptable by the bank for immediate deposit and credit
*Postdated checks are not considered as cash yet.
*Must be unrestricted in use for not more than 12 months after the
reporting period.
Cash Equivalents are short-term and highly liquid investments
that are readily convertible into cash and present insignificant risk of
changes in value because of changes in interest rates.

*Must be acquired 3 months before maturity. (Treasury bills, time

deposit, money market instrument, preference shares with specified
redemption date.
*T-Bill purchased two years ago cannot qualify as cash equivalent
even if the remaining maturity is 3 months or less.
Investment of excess cash may be classified as:

1. Cash and cash equivalents – if acquired three months or less

before the maturity
2. Current Assets – (separate in cash and cash equivalents) if
acquired more than three months before the maturity but within
one year
3. Non-Current Assets – (Long Term Investment) – if the term is
more than one year.
Measurement of cash
 At face value
 Cash in foreign currency – at the current exchange rate
- if unrestricted, must be classified as cash and cash equivalents
- if restricted and material, should be classified separately as non-
current assets.
 Cash in bankrupt bank – at net realizable value

FS presentation
- first line under Current Assets
*details comprising the Cash and Cash Equivalents should be
disclosed in the notes to FS.
*Offsetting of overdraft is allowed if it’s within the same bank,
otherwise such bank overdraft is considered as current liability.

Compensating / Maintaining Balance

 If not legally restricted as to withdrawal – part of cash
 If legally restricted as to withdrawal –
a. Current Assets – (separate) if the related loan is short-term
b. Non-Current Assets - if the related loan is long-term

*Stale checks should be reverted to cash.

Petty cash fund
- money set aside to pay small expenses
1. Imprest fund system
2. Fluctuating fund system
 Imprest Fund Fluctuating
A check is drawn to establish the Petty cash fund xx Petty cash fund xx
fund. Cash in bank xx Cash in bank xx

Payment of expenses out of the No formal entry Expenses xx

petty cash fund Petty cash fund xx
Replenishment of petty cash Expenses xx Petty cash fund xx
payments Cash in bank xx Cash in bank xx
Increase in the petty cash fund Petty cash fund xx Petty cash fund xx
Cash in bank xx Cash in bank xx
Decrease in the petty cash fund Cash in bank xx Cash in bank xx
Petty cash fund xx Petty cash fund xx
On December 31, 2022, ABC Company provided the following data: Cash in bank –
3,000,000; Time deposit (30 days) – 1,000,000; money market placement due on June
30, 2023 – 2,000,000; savings deposit in closed bank – 100,000; sinking fund for bond
payable due June 30, 2024 – 1,500,000; petty cash fund – 20,000.

1. The cash in bank included customer check of P200,000 outstanding for 18 months
2. Check of P250,000 in payment of accounts payable was dated and recorded on
December 31, 2022 but mailed to creditors on January 15, 2023.
3. Check of P100,000 dated January 30, 2023 in payment of accounts payable was
recorded and mailed December 31, 2022
4. The cash receipts journal was held open until January 20, 2023 during which time
an amount of P450,000 was collected and recorded on December 31, 2022.

a. Prepare adjusting entries on December 31, 2022

b. Compute the total amount of cash and cash equivalents that should be reported
on December 31, 2022
On December 31, 2022, ABC Company provided the following data: Cash in bank –
3,000,000; Time deposit (30 days) – 1,000,000; money market placement due on June
30, 2023 – 2,000,000; savings deposit in closed bank – 100,000; sinking fund for bond
payable due June 30, 2024 – 1,500,000; petty cash fund – 20,000.

1. The cash in bank included customer check of P200,000 outstanding for 18 months
Accounts Receivable 200,000
Cash in bank 200,000

2. Check of P250,000 in payment of accounts payable was dated and recorded on

December 31, 2022 but mailed to creditors on January 15, 2023.

Cash in bank 250,000

Accounts Payable 250,000
On December 31, 2022, ABC Company provided the following data: Cash in bank –
3,000,000; Time deposit (30 days) – 1,000,000; money market placement due on June
30, 2023 – 2,000,000; savings deposit in closed bank – 100,000; sinking fund for bond
payable due June 30, 2024 – 1,500,000; petty cash fund – 20,000.

3. Check of P100,000 dated January 30, 2023 in payment of accounts payable was
recorded and mailed December 31, 2022
Cash in bank 100,000
Accounts Payable 100,000

4. The cash receipts journal was held open until January 20, 2023 during which time
an amount of P450,000 was collected and recorded on December 31, 2022.
Accounts Receivable 450,000
Cash 450,000
Cash in bank – 3,000,000 Cash and Cash Equivalents
Time deposit (30 days) – 1,000,000 Cash and Cash Equivalents
Money market placement due on June 30, 2023 – 2,000,000
Short-term investment (Current Assets)
Savings deposit in closed bank – 100,000 Other Assets
Sinking fund for bond payable due June 30, 2024 – 1,500,000
Longterm investment (Noncurrent Assets)
Petty cash fund – 20,000. Cash and Cash Equivalents
Unadjusted Cash in bank 3,000,000
Item 1 (200,000)
Item 2 250,000
Item 3 100,000
Item 4 (450,000)
Adjusted Cash in bank 2,700,000
Time deposit (30 days) 1,000,000
Petty cash fund 20,000
Cash and cash equivalents, 12/31/2022 3,720,000
Problem 2
BCD Company reported the following accounts on December 31, 2022:
Cash on hand (includes PDC of P10,000 and postal money order of P50,000) 1,000,000
Petty cash fund 50,000
Security bank current account 2,000,000
PNB current account 1,500,000
BDO current account (overdraft) (200,000)
BSP Treasury bill – 120 days 3,000,000
BPI time deposit – 90 days (set aside for acquisition of land to be made on Jan 2023) 2,000,000
bond sinking fund (set aside for payment of bond due 12/31/2023) 2,500,000

The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee
check for P5,000 dated January 15, 2023

a. Prepare adjusting entries

b. Compute the total amount of cash and cash equivalents
Problem 2
BCD Company reported the following accounts on December 31, 2022:
Cash on hand (includes PDC of P150,000 and postal money order of P50,000) 1,000,000
Petty cash fund 50,000
Security bank current account 2,000,000
PNB current account 1,500,000
BDO current account (overdraft) (200,000)
BSP Treasury bill – 120 days 3,000,000
BPI time deposit – 90 days (set aside for acquisition of land to be made on Jan 2023) 2,000,000
bond sinking fund (set aside for payment of bond due 12/31/2023) 2,500,000

The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee
check for P5,000 dated January 15, 2023

a. Prepare adjusting entries

Accounts Receivable 150,000 Expenses 10,000

Cash on hand 150,000 Rec’l from employee 5,000
Petty Cash fund 15,000
Problem 2
BCD Company reported the following accounts on December 31, 2022:
Cash on hand (includes PDC of P150,000 and postal money order of P50,000) 1,000,000
Petty cash fund 50,000
Security bank current account 2,000,000
PNB current account 1,500,000
BDO current account (overdraft) Current Liability (200,000)
BSP Treasury bill – 120 days Current Assets 3,000,000
BPI time deposit – 90 days (set aside for acquisition of land to be made on Jan 2023) 2,000,000
bond sinking fund (set aside for payment of bond due 12/31/2023) Current Assets 2,500,000

The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee
check for P5,000 dated January 15, 2023
Classified as noncurrent asset
a. Prepare adjusting entries

Accounts Receivable 150,000 Expenses 10,000

Cash on hand 150,000 Rec’l from employee 5,000
Petty Cash fund 15,000
Problem 2
BCD Company reported the following accounts on December 31, 2022:
Cash on hand (includes PDC of P150,000 and postal money order of P50,000) 1,000,000
Petty cash fund 50,000
Security bank current account 2,000,000
PNB current account 1,500,000
BDO current account (overdraft) Current Liability (200,000)
BSP Treasury bill – 120 days Current Assets 3,000,000
BPI time deposit – 90 days (set aside for acquisition of land to be made on Jan 2023) 2,000,000
bond sinking fund (set aside for payment of bond due 12/31/2023) Current Assets 2,500,000

The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee
check for P5,000 dated January 15, 2023
Classified as noncurrent asset
a. Prepare adjusting entries

Accounts Receivable 150,000 Expenses 10,000

Cash on hand 150,000 Rec’l from employee 5,000
Petty Cash fund 15,000
Total cash and cash equivalents = 1,000,000 – 150,000 + 50,000 – 15,000 + 2,000,000 + 1,500,000 = 4,385,000
Problem 3
CDE Company reported the following information on December 31, 2022:
Cash on hand 1,000,000
Petty cash fund 50,000
Cash in bank 4,000,000
Savings deposit 2,000,000
Total 7,050,000

 Cash on hand included the following:

a. Customer check of P100,000 returned by bank 12/26/2022 due to insufficient fund but
subsequently redeposited and cleared by bank on 01/05/2023
b. Customer check for P150,000 dated 01/15/2023 received 12/22/2022
c. Postal money orders received from customers, P200,000
 The petty cash fund consisted of the following items: currency and coins – P2,000; employees’
IOUs – 10,000; currency in envelope marked collections for year-end party – 5,000; check
drawn by CDE payable to petty cashier – P33,000
 Check written and dated 12/22/2022 and delivered to payee on 01/05/2023, P200,000
 Check written 12/26/2022 and dated 12/31/2022 delivered to payee on 12/26/2022, P300,000

Prepare adjusting entries on 12/31/2022 and compute the total cash on 12/31/2022
Problem 4
DEF reported the following accounts on December 31, 2022:
Cash on hand 200,000 BPI current account 1 4,000,000
Petty cash fund 20,000 BPI current account 2 (100,000)
PNB current account 5,000,000 BDO time deposit, 90 days 2,000,000
AUB saving account 250,000

• Cash on hand included the following items:

a. Customer check for P35,000 returned by bank 12/26/2022 due to insufficient fund but
subsequently redeposited and cleared by the bank on 01/10/2023.
b. Customer check for P15,000 dated 01/10/2023, received 12/23/2022
• The petty cash fund consisted of the following items: currency and coins – 5,000; IOUS from officers –
2,000; unreplenished petty cash vouchers – 12,000
• Included among the checks drawn by DEF against the PNB current account and recorded in December
2022 were the following:
a. Check written and dated 12/23/2022 and delivered to payee on 01/31/2023, P25,000
b. Check written 12/26/2022, dated 01/30/2023, delivered to payee on 12/28/2022, P45,000

1. Compute the total cash and cash equivalents

2. Prepare adjusting entries on December 31, 2022.
BANK RECONCILIATION
Bank reconciliation is a statement which brings into agreement the
cash balance per book and cash balance per bank.

Book Reconciling items:

1. Credit Memos – deposits already credited by the bank, but not yet
recorded by the depositor as cash receipts (Bank loans already
approved and credited, interest for the month, matured time
deposits transferred by the bank to the current account of the
depositor, etc.)
2. Debit Memos – items already deducted and debited by the bank,
but not yet recorded by the depositor (NSF checks, defective checks,
bank charges, etc.)
3. Book errors
Bank Reconciling items:
1. Deposits in Transit – collections already recorded by the depositor
as cash, but not yet reflected on the bank statement.
2. Outstanding Checks – checks already recorded by the depositor as
cash disbursements but not yet reflected on the bank statements.
3. Bank errors
Forms of bank Reconciliation:
1. Adjusted balance method – preferred
2. Book to bank method
3. Bank to bank method
Adjusted Balance method
Unadjusted Book Balance xxx
Add: Credit Memos xxx
Subtotal xxx
Less: Debit Memos xxx
Adjusted book balance xxx

Unadjusted Bank Balance xxx

Add: Deposits in transit xxx
Subtotal xxx
Less: Outstanding Checks xxx
Adjusted bank balance xxx

*Adjusted Book Balance and Adjusted Bak Balance must be the same.
Book to Bank method
Unadjusted Book Balance xxx
Add: Credit Memos xxx
Outstanding Checks xxx
Subtotal xxx
Less: Debit Memos xxx
Deposits in Transit xxx
Bank balance xxx

Bank to Book method

Unadjusted Bank Balance xxx
Add: Debit Memos xxx
Deposits in Transit xxx
Subtotal xxx
Less: Outstanding Checks xxx
Credit Memos xxx
Book balance xxx
 PROOF OF CASH
(Two-date bank reconciliation)
ADJUSTED BALANCE Beginning Balance Receipts Disbursements Ending Balance

Balance per book xxxxx xxxxx xxxxx Xxxxx

- Credit Memo

- Previous Month +++++ -----

- Current Month +++++ +++++

- Debit Memo

- Previous Month ----- -----

- Current Month +++++ -----

Adjusted Book Balance xxxxx xxxxx xxxx xxxxx

Balance per bank xxxxx xxxxx xxxxx Xxxxx

- Deposits in Transit

- Previous Month +++++ -----

- Current Month +++++ +++++

- Outstanding Checks

- Previous Month ----- -----

- Current Month +++++ -----

Adjusted Bank Balance xxxxx xxxxx xxxxx xxxxx

BOOK TO BANK Beginning Balance Receipts Disbursements Ending Balance

Balance per book xxxxx xxxxx xxxxx Xxxxx

- Credit Memo

- Previous Month +++++ -----

- Current Month +++++ +++++

- Debit Memo

- Previous Month ----- -----

- Current Month +++++ -----

- Deposits in Transit

- Previous Month ----- +++++

- Current Month ----- -----

- Outstanding Checks

- Previous Month +++++ +++++

- Current Month ----- +++++

Balance per Bank xxxxx xxxxx xxxxx xxxxx

BANK TO BOOK Beginning Balance Receipts Disbursements Ending Balance

Balance per bank xxxx xxxxx xxxxx xxxxx

- Credit Memo

- Previous Month ----- +++++

- Current Month ----- -----

- Debit Memo

- Previous Month +++++ +++++

- Current Month ----- +++++

- Deposits in Transit

- Previous Month +++++ -----

- Current Month +++++ +++++

- Outstanding Checks

- Previous Month ----- -----

- Current Month +++++ -----

Balance per Book xxxxx xxxxx xxxxx xxxxx