Академический Документы
Профессиональный Документы
Культура Документы
NATURE OF CASH
To be reported as “cash”, an item must be unrestricted in use. In other terms, cash must be readily available in
the payment of current obligations and not be subject to any restrictions.
Stale Checks
These are checks that are not encashed within a relatively long period of time, normally 6 months.
Stale checks are reverted back to cash.
CASH EQUIVALENTS
Short-term and highly-liquid investments that are readily convertible into cash and so near their maturity that they
present insignificant risk of changes in value because of changes in interest rates.
Only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents.
MEASUREMENT OF CASH
1. Cash is measured at face value or amount.
2. Cash in foreign currency is measured at the current exchange rate at the reporting date.
3. Cash maintained in a bank undergoing bankruptcy is excluded from cash and presented as receivable
measured at realizable value.
Compensating balance
A minimum amount that must be maintained in an entity’s bank account as support for funds borrowed from the
bank.
Compensating balances that are legally restricted as to withdrawal by the borrower are excluded from cash and
shown as part of other current assets or other noncurrent assets depending on the nature of the restriction.
Page 1 of 6
HAND-OUT NO. 1: CASH AND CASH EQUIVALENTS
Brian Christian S. Villaluz, CPA
Compensating balances that are not legally restricted as to withdrawal are included in cash.
1. What amount should be reported as cash and cash equivalents on December 31, 2018?
The cash on hand included a P200,000 check payable to YD, dated January 10, 2019.
1. What total amount should be reported as cash and cash equivalents on December 31, 2018?
Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement. The compensating
balance is not legally restricted as to withdrawal.
1. On December 31, 2018, what amount of total cash should be reported under current assets?
2. Assume the same information except that the P600,000 compensating balance is legally restricted as to withdrawal,
what total amount should be reported as cash on December 31, 2018?
BANK OVERDRAFT
It is a negative or credit balance in the cash in bank account resulting from overpayment of checks in excess of
the amount of deposit.
Page 2 of 6
HAND-OUT NO. 1: CASH AND CASH EQUIVALENTS
Brian Christian S. Villaluz, CPA
Presented as current liability and should not be offset against other bank accounts with debit balances.
When an entity maintains two or more accounts in one bank and one account results in an overdraft, such
overdraft can be offset against the other bank account with a debit balance.
Generally not permitted in the Philippines.
1. How much is the correct amount to be reported as cash in the year-end financial statements?
2. How much is to be reported as bank overdraft under current liabilities?
At year-end, total coins and currencies in the petty cash drawer is P500.
1. How much petty cash fund will be included as part of cash in the December 31, 2018 statement of financial position?
2. How much is cash shortage or overage?
Problem 8:
SB Company had the following account balances on December 31, 2018:
Page 3 of 6
HAND-OUT NO. 1: CASH AND CASH EQUIVALENTS
Brian Christian S. Villaluz, CPA
Petty cash fund P 50,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,200,000
Cash in bank – bond sinking fund 2,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant addition and
expected to be disbursed in 2019 1,500,000
Treasury bills 1,000,000
The petty cash fund included unreplenished December 2018 petty cash expense vouchers, P5,000 and employee IOU,
P5,000
The cash on hand included a P100,000 customer check payable to SB dated January 5, 2019.
In accordance with the arrangement with the bank, the company has agreed to maintain a minimum balance of P200,000
in the unrestricted current bank account.
The sinking fund is set aside to settle a bond due that is due on June 30, 2019.
1. What total amount should be reported as cash and cash equivalents on December 31, 2018?
Problem 9:
XB Company provided the following information on December 31, 2018:
The cash on hand included a customer postdated check of P100,000 and postal money order of P40,000.
A check for P200,000 in payment of an account was drawn against Security Bank account, dated January 5, 2019,
delivered to the payee and recorded December 31, 2018.
1. What total amount should be reported as cash and cash equivalents on December 31, 2018?
Problem 10:
UM Company provided the following information on December 31, 2018:
Included among the checks drawn by UM against the PNB current account and recorded in December 2018 are:
Checks written and dated December 26, 2018 and delivered to payee on January 2, 2019, P100,000.
Checks written on December 24, 2018, dated January 15, 2019 delivered to payee on December 29, 2018,
P150,000.
1. What total amount should be reported as cash and cash equivalents on December 31, 2018?
BANK RECONCILIATION
A bank reconciliation – a statement which brings into agreement the cash balance per book and cash balance
per bank.
Usually prepared monthly because the bank provides the depositor with the bank statement at the end of every
month.
RECONCILING ITEMS
1. Book reconciling items
Credit memos – these are items not representing deposits credited by the bank to the account of the depositor
but not yet recorded by the depositor as cash receipts.
Debit memos – these are items not representing checks paid by bank which are charged or debited by the
bank to the account of the depositor but not yet recorded by the depositor as cash disbursements.
Book errors
Page 4 of 6
HAND-OUT NO. 1: CASH AND CASH EQUIVALENTS
Brian Christian S. Villaluz, CPA
Deposit in transit – these are collections already recorded by the depositor as cash receipts but not yet
reflected on the bank statement.
Outstanding checks – these are checks already recorded by the depositor as cash disbursements but not yet
reflected on the bank statement.
Bank errors
Note: A certified check is one where the bank has stamped on its face the word “accepted” or certified” indicating
sufficiency of fund. This should be deducted from the total outstanding checks (if included) because they are no longer
outstanding.
3. 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.
4. A compensating balance
A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as current asset.
C. Which is legally restricted and related to a short-term loan is classified separately as current asset.
D. Which is not legally restricted as to withdrawal is classified separately as current asset.
5. Deposits in foreign bank which are subject to foreign exchange restriction should be classified
A. Separately as current asset, with appropriate disclosure.
B. Separately as non-current asset with appropriate disclosure.
C. Be written off as loss.
D. As part of cash and cash equivalents.
7. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if the investments
have a maturity of 90 days or less from
A. the date the investments are acquired.
B. the end of reporting period.
C. the date of issue of financial statements.
D. the date the investments are acquired or from the end of the reporting period.
8. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor’s
records and to identify bank errors. Adjustments on the part of the depositor shall be recorded for
A. Bank errors, outstanding checks and deposits in transit.
B. All items except bank errors, outstanding checks and deposits in transit.
C. Book errors, bank errors, deposits in transit and outstanding checks.
D. Outstanding checks and deposits in transit.
9. Which of the following is an appropriate reconciling item to the balance per bank in a
bank reconciliation?
A. Bank service charge.
B. Deposit in transit.
C. Bank interest.
D. Chargeback for NSF check.
END OF HANDOUT
Page 6 of 6