Cash and Cash Equivalents - SC

CASH AND CASH
EQUIVALENTS
Cash and Cash Equivalents
CASH AND CASH

EQUIVALENTS
Essay Questions
1. What is cash?
From the point of view of a layman, "cash" simply means money. Money is the
standard medium of exchange in business transactions which refers to the currency
and coins which are in circulation and legal tender. However, in the accounting
parlance, the term "cash" has a special and broader meaning. It connotes more than
money. As contemplated in accounting, cash includes "money and any other
negotiable instrument that is payable in money and acceptable by the bank for deposit
and immediate credit". Accordingly, cash includes checks, bank drafts and money
orders because these are acceptable by the bank for deposit or immediate encashment.
2. What is the meaning of "unrestricted cash"?
There is no specific standard dealing with "cash". The only guidance is found in PAS
1, paragraph 66, which provides that "an entity shall classify an asset as current when
it is cash or a cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the end of reporting period."
Accordingly, to be reported as "cash" as a current asset, an item must be unrestricted
in use. This means that the cash must be readily available in the payment of current
obligations and not be subject to any restrictions, contractual or otherwise. Thus,
unrestricted cash includes cash on hand, cash in bank and cash fund set aside for
current purposes.
3. What is the meaning of "cash equivalents"?
PAS 7, paragraph 6, defines cash equivalents as 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. PAS
7 further states that "only highly liquid investments that are acquired three months
before maturity can qualify as cash equivalents".
Examples of cash equivalents are: a. Three-month BSP treasury bill b.

Three-year BSP treasury bill purchased three months before date of
maturity c. Three-month time deposit d. Three-month money market
instrument
Essay Questions Page 1

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ACCOUNTING
Equity securities cannot qualify as cash equivalents because shares do-not have a
maturity date. However, preference shares with specified redemption date and
acquired three months before redemption date can qualify as cash equivalents.
4. Explain the valuation of cash in the statement of financial

position.
Cash is valued at face value. Cash in foreign currency is valued at the current
exchange rate. If a bank or financial institution holding the funds of the entity is in
bankruptcy or financial difficulty, cash should be written down to estimated realizable
value if the amount recoverable is estimated to be lower than the face value.
5. Explain the financial statement presentation and classification of cash and cash
equivalents.
The caption "cash and cash equivalents" should be shown as the first item among the
current assets. This caption includes all cash items, such as cash on hand, cash in
bank, petty cash fund and cash equivalents which are unrestricted in use for current
operations. However, the details comprising the "cash and cash equivalents" should be
disclosed in the notes to financial statements.
6. Explain the classification of investments in time deposit, money market instrument, and
treasury bills.
Investments in time deposit, money market instruments and treasury bills should be
classified as follows: a. If the term is three months or less, such instruments are
classified as cash equivalents
and therefore included in the caption "cash and cash equivalents". b. If the term is more than
three months but within one year, such investments are classified as short-term or
temporary investments and presented separately as current assets. c. If the term is
more than one year, such investments are classified as long-term investments.
However, if such investments become due within one year from the end of the
reporting period, they are reclassified as temporary investments.
7. Explain the treatment of foreign currency.
Cash in foreign currency shall be translated to Philippine pesos using the current
exchange rate.
Deposits in foreign countries which are not subject to any foreign exchange restriction
are included in "cash".

Deposits in foreign bank which are subject to foreign exchange restriction, if material,
shall be classified separately among noncurrent assets and the restriction clearly
indicated.
8. Explain the classification of a cash fund set aside for a certain

purpose.
If the cash fund is set aside for use in current operations, it is a current asset. It is
included as part of cash and cash equivalents. Examples of such fund are petty cash
fund, payroll fund, travel fund, interest fund, dividend fund and tax fund. On the other
hand, if the cash fund is set aside for noncurrent purposes, it is shown as long-term
investment. Examples of such fund are sinking fund, preferred redemption fund,
contingent fund, insurance fund and fund for acquisition or construction of property,
plant and equipment. Classification of a cash fund as current or noncurrent should
parallel the classification of the related liability.
9. Explain the treatment of a bank overdraft.
When the cash in bank account has a credit balance, it is said to be an overdraft. The
credit balance in the cash in bank account results from the issuance of checks in
excess of the deposits. A bank overdraft is classified as a current liability and should
not be offset against other bank accounts with debit balances.
However, when the entity 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 a debit balance. Moreover, an overdraft may also be offset against the
other bank account if the amount is not material.
10. What is a compensating balance? Explain the classification in the statement of financial
position.
A compensating balance is the minimum checking or demand deposit account balance

that must be maintained in connection with a borrowing arrangement with a bank. For
example, an entity borrows P2,000,000 from a bank and agrees to maintain 10%
compensating balance or P200,000 in a current or checking account.
In effect, this arrangement results in the reduction of the amount borrowed because the
compensating balance provides a source of funds to the bank as partial compensation
for the loan extended.

FINANCIAL
ACCOUNTING
11. Explain fully the treatment of compensating

balance.
If the deposit is not legally restricted as to withdrawal by the borrower because of an

informal compensating balance agreement, the compensating balance is part of cash.
If the deposit is legally restricted because of a 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. If the
related loan is long-term, the compensating balance is classified as noncurrent
investment.
In many instances and in accordance with normal banking practices, deposits are not
legally restricted because most often compensating balance agreements are informal
and therefore not legally binding. The amount and nature of such agreements whether
legally or not legally restricted shall be fully disclosed in the notes to financial
statements.
12. What is the meaning of undelivered check? Postdated check? Stale

check?
An undelivered or unreleased check is one that is merely drawn and recorded but not
given to the payee before the end of reporting period. The unreleased check shall not
be treated as outstanding check. Accordingly, the original entry for the payment shall
be reversed so as to restore the cash balance and the related liability account.
A postdated check delivered is a check drawn, recorded and already given to the
payee but it bears a date subsequent to the end of reporting period. The original entry
recording a delivered postdated check shall also be reversed and therefore restored to
the cash balance.
A stale check is a check not encashed by the payee within a relatively long period of
time. In banking practice, a check becomes stale if not encashed within six months
from the time of issuance. Of course, this is a matter of entity policy. Thus, even after
three months, the entity may issue a "stop payment order" to the bank for the
cancelation of the stale check. The stale check previously issued by an entity shall also
be restored to the cash balance.
13. Explain window dressing, lapping and

kiting.
Window dressing is a practice of opening the books of accounts beyond the close of
the accounting period for the purpose of showing a better financial position and
performance. Window dressing is usually perpetrated as follows:
a. By recording as of the last day of the accounting period collections made

subsequent to
the close of the period.

b. By recording as of the last day of the accounting period payments of accounts made
subsequent to the close of the period.
Lapping consists of misappropriating a collection from one customer and concealing

this defalcation when collection is made from another customer.
Kiting is a transfer of cash from one bank to another bank. Kiting is usually employed
at the end of the month. Kiting occurs when a check is drawn against a first bank and
depositing the same check in a second bank to cover the shortage in the latter bank.
14. Explain the imprest system.
The imprest system is an internal control device for cash which requires that all cash
receipts should be deposited intact and all cash payments should be made by means of
check. Small disbursements are paid out of the petty cash fund.
15. What are the two systems of handling petty cash fund? Explain
briefly.
1. Imprest fund system - Pretty cash expenses are recorded upon replenishment. The
amount of the replenishment is normally equal to the petty cash
disbursements.
2. Fluctuating fund system — Petty cash expenses are immediately recorded. The
amount of replenishment may be equal to, more or less than, the petty cash
disbursements.
16. What is a bank reconciliation?
A bank reconciliation is a statement which brings into agreement the cash balance per
book and cash balance per bank. It is usually prepared monthly because the bank
provides the depositor with the bank statement at the end of every month.
A bank statement is a monthly report of the bank to the depositor showing the cash
balance per bank at the beginning, the deposits acknowledged, the checks paid, other
charges and credits and the daily cash balance per bank during the month. Actually,
the bank statement is an exact copy of the depositor's ledger in the records of the bank.
17. What are credit memos and debit memos?
Credit memos refer to items not representing deposits credited by the bank to the
account of the depositor but not yet recorded by the depositor as cash receipts. They
have the effect of

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ACCOUNTING
increasing the bank balance. Typical examples of credit memos are note collected by
bank in favor of the depositor and proceeds of bank loan credited to the account of the
depositor.
Debit memos refer to 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. They have the effect of decreasing the bank balance.
Typical examples of debit memos are NSF checks and bank service charges.
18. Explain deposits in transit.
Deposits in transit are collections already recorded by the depositor as cash receipts
but not yet reflected on the bank statement.
Deposits in transit include: a. Collections already forwarded to the bank for deposit
but too late to appear in the bank
statement. b. Undeposited collections or those still in the hands of the depositor. In effect,
these are
cash on hand awaiting delivery to the bank for
deposit.
19. Explain outstanding checks.
Outstanding checks are checks already recorded by the depositor as cash

disbursements but not yet reflected on the bank statement. Outstanding checks
include:
a. Checks drawn and already given to payees but not yet presented for
payment.
b. Certified checks - A certified check is one where the bank has stamped on its face
the
word "accepted" or "certified" indicating sufficiency of
fund.
When the bank certifies a check, the account of the depositor is immediately debited
or charged to insure the eventual payment of the check. Certified checks should be
deducted from the total outstanding checks (if included therein) because they are no
longer outstanding for bank reconciliation purposes.
20. What are the three forms of bank reconciliation?
1. Adjusted balance method - Under this method, the book balance and the bank
balance
are brought to a correct cash balance that must appear on the balance
sheet.
2. Book to bank method - Under this method, the book balance is reconciled with the
bank
balance or the book balance is adjusted to equal the bank balance. 3. Bank to book method -
Under this method, the bank balance is reconciled with the book
balance or the bank balance is adjusted to equal the book
balance.
21. What is a "proof of cash"?
A proof of cash is an expanded reconciliation in that it includes proof of receipts and

disbursements. This approach may be useful in discovering possible discrepancies in
handling cash particularly when cash receipts have been recorded but have not been
deposited.
FINANCIAL
ACCOUNTING
Multiple Choice - Theory
Cash 1. Which of the following is usually considered

cash?
A. Certificate of deposit C. Money market saving certificate B. Checking
account D. Postdated check
2. Which of the following shall not be considered cash for financial reporting
purposes?
A. Coin and currency C. Money orders B. IOUs D. Petty cash
fund
3. All of the following may be included in "cash",

except
A. Checking account balance C. Money market instrument B. Currency
D. Saving account balance
4. Which of the following should not be considered

"cash"?
A. Certified check C. Personal check B. Change fund D.
Postdated check
5. Which of the following should not be included in

"cash"?
A. Certified check C. Personal check B. Manager check D. Travel
cash advance
6. At the end of the current year, an entity had various checks and papers in the safe. Which
of the following should not be included in "cash" in the current year-end statement of
financial position? A. US $20,000 cash. B. Past due promissory note issued in favor of the
entity by the President. C. The entity's undelivered check payable to a supplier dated
December 31 of the current
year. D. Another entity's P150,000 check payable to the entity dated December 15 of the
current
year.
Cash equivalent 7. A cash equivalent is a short-term, highly liquid investment that is

readily convertible into
known amount of cash and A. Is acceptable as a means to pay current
liabilities. B. Has a current market value that is greater than the original cost.
C. Is so near maturity that it presents insignificant risk of change in interest
rate.
MCQ – Theory Page 8

D. Bears an interest rate that is at least equal to the prime interest rate at the date of
liquidation.
8. Which of the following is not considered as a cash

equivalent?
A. A 90-day T-bill B. A 60-day money market placement C. A three-year treasury
note maturing on May 30 of the current year purchased by the
entity on April 15 of the current year D. A three-year treasury note maturing on May 30 of the
current year purchased by the
entity on January 15 of the current year
Cash & cash equivalent 9. What is the basic requirement for
cash and cash equivalent?
A. Deposited in bank B. Unrestricted in use for current
operations C. Set aside for the liquidation of long-term debt
D. Available for the purchase of property, plant and
equipment
10. Which of the following should be excluded from cash and cash
equivalents?
A. Time deposit which matures in one year. B. A customer's check denominated in a
foreign currency. C. The minimum cash balance in the current account which is
maintained to avoid service
charge. D. A check issued by the entity on December 27 of the current year but dated January
15
of next year.
11. All of the following can be classified as cash and cash equivalents,
except?
A. A bank overdraft B. Equity investments C. Commercial
papers held and due for repayment in 90 days D. Redeemable
preference shares acquired and due in 60 days
12. Which is false concerning measurement of cash and cash

equivalents?
A. Cash is measured at face value. B. Cash in foreign currency is measured at the
current exchange rate. C. Cash equivalents should be measured at maturity value,
meaning face value plus
interest. D. If a bank or financial institution holding the funds of the entity is in bankruptcy or
financial
difficulty, cash should be written down to estimated realizable
value.

FINANCIAL
ACCOUNTING
Internal control over cash 13. Which of the

following statements is incorrect?
A. Certain clerical personnel should be rotated among various jobs. B. An entity's
personnel should be given well-defined responsibilities. C. The accounting function
should be separated from the custodianship of assets. D. The responsibility for
receiving merchandise and paying for it should usually be given to
one person.
14. Which of the following is not a characteristic of a system of cash

control?
A. Use of a voucher system B. Daily deposit of all cash
received C. Internal audits at irregular intervals D.
Combined responsibility for handling and recording cash
Petty cash fund 15. Petty

cash fund is
A. Restricted cash B. Set aside for the payment of payroll C. Separately classified as
current asset D. Money kept on hand for making minor disbursements of coin and
currency rather than
by writing checks
16. The internal control feature specific to petty cash

is
A. Assignment of responsibility C. Proper authorization B. Imprest
system D. Separation of duties
17. What is the major purpose of an imprest petty cash

fund?
A. To ease the payment of cash to vendors B. To
effectively control cash disbursements C. To
effectively plan cash inflows and outflows D. To
determine the honesty of the petty cashier
18. The petty cash fund account under the imprest fund system is
debited
A. Only when the fund is created. B. When the fund is created and
everytime it is replenished. C. When the fund is created and when the
fund is decreased. D. When the fund is created and when the size of
the fund is increased.

19. In reimbursing the petty cash fund, which of the following is

true?
A. Cash in debited C. Petty cash is credited B. Expense accounts are
debited D. Petty cash is debited
20. Which of the following statements in relation to petty cash is

incorrect?
A. The petty cash fund is reported as part of current assets. B. The petty cash account
is debited when the fund is replenished. C. The imprest petty cash system in effect
adheres to the rule of disbursement by check. D. Entries are made to the petty cash
account only to increase or decrease the size of the
fund or to adjust the balance if not replenished at
year-end.
21. When a petty cash fund is used, which of the following statements is
true?
A. The reimbursement of the petty cash fund should be credited to the cash account.
B. The balance of the petty cash fund should be reported in the statement of financial
position as a long-term investment. C. The petty cashier's summary of petty cash payments
serves as a journal entry that is
posted to the appropriate general ledger account. D. Entries that include a credit to the cash
account should be recorded at the time the
payments from the petty cash fund are
made.
22. A Cash Over and Short account

A. Is not generally accepted. B. Is a contra account to
cash. C. Is debited when the petty cash fund proves out
over. D. Is debited when the petty cash fund proves out
short.
23. Which of the following statements in relation to the cash short or over account is
true?
A. It would be impossible to have cash shortage or overage if employees were paid in
cash
rather than by check. B. If the cash short or over account has a debit balance at the end of the
period it must be
debited to an expense account. C. The entry to account for daily cash sales for which a small
amount of cash shortage
existed would include a debit to cash short or over account. D. A credit balance in a cash short
or over account should be considered a liability because
the short changed customer will demand return of this
amount.
24. Which of the following statements in relation to petty cash fund is
false?
A. Each disbursement from petty cash should be supported by a petty cash voucher. B.
The creation of a petty cash fund requires a journal entry to reflect the transfer of fund

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ACCOUNTING
out of the general cash account. C. With the establishment of an imprest petty cash fund, one
person is given the authority
and responsibility for issuing checks to cover minor disbursements. D. At any time, the sum of
the cash in the petty cash fund and the total of petty cash vouchers should equal the
amount for which the imprest petty cash fund was established.
Presentation & disclosure 25. What is the treatment of

customers' postdated checks?
A. Accounts payable C. Cash B. Accounts receivable D. Prepaid expenses 26. If material,
deposits in foreign bank which are subject to foreign exchange restriction shall be
classified A. Be written off as loss. B. As part of cash and
cash equivalents. C. Separately as current asset, with
appropriate disclosure. D. Separately as noncurrent asset
with appropriate disclosure.
27. Under which classification is cash restricted for plant expansion

reported?
A. Current assets C. Equity B. Current liabilities D. Noncurrent assets
28. Bank overdraft generally should be A. Reported as a current
liability. B. Reported as a deduction from cash. C. Reported as a
deduction from current assets. D. Netted against cash and a net cash
amount reported.
29. What is a compensating balance? A. Saving account balance B. Demand deposit

account balance C. Temporary investment serving as collateral for outstanding loan D.
Minimum deposit required to be maintained in connection with a borrowing arrangement
30. Deposits held as compensating balance

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

31. 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 not legally
restricted as to withdrawal is classified separately as current asset. D. Which is legally
restricted and related to a short-term loan is classified separately as
current asset.
32. At the end of the current year, an entity had cash accounts at three different banks. One
account is segregated solely for payment into a bond sinking fund. A second account, used
for branch operations, is overdrawn. The third account, used for regular corporate
operations, has a positive balance. How should these accounts be reported? A. The
segregated and regular accounts should be reported as current assets net of the
overdraft B. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current Iiability C. The segregated account should be
reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft D. The segregated account
should be reported as a noncurrent asset, the regular account should be reported as a
current asset, and the overdraft should be reported as a current liability
Bank reconciliation 33. A

bank reconciliation is
A. A merger of two banks that previously were competitors. B. A statement sent by
the bank to depositor on a monthly basis. C. A formal financial statement that lists all
of the bank account balances of an entity. D. A schedule that accounts for the
differences between an entity's cash balance as shown
in the bank statement and the cash balance shown in the general
ledger.
34. Bank statements provide information about all of the following,

except
A. Bank charges for the period C. Errors made by the depositor B. Checks cleared during
the period D. NSF checks 35. Which of the following items must be added to the cash
balance per ledger in preparing a
bank reconciliation which ends with adjusted cash balance? A. Service charge B. NSF
customer check C. Erroneous bank debit D. Note receivable collected by bank in
favor of the depositor and credited to the account
of the depositor
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ACCOUNTING
36. When preparing a bank reconciliation, bank credits

are
A. Added to the balance per book. B. Added to
the bank statement balance. C. Deducted from
the balance per book. D. Deducted from the
bank statement balance.
37. In preparing a bank reconciliation, interest paid by the bank on the

account is
A. Added to the bank balance C. Subtracted from the bank balance B. Added to
the book balance D. Subtracted from the book balance
38. In preparing a monthly bank reconciliation, which of the following would be added to
the
balance per bank statement to arrive at the correct cash balance? A.
Deposits in transit B. Outstanding checks C. Bank service charge
D. A customer's note collected by the bank on behalf of the
depositor
39. Which of the following must be deducted from the bank statement balance in preparing
a
bank reconciliation which ends with adjusted cash balance?
A. Certified check B. Deposit in transit C. Outstanding
check D. Reduction of loan charged to the account of the
depositor
40. If the balance shown on an entity's bank statement is less than the correct cash balance
and
neither the entity nor the bank has made any errors, there must
be A. Deposits in transit B. Outstanding checks C. Bank charges
not yet recorded by the entity D. Deposits credited by the bank
but not yet recorded by the entity
41. If the cash balance shown on entity's accounting records is less than the correct cash
balance
and neither the entity nor the bank has made any errors, there must
be A. Deposits in transit B. Outstanding checks C. Bank charges
not yet recorded by the entity D. Deposits credited by the bank but
not yet recorded by the entity

42. Which of the following would not require an adjusting entry on the depositor's
books?
A. Bank service charge B. NSF check from customer C. Deposit of another
entity is credited by the bank to the account of the depositor D. Check in
payment of account payable as recorded by the depositor is overstated
43. The adjusting entries for a bank reconciliation

A. Are taken from the "balance per bank" section only. B. May include
a debit to office expense for bank service charge. C. May include a debit
to accounts payable for an NSF customer check. D. May include a credit
to accounts receivable for an NSF customer check.
44. 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 should be, recorded for A. Outstanding checks and deposits in transit. B. Bank
errors, outstanding checks and deposits in transit. C. Book errors, bank errors, deposits in
transit and outstanding checks. D. All items except bank errors, outstanding checks and
deposits in transit.
45. Which of the following statements in relation to bank reconciliation is

true?
A. The cash amount reported in the statement of financial position must be the balance
reported in the bank statement. B. Credit memos will cause the cash balance per ledger to be
higher than that reported by
the bank, all other things being equal. C. Bank service charge will cause the cash balance per
ledger to be higher than that
reported by the bank, all other things being equal. D. Outstanding checks will cause the cash
balance per ledger to be greater than the
balance reported by the bank, all other things being
equal.
46. Which of the following statements is false?

A. A certified check is a liability of the bank certifying it. B. A certified check is one
drawn by a bank upon itself. C. A certified check should not be included in the
outstanding checks. D. A certified check will be accepted by many persons who
would not otherwise accept a
personal check.

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ACCOUNTING
Proof of cash 47. A

proof of cash
A. Is a summary of cash receipts and cash payments. B. Is a formal statement showing
the total cash receipts during the year. C. Is a physical count of currencies on hand at
the end of reporting period. D. Is a four-column bank reconciliation showing
reconciliation of cash balances per book and per bank at the beginning and end of the
current month and reconciliation of cash receipts and cash disbursements of the bank
and the depositor during the current month.
48. A proof of cash would be useful for

A. Discovering time lag in making deposits B. Discovering cash receipts that
have not been recorded in the journal C. Discovering an inadequate separation
of incompatible duties of employees D. Discovering cash receipts that have
been recorded but have not been deposited
Multiple Choice Problems Petty cash fund 1. Timex Company reported

petty cash fund which comprised the following:
Coins and currency 3,300 Paid vouchers: Transportation 600 Gasoline 400 Office
supplies 500 Postage stamps 300 Due from employees 1,200 3,000 Manager's check
returned by bank marked "NSF" 1,000 Check drawn by the entity to the order of
petty cash custodian 2,700 What is the correct amount of petty cash fund for
statement presentation purposes? A. 6,000 C. 9,000 B. 7,000 D. 10,000
2. Liwanag Company reported petty cash fund with the following

details:
Coins & Currencies 22,000 Petty cash vouchers: Gasoline payments for
delivery equipment 3,000 Medical supplies for employees 1,000 Repairs of
office equipment 1,500 Loans to employees 3,500 A check drawn by the entity
payable to the order of Grace de la Cruz,
petty cash custodian, representing her salary 15,000 An employee's check returned by the bank for insufficiency of
funds 3,000 A sheet of paper with names of several employees together with contribution for a birthday gift of a co-employee.
Attached to the sheet of paper is a currency of 5,000 The petty cash general ledger account has an imprest balance of P50,000.
What is the amount of petty cash fund that should be reported in the statement of financial position? A. 22,000 C. 37,000 B.
27,000 D. 42,000
Cash 3. Thor Company provided the following data on December

31, 2014:
Checkbook balance 4,000,000 Bank statement balance 5,000,000 Check drawn
on Thor's account, payable to supplier, dated and
recorded on December 31, 2014, but not mailed until January 15,2015
500,000 Cash in sinking fund 2,000,000 On December 31, 2014, what amount
should be reported as "cash" under current assets? A. 3,500,000 C. 5,500,000 B.
4,500,000 D. 6,500,000
4. At year-end, Myra Company reported cash and cash equivalents which comprised the
following:
Cash on hand 500,000 Demand deposit 4,000,000 Certificate of deposit
2,000,000 Postdated customer check 300,000 Petty cash fund 50,000
Traveler's check ' 200,000
MCQ – Problems Page 17

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ACCOUNTING
Manager's check 100,000 Money order 150,000 What total amount should be
reported as "cash" at year-end? A. 4,800,000 C. 6,800,000 B. 5,000,000 D.
7,000,000
5. ABC Company reported that the cash account per ledger had a balance on December 31, 2014 of P4,415,000 which consisted of
the
following:
Petty cash fund 24,000 Undeposited receipts, including a postdated customer
check for P70,000 1,220,000 Cash in Allied Bank, per bank statement, with
a check for P40,000 still outstanding 2,245,000 Bond sinking fund 850,000
Vouchers paid out of collections, not yet recorded 43,000 IOUs signed by
employees, taken from collections 33,000 4,415,000 What amount should be
reported as cash on December 31,2014? A. 3,379,000 C. 3,449,000 B. 3,419,000 D.
3,489,000
6. Dove Company reported checkbook balance on December 31, 2014 at P4,000,000. Data about certain cash items
follow:
* A customer check amounting to P200,000 dated January 2, 2015 was included in the December 31, 2014 checkbook balance.
* Another customer check for P500,000 deposited on December 22, 2014 was included in the checkbook balance but returned
by the
bank for insufficiency of fund. This check was redeposited on December 26, 2014 and cleared two days later. *
A P400,000 check payable to supplier dated and recorded on December 30, 2014 was mailed on January 16,
2015. * A petty cash fund of P50,000 with the following summary on December 31,2014: Coins and currencies
5,000 Petty cash vouchers 43,000 Return value of 20 cases of soft drinks 2,000 50,000 * A check of P43,000
was drawn on December 31, 2014 payable to Petty Cash. What total amount should be reported as "cash" on
December 31, 2014? A. 3,748,000 C. 4,205,000 B. 4,200,000 D. 4,248,000
Unrestricted cash 7. Islander Company provided the following information with respect to the cash and cash
equivalents on December 31,2014:
Checking account at First Bank (200,000) Checking account at Second Bank 3,500,000
Treasury bonds 1,000,000 Payroll account 500,000 Value added tax account 400,000
Foreign bank account - unrestricted (in equivalent pesos) 2,000,000 Postage stamps
50,000 Employee's postdated check 300,000 IOU from president 750,000 Credit memo
from a vendor for a purchase return 80,000 Traveler's check 300,000 Not-sufficient-fund
check 150,000 Petty cash fund (P20,000 in currency and expense receipts for P30,000)
50,000 Money order 180,000 What amount should be reported as unrestricted cash on
December 31, 2014? A. 4,600,000 C. 5,900,000 B. 4,900,000 D. 6,900,000 Cash & cash
equivalents 8. On December 31, 2014, West Company had the following cash balances:

Cash in bank 1,800,000 Petty cash fund (all funds were reimbursed on 12/31/2014) 50,000 Time deposit (due February 1,2015)
250,000 Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement on December 31,
2014. The compensating balance is legally restricted as to withdrawal. On December 31,2014, what total amount should be
reported as cash and cash equivalents? A. 1,250,000 C. 1,850,000 B. 1,500,000 D. 2,100,000
9. Pygmalion Company had the following account balances on December 31,

2014:
Cash in bank - current account 5,000,000 Cash in bank - payroll account
1,000,000 Cash on hand 500,000 Cash in bank - restricted account for building
construction expected to be disbursed in 2015 3,000,000 Time deposit, purchased December 15, 2014 and due March
15, 2015 2,000,000 The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2015. What total
amount should be reported as "cash and cash equivalents" on December 31, 2014? A. 6,300,000 C. 8,300,000 B. 6,500,000 D.
8,700,000
10. Everlast Company reported the following information at the current

year-end:
* Investment securities of P1,000,000. These securities are share investments in entities that are traded in the Philippine Stock
Exchange. As a result, the shares are very actively traded in the market. * Investment securities of P2,000,000.
These securities are government treasury bills. The treasury bills have a 10-year term and
purchased on December 31 at which time they had two months to go until they mature. * Cash of P3,400,000 in the
form of coin, currency, saving account and checking account. * Investment securities of P1,500,000. These securities are
commercial papers. The term of the papers is nine months and they were
purchased on December 31 at which time they had three months to go until
they mature. What total amount should be reported as cash and cash equivalents at the current
year-end? A. 5,400,000 C. 6,900,000 B. 6,400,000 D. 7,900,000 11. On December 31,2014,
Roel Company reported cash accounts with the following details: Undeposited collections
60,000 Cash in bank - PCIB checking account 500,000 Cash in bank - PNB (overdraft) (
50,000) Undeposited NSF check received from customer, dated Dec. 1, 2014 15,000
Undeposited check from a customer, dated January 15, 2015 25,000 Cash in bank - PCIB
(fund for payroll) 150,000 Cash in bank - PCIB (saving deposit) 100,000 Cash in bank - PCIB
(money market instrument, 90 days) 2,000,000 Cash in foreign bank restricted 100,000 IOUs
from officers 30,000 Sinking fund cash 450,000 Financial asset held for trading 120,000 On
December 31, 2014, what total amount should be reported as "cash and cash equivalents"? A.
810,000 C. 2,770,000 B. 2,660,000 D. 2,810,000
12. Campbell Company had the following account balances on December 31,
2014:
Petty cash fund 50,000 Cash in bank - current account 4,000,000 Cash in bank -
sinking fund 2,000,000 Cash on hand 500,000 Cash in bank - restricted account
for plant addition,
expected to be disbursed in 2015 1,500,000

FINANCIAL
ACCOUNTING
Treasury bills 1,000,000 The petty cash fund included unreplenished December 2014 petty cash expense vouchers of
PI 0,000 and employee IOU of P5,000. The cash on hand included a P100,000 check payable to Campbell dated January
15,2015. In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance of P200,000 in its
unrestricted current bank account. The sinking fund is set aside to settle a bond payable that is due on June 30,2015. What total
amount should be reported as "cash and cash equivalents" on December 31, 2014? A. 4,435,000 C. 5,535,000 B. 5,435,000 D.
7,435,000
13. Yasmin Company provided the following information on December 31,

2014:
Petty cash fund 50,000 Current account - First Bank 4,000,000 Current account - Second Bank (overdraft) ( 250,000) Money
market placement - Third Bank 1,000,000 Time deposit - Fourth Bank 2,000,000 * The petty cash fund included unreplenished
December 2014 petty cash expense vouchers for P15,000 and an employee check for
P5,000 dated January 31,2015. * A check for PI00,000 was drawn against First Bank current account dated and
recorded December 29,2014 but delivered to payee on
January 15,2015. * The Fourth Bank time deposit is set aside for land
acquisition in early January 2015. What total amount should be reported as "cash and
cash equivalents" on December 31,2014? A. 4,130,000 C. 5,130,000 B. 4,880,000 D.
5,150,000
14. Karla Company provided the following information on December

31,2014:
Cash on hand 500,000 Petty cash fund 20,000 Security Bank current account 1,000,000 PNB Current account No. 1 400,000
PNB Current account No. 2 ' ( 50,000) BSP treasury bill - 60 days 3,000,000 BPI time deposit - 30 days 2,000,000 * The cash
on hand included a customer postdated check of P 100,000 and postal money order of P40,000. * A check for P200,000 was
drawn against Security Bank account, dated January 15, 2015, delivered to the payee and recorded
December 31, 2014. * The BPI time deposit is set aside for acquisition of
equipment. What total amount of cash and cash equivalents should be reported on
December 31,2014? A. 1,970,000 C. 4,970,000 B. 4,770,000 D. 6,970,000
15. On December 31,2014, Erika Company reported "cash account" balance per ledger of P3,600,000 which included the
following:
Demand deposit 1,500,000 Time deposit - 30 days 500,000 NSF check of customer 20,000 Money market placement due on
June 30, 2015 1,000,000 Saving deposit 50,000 IOU from an employee 30,000 Pension fund 400,000 Petty cash fund 10,000
Customer check dated January 31,2015 60,000 Customer check outstanding for 18 months 30,000 3,600,000 * Check of
P100,000 in payment of accounts payable was dated and recorded on December 31, 2014 but mailed to creditors on January

15,2015. * Check of P50,000 dated January 31, 2015 in payment of accounts payable was recorded and mailed
December 31,2014. * The entity used the calendar year. The cash receipts journal was held open until January 15, 2015, during
which time P200,000 was
collected and recorded on December 31,2014. What total amount should be
reported as "cash and cash equivalents" on December 31,2014? A. 1,510,000 C.
1,960,000 B. 1,860,000 D. 2,010,000
16. Celine Company provided the following information on December

31,2014:
Cash on hand 200,000 Petty cash fund 20,000 Philippine Bank current account 5,000,000 Manila Bank current
account 4,000,000 City Bank current account (bank overdraft) (100,000) Asia Bank saving account for equipment
acquisition 250,000 Asia Bank time deposit, 90 days 2,000,000 Cash on hand included customer check of P30,000
dated January 10, 2015 received on December 23,2014. Included among the checks drawn by Celine against the
Philippine Bank current account and recorded in December 2014 are: * Check written and dated December 23, 2014
and delivered to payee on January 3,2015, P25,000. * Check written December 26, 2014, dated January 30, 2015,
delivered to payee on December 28, 2014, P45,000. What total amount should be reported as cash and cash
equivalents on December 31,2014? A. 11,160,000 C. 11,330,000 B. 11,260,000 D. 11,510,000
Cash - current assets 17. Burr Company had the following account balances
on December 31, 2014:
Cash in bank 2,250,000 Cash on hand 125,000 Cash restricted for addition to plant (expected to be disbursed in 2015)
1,600,000 Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement. The
compensating balance is not. legally restricted as to withdrawal. On December 31, 2014, what total cash should be reported
under current assets? A. 1,775,000 C. 2,375,000 B. 2,250,000 D. 3,975,000
18. Tawiran Company reported cash account which consisted of the

following:
Bond sinking fund 1,500,000 Checking account in BPI (A P320,000 check is
still outstanding
per bank statement) 3,155,000 Currency and coins awaiting deposit 1,135,000
Deposit in a bank closed by BSP 500,000 Petty cash fund (of which P10,000 in is
the form of paid vouchers) 50,000 Receivables from officers and employees
175,000 6,515,000 What total amount of cash should be reported under current
assets? A. 4,330,000 C. 4,830,000 B. 4,440,000 D. 5,830,000
19. ABC Company provided the following information on December 31,

2014:
Balance per book 6,776,000 Balance per bank statement 6,532,000 Deposit in
bank closed by BSP 1,600,000 Deposit in transit 1,234,000 Outstanding checks
987,000 Currency and coins counted 950,000 Petty cash fund (of which
P10,000 is in the form of paid vouchers) 50,000 Bank service charge not yet
taken up in the book 6,000

FINANCIAL
ACCOUNTING
Bond sinking fund 1,000,000 Receivables from employees 70,000 Error in

recording a check in the book. The correct amount as paid by the
bank is P89,000 instead of P98,000 as recorded in the book, or a difference
of9,000
What total amount of cash should be reported as current asset on

December31,2014? A. 6,779,000 C. 8,769,000 B. 7,769,000 D. 9,309,000
Bank reconciliation Adjusted cash balance 20. Esteem Company provided the month-end bank statement which showed a
balance of P3,600,000. Outstanding checks amounted to PI,200,000, a deposit of P400,000 was in transit at month-end, and a
check for P50,000 was erroneously charged by the bank against the account. What amount should be reported as cash in bank
at month-end? A. 2,050,000 C. 2,850,000 B. 2,750,000 D. 4,350,000
21. Gallant Company showed a cash account balance of P4,500,000. The bank statement did not include a deposit of P230,000
made on the last day of the month. The bank statement showed a collection by the bank of P94,000 and a customer check for
P32,000 returned because it was NSF. A customer check for P45,000 was recorded on the books as P54,000, and a check
written for P79,000 was recorded as P97,000. What amount should be reported as cash in bank? A. 4,571,000 C. 4,801,000 B.
4,765,000 D. 4,819,000 22. In preparing the August 31,2014 bank reconciliation, Apex Company provided the following
information:
Balance per bank statement 1,805,000 Deposit in transit 325,000 Return of
customer's check for insufficient fund 60,000 Outstanding checks 275,000 Bank
service charge for August 10,000 On August 31,2014, what is the adjusted cash
in bank? A. 1,755,000 C. 1,795,000 B. 1,785,000 D. 1,855,000
23. In preparing the bank reconciliation on December 31, 2014, Case Company provided the following
data:
Balance per bank statement 3,800,000 Deposit in transit 520,000 Amount
erroneously credited by bank to Case's account 40,000 Bank service charge for
December 5,000 Outstanding checks 675,000 What is the adjusted cash in bank
on December 31, 2014?. A. 3,600,000 C. 3,645,000 B. 3,605,000 D. 3,685,000
24. In an audit of Mindanao Company on December 31,2014, the following data are
gathered:
Balance per book 1,000,000 Bank charges 3,000 Outstanding checks 235,000
Deposit in transit 300,000 Customer note collected by bank 375,000 Interest on
customer note 15,000 Customer check returned NSF 62,000 Depositor's note
charged to account 250,000 What is the adjusted cash in bank on December
31,2014? A. 1,065,000 C. 1,325,000 B. 1,075,000 D. 1,575,000

25. Core Company provided the following data for the purpose of reconciling the cash balance per book with the balance
per bank
statement on December 31,2014:
Balance per bank statement 2,000,000 Outstanding checks (including certified
check of P100,000) 500,000 Deposit in transit 200,000 December NSF checks
(of which P50,000 had
been redeposited and cleared by December 27) 150,000 Erroneous credit
to Core's account, representing
proceeds of loan granted to another company 300,000 Proceeds of note
collected by bank for Core, net of service charge of P20,000750,000 What amount
should be reported as cash in bank on December 31,2014? A. 1,400,000 C. 1,500,000
B. 1,450,000 D. 1,800,000
26. Aries Company kept all cash in a checking account. An examination of the accounting records and bank statement for the
month
ended June 30, 2014 revealed the following information: * The cash balance per book on June 30 is P8,500,000. * A
deposit of P1,000,000 that was placed in the bank's night depository on June 30 does not appear on the bank statement. *
The bank statement shows on June 30, the bank collected note for Aries and credited the proceeds of P950,000 to the
entity's account. * Checks outstanding on June 30 amount to P300,000. * Aries discovered that a check written in June
for P200,000 in payment of an account payable, had been recorded in the entity's
records as P20,000. * Included with the June bank statement was NSF check for P250,000 that Aries had
received from a customer on June 26. *
The bank statement shows a P20,000 service charge
for June. What amount should be reported as cash in bank on
June 30,2014? A. 8,300,000 C. 9,180,000 B. 9,000,000 D.
9,360,000
27. Letty Company provided the bank statement for the month of April which included the following
information:
Bank service charge for April 15,000 Check deposited by Letty during April
was not collectible
and has been marked "NSF" by the bank and returned 40,000 In
comparing the bank statement to its own records, the entity found the following:
Deposits made but not yet recorded by bank 130,000 Checks written and mailed but not yet recorded by bank 100,000 All
deposits in transit and outstanding checks have been properly recorded in the entity's books. A customer check for
P35,000 payable to Letty Company had not yet been deposited and had not been recorded by the entity. The cash in bank
account balance per ledger is P920,000. What is the adjusted cash in bank on April 30? A. 865,000 C. 930,000 B. 900,000
D. 965,000
28. Divine Company prepared the following bank reconciliation on December 31,
2014:
Balance per bank statement 2,800,000 Add: Deposit in transit 195,000
Checkbook printing charge 5,000 Error made by Divine in recording check No.
45
(issued in December) 35,000 NSF check 110,000 345,000 3,145,000 Less:
Outstanding check 100,000 Note collected by bank (includes P15,000 interest)
215,000 315,000 Balance per book 2,830,000
The entity had P200,000 cash on hand on December 31,

2014.

FINANCIAL
ACCOUNTING
What amount should be reported as cash in the statement of financial position on December
31,2014? A. 2,895,000 C. 3,095,000 B. 2,930,000 D. 3,130,000 29. Ron Company provided the
following data for the month of January of the current year:
Balance per book, January 31 3,130,000 Balance per bank statement, January
31 3,500,000 Collections on January 31 but undeposited 550,000 NSF check
received from a customer returned by the
bank on February 5 with the January bank statement 50,000 Checks
outstanding on January 31 650,000 Bank debit memo for safety deposit box rental
not recorded by depositor 5,000 A creditor check for P30,000 was incorrectly
recorded in the depositor's book as300,000 A customer check for P200,000 was
recorded by the depositor as 20,000 The depositor neglected to make an entry in its
books for a check
drawn in payment of an account payable 125,000 What is the adjusted
cash in bank on January 31 ? A. 2,950,000 C. 3,400,000 B. 3,130,000 D. 3,500,000
30. In reconciling the cash balance on December 31,2014 with that shown in the bank statement, Sam Company provided the
following
information:
Balance per bank statement 4,000,000 Balance per book 2,700,000 Outstanding
checks 600,000 Deposit in transit 475,000 Service charge 10,000 Proceeds of
bank loan, December 1, discounted for 6 months at 12%, not
recorded on Sam Company's books 940,000 Customer's check charged
back by bank for absence of counter signature 50,000 Deposit of P100,000
incorrectly recorded by bank as 10,000 Check of Sim Company charged by
bank against Sam account 150,000 Customer's note collected by bank in favor
of Sam Company.
Face 400,000 Interest 40,000 Total 440,000 Collection fee 5,000 435,000 Erroneous debit
memo of December 28, to charge Sam account with
settlement of bank loan 200,000 Deposit of Sim Company credited to Sam
account 300,000 What is the adjusted cash in bank on December 31,2014? A.
3,075,000 C. 4,015,000 B. 3,925,000 D. 4,315,000
31. Susan Company showed the following information on August 31,

2014.
Balance of cash in bank account 1,300,000
Balance of bank statement 1,200,000 Outstanding checks, August 31:
Number 555 10,000 761 55,000 762 40,000 763 25,000 764 65,000 765
70,000 Receipts of August 31, deposited September 1 275,000 Service
charge for August 5,000

NSF check received from a customer 85,000 The cashier-bookkeeper had misappropriated P30,000 and
an additional PI 0,000 by charging sales discounts and crediting accounts receivable. The stub for check number 765
and the invoice relating thereto show that it was for P50,000. It was recorded incorrectly in the cash disbursements
journal as P70,000. This check was drawn in payment of an account payable. Payment has been stopped on check
number 555 which was drawn in payment of an account payable. The payee cannot be located. What is the adjusted
cash in bank on August 31, 2014? A. 1,200,000 C. 1,230,000 B. 1,210,000 D. 1,240,000
32. Mcbride Company provided the following data pertaining to the cash transactions and bank account for May of the
current year:
Cash balance per accounting record 1,719,000 Cash balance per bank statement
3,195,000 Bank service charge 10,000 Debit memo for the cost of printed
checks delivered by the bank;
the charge has not been recorded in the accounting record 12,000
Outstanding checks 685,000 Deposit of May 30 not recorded by bank until June
1 500,000 Proceeds of a bank loan on May 30, not recorded in
the accounting record, net of interest of P30,000 570,000 Proceeds from a
customer's promissory note, principal amount P800,000
collected by the bank not taken up in the accounting record with interest
810,000 Check No. 1086 issued to a supplier entered in the accounting record
as
P210,000 but deducted in the bank statement at an erroneous amount of
120,000 Stolen check lacking an authorized signature deducted
from Mcbride's account by the bank in error 80,000 Customer's check
returned by the bank marked NSF, indicating that the
customer's balance was not adequate to cover the check; no entry has been made in
the accounting record to record the returned check 77,000 What is the adjusted cash
in bank? A. 2,910,000 C. 3,000,000 B. 2,990,000 D. 3,080,000
33. Carefree Company prepared the following bank reconciliation on March

31:
Book balance 1,405,000 Add: March 31 deposit 750,000 Collection of note
2,500,000 Interest on note 150,000 3,400,000 Total 4,805,000 Less: Careless
Company's deposit to our account 1,100,000 Bank service charge 45,000
1,145,000 Adjusted book balance 3,660,000
Bank balance 5,630,000 Add: Error on check No. 175 45,000 Total 5,675,000 Less: Preauthorized payments for water bills
205,000 NSF check 220,000 Outstanding check 1,650,000 2,075,000 Adjusted bank balance 3,600,000 Check No. 175 was
made for the proper amount of P249,000 in payment of account. However it was entered in the cash payments journal as
P294,000. The entity authorized the bank to automatically pay its water bills as submitted directly to the bank. What is the
adjusted cash in bank on March 31 ? A. 2,880,000 C. 3,630,000 B. 3,600,000 D. 3,660,000
Cash balance per ledger

FINANCIAL
ACCOUNTING
34. Stellar Company provided the bank statement for the month of December which included the following
information:
Ending balance, December 31 2,800,000 Bank service charge for December
12,000 Interest paid by bank to Stellar Company for December 10,000 In
comparing the bank statement to its own cash records, the entity found the
following:
Deposits made but not yet recorded by the bank 350,000 Checks written and mailed but not yet recorded by the bank
650,000 In addition, the entity discovered that it had drawn and erroneously recorded a check for P46,000 that should
have been recorded for P64,000. What is the cash balance per ledger on December 31? A. 2,500,000 C. 2,540,000 B.
2,520,000 D. 2,800,000
35. On June 30,2014, the bank statement of Bougainvilla Company had an ending balance of P3,735,000. The following
data were
assembled in the course of reconciling the bank balance: * The bank erroneously credited Bougainvilla Company for
P21,000 on June 22. * During the month, the bank charged back NSF checks amounting to P23,000 of which P8,000
had been redeposited by June
25. * Collection for June 30 totaling PI03,000 was deposited the following month. * Checks
outstanding on June 30 amounted to P302,000. * Note collected by the bank for Bougainvilla Company was
P80,000 and the corresponding bank charge was P5,000. What is the unadjusted cash in bank per ledger on June
30,2014? A. 3,455,000 C. 3,557,000 B. 3,515,000 D. 3,497,000
Cash balance per bank statement 36. On March 31, 2014, Able Company received the bank statement. However, the
closing balance of the account was unreadable. Attempts to contact the bank after hours did not secure the desired
information. The following data are available in preparing a bank reconciliation:
February 28 book balance 1,460,000 Note collected by bank 100,000 Interest
earned on note 10,000 NSF check of customer 130,000 Bank service charge on
NSF check 2,000 Other bank service charges 3,000 Outstanding checks 202,000
Deposit of February 28 placed in night depository 85,000 Check issued by Axle
Company charged to Abie's account 20,000 What is the cash balance per bank
statement? A. 1,338,000 C. 1,532,000 B. 1,435,000 D. 1,557,000
Deposit in transit 37. Kate Company shows a cash account balance per ledger of P1,652,000 at December 31. The bank
statement, however, shows a balance of P2,090,000 at the same date. The only reconciling items consist of a bank service
charge of P2,000, a large number of outstanding checks totaling P590,000 and a deposit in transit. What is the deposit in transit
in the December 31 bank reconciliation? A. 150,000 C. 440,000 B. 154,000 D. 592,000
Outstanding checks 38. Grass Company provided the

following information:
Balance per bank statement July 31 1,240,000 Balance per ledger, July
31 750,000 Deposit of July 30 not recorded by bank 280,000 Debit
memo - service charges 10,000 Credit memo - collection of note by
bank for Grass 300,000

Outstanding checks ? An analysis of the canceled checks returned with the bank statement
reveals the following: * Check for purchase of supplies was drawn for P60,000 but was recorded as
P90,000. * The manager wrote a check for traveling expenses of P100,000 while out of town. The check
was not recorded. What is the amount of outstanding checks on July 31 ? A. 270,000 C. 610,000 B. 550,000
D. 970,000
39. Bayside Company provided the following information for October and
November 2014:
Checks and charges recorded by bank in November,
including
a November service charge of P4,000 and NSF check of P20,000 550,000
Service charge made by bank in October and
recorded by depositor in November 2,000 Total credits to cash in all
journals during November 620,000 Customer NSF check returned in October
and redeposited in November
(no entry made by depositor in either October or November) 40,000
Outstanding checks on October 31, 2014 that cleared in November 230,000 What is
the amount of outstanding checks on November 30,2014? A. 282,000 C. 302,000 B.
300,000 D. 322,000
Journal entries 40. Margar Company kept all cash in a checking account. An examination of the accounting records and bank
statement for the month
ended December 31,2014 revealed a bank statement balance of P8,469,000 and a book balance of P8,524,000. A deposit of
P950,000 placed in the bank's night depository on December 29 does not appear on the bank statement. Checks outstanding
on December 31 amount to P270,000. The bank statement showed that on December 25 the bank collected a note for
Margar Company and credited the proceeds of P935,000 to the entity's account which included P35,000 interest. Margar
Company discovered that a check written in December for P183,000 in payment of an account had been recorded as PI
38,000. Included with the December 31 bank statement was an NSF check for P250,000 that Margar Company had
received from a customer on December 20. The bank statement showed a P15,000 service charge for December. What is
the journal entry to adjust the cash in bank on December 31 ? A. Debit to cash in bank of P935,000 C. Net debit to cash in
bank of P625,000 B. Credit to cash in bank ofP310,000 D. Net credit to cash in bank of P625,000
Proof of Cash 41. Oro Company had the following bank reconciliation on March
31 of the current year:
Balance per bank statement, March 31 4,650,000 Add: Deposits in transit
1,000,000 Total 5,65,0,000 Less: Outstanding checks 1,250,000 Balance per
book, March 31 4,400,000 Data per bank statement for the month of April
follow:
Deposits 6,000,000 Disbursements 5,000,000 All reconciliation items on March 31 cleared through the bank in April.
Outstanding checks on April 30 totaled P750,000 and deposits in transit amounted to PI,500,000. What is the amount of cash
receipts per book in April? A. 5,000,000 C. 6,500,000 B. 5,500,000 D. 7,500,000
Questions 42 & 43 are based on the following

information.

FINANCIAL
ACCOUNTING
Lira Company prepared the following bank reconciliation dated June 30 of the
current year.
Balance per bank 9,800,000 Deposits in transit 400,000 Outstanding checks (1,400,000) Balance per book 8,800,000 There were
total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank statement. All reconciliation items on
June 30 cleared the bank on July 31. Checks outstanding amounted to P1,000,000 and deposits in transit totaled P1,200,000 on July
31.
42. What is the amount of cash disbursements per book in July?

A. 7,600,000 C. 8,600,000 B. 8,400,000 D. 9,400,000
43. What is the adjusted cash in bank on July 31?

A. 6,300,000 C. 7,300,000 B. 6,500,000 D. 7,500,000
Questions 44 thru 46 are based on the following information. Lazer

Company had the following bank reconciliation on June 30, 2014:
Balance per bank statement, June 30 3,000,000 Deposit in transit 400,000 Total
3,400,000 Outstanding checks ( 900,000) Balance per book, June 30 2,500,000
The bank statement for the month of July showed the
following:
Deposits (including P200,000 note collected for Lazer) 9,000,000 Disbursements
(including P 140,000 NSF check and
P10,000 service charge) 7,000,000 All reconciling items on June 30 cleared through the bank in July. The
outstanding checks totaled P600,000 and the deposit in transit amounted to P1,000,000 on July31.
44. What is the cash balance per book on July 31?

A. 4,500,000 C. 5,400,000 B. 5,350,000 D. 5,550,000
45. What is the amount of cash receipts per book in July?

A. 8,600,000 C. 9,600,000 B. 9,400,000 D. 9,800,000
46. What is the amount of cash disbursements per book in July?

A. 6,550,000 C. 6,850,000 B. 6,700,000 D. 7,300,000
Questions 47 thru 49 are based on the following information. Chris Company presented the
following bank reconciliation for the month of November of the current year:
Balance per bank statement, November 30 3,600,000 Add: Deposit in transit 800,000
4,400,000 Less: Outstanding checks 1,200,000 Bank credit recorded in error 200,000
1,400,000 Balance per book, November 30 3,000,000 Data per bank statement for
the month of December follow:
December deposits (including note collected of PI,000,000 for Chris)
5,500,000 December disbursements (including NSF, P350,000
and service charge, P50,000) 4,400,000 All items that were outstanding on November 30 cleared through the
bank in December, including the bank credit. In addition, checks

amounting to P500,000 were outstanding and deposits of P700,000 were in transit on

December 31.
47. What is the cash balance per ledger on December 31 ?

A. 4,100,000 C. 4,700,000 B. 4,300,000 D. 4,900,000
48. What is the amount of cash receipts per book in December?

A. 4,400,000 C. 5,500,000 B. 5,400,000 D. 6,400,000
49. What is the amount of cash disbursements per book in December?

A. 3,100,000 C. 3,500,000 B. 3,300,000 D. 3,700,000
Questions 50 thru 52 are based on the following information.
Jam Company provided the following bank reconciliation on
May 31:
Balance per bank statement 2,100,000 Deposits outstanding 300,000 Checks
outstanding ( 30,000) Correct cash balance 2,370,000 Balance per book
2,372,000 Bank service charge (2,000) Correct cash balance 2,370,000
June data are as follows:

Bank Book Checks
recorded 2,300,000 2,360,000 Deposits recorded 1,620,000 1,800,000
Collection by bank (P400,000 note plus interest) 420,000 NSF check
returned with June 30 statement 10,000 Balances 1,830,000 1,810,000
50. What is the amount of checks outstanding on June 30?

A. 0 C. 60,000 B. 30,000 D. 90,000
51. What is the amount of deposits in transit on June 30?

A. 120,000 C. 480,000 B. 180,000 D. 680,000
52. What is the adjusted cash in bank on June 30?

A. 1,810,000 C. 2,240,000 B. 2,220,000 D. 2,780,000

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CASH AND CASH

CASH AND CASH

2. What is the meaning of "unrestricted cash"?

PAS 7, paragraph 6, defines cash equivalents as short-term and highly liquid

Examples of cash equivalents are: a. Three-month BSP treasury bill b.

Essay Questions Page 1

4. Explain the valuation of cash in the statement of financial

7. Explain the treatment of foreign currency.

Essay Questions Page 2

8. Explain the classification of a cash fund set aside for a certain

9. Explain the treatment of a bank overdraft.

A compensating balance is the minimum checking or demand deposit account balance

Essay Questions Page 3

11. Explain fully the treatment of compensating

If the deposit is not legally restricted as to withdrawal by the borrower because of an

12. What is the meaning of undelivered check? Postdated check? Stale

13. Explain window dressing, lapping and

a. By recording as of the last day of the accounting period collections made

Essay Questions Page 4

Lapping consists of misappropriating a collection from one customer and concealing

16. What is a bank reconciliation?

17. What are credit memos and debit memos?

Essay Questions Page 5

18. Explain deposits in transit.

19. Explain outstanding checks.

Outstanding checks are checks already recorded by the depositor as cash

20. What are the three forms of bank reconciliation?

21. What is a "proof of cash"?

A proof of cash is an expanded reconciliation in that it includes proof of receipts and

Multiple Choice - Theory

Cash 1. Which of the following is usually considered

3. All of the following may be included in "cash",

4. Which of the following should not be considered

5. Which of the following should not be included in

Cash equivalent 7. A cash equivalent is a short-term, highly liquid investment that is

MCQ – Theory Page 8

8. Which of the following is not considered as a cash

12. Which is false concerning measurement of cash and cash

MCQ – Theory Page 9

Internal control over cash 13. Which of the

14. Which of the following is not a characteristic of a system of cash

Petty cash fund 15. Petty

16. The internal control feature specific to petty cash

17. What is the major purpose of an imprest petty cash

MCQ – Theory Page 10

19. In reimbursing the petty cash fund, which of the following is

20. Which of the following statements in relation to petty cash is

22. A Cash Over and Short account

MCQ – Theory Page 11

Presentation & disclosure 25. What is the treatment of

27. Under which classification is cash restricted for plant expansion

29. What is a compensating balance? A. Saving account balance B. Demand deposit

30. Deposits held as compensating balance

MCQ – Theory Page 12

31. A compensating balance

Bank reconciliation 33. A

34. Bank statements provide information about all of the following,

36. When preparing a bank reconciliation, bank credits

37. In preparing a bank reconciliation, interest paid by the bank on the

MCQ – Theory Page 14

43. The adjusting entries for a bank reconciliation

45. Which of the following statements in relation to bank reconciliation is

46. Which of the following statements is false?