Chapter 8 - Cash and Cash Equivalents
Chapter 8 - Cash and Cash Equivalents
CHAPTER 8
CASH AND CASH EQUIVALENTS
TOPIC OVERVIEW:
This chapter discusses the concept of cash and cash equivalents, its characteristics and components, preparation of bank reconciliation and proof of cash.
LEARNING OBJECTIVES:
After studying this chapter, you should be able to:
1. Identify what items are included as cash and cash equivalents.
2. Calculate the correct balance of petty cash fund.
3. Identify bank and book reconciling items.
4. Prepare bank reconciliation and proof of cash.
SUMMARY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR CASH
The main category is Cash Items, which is divided into two groups:
1. Unrestricted and immediately available for use in the current operations
◦ This group is used for:
◦ Payment of operating expense
◦ Payment of current liabilities
◦ Acquisition of current assets
◦ It is classified as "Cash" in the current asset section
2. For use other than current operations
◦ It is classified as Other noncurrent financial assets
DEFINITION OF CASH
Cash includes money and other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. It includes cash on hand, demand deposits and other items that are unrestricted for use in the current operations.
1. Cash on Hand (CUTCMoBa)
• Customer’s checks awaiting deposit (classified as Cash)
• Undeposited cash collections (currencies such as bills and coins) (classified as Unrestricted)
• Traveler’s check (classified as Cash)
• Cashier’s / Official / Treasurer’s / Manager’s checks (classified as Cash)
• Postal money orders (a demand credit instrument issued and payable by a post office) (classified as Monetary item)
• Bank drafts (a written order addressed to the bank to pay an amount of money to the order of the maker) (classified as Bank item)
2. Cash in Bank
a. Current account/checking account/demand deposit/commercial account
• Generally non-interest bearing
• Withdrawable by checks against bank
b. Savings deposit (Savings Account-SA)
• Generally non-interest bearing
• Depositor is issued an ATM card or passbook
• Withdrawable in ATM station or within the bank
3. Cash fund for current operations (CPRIntPeDiT)
• Change fund (classified as Cash)
• Payroll fund (classified as Payroll)
• Purchasing fund (for purchasing of inventories) (classified as Purchasing)
• Revolving fund (fund that is used for limited or specific purpose set by management) (classified as Revolving)
• Interest fund (classified as Interest)
• Petty cash fund (for small and miscellaneous disbursements) (classified as Petty cash)
• Dividend fund (classified as Dividend)
• Travel fund (classified as Travel)
• Tax fund (classified as Tax)
Fund for Noncurrent Operations
Fund for noncurrent operations are part of noncurrent assets and should not be included as part of cash. Examples are as follows: (PACIS)
• Pension fund: Generally noncurrent investment but if related liability is current, the fund is included as cash.
• Preferred redemption fund: Noncurrent investment unless the preferred share has a mandatory redemption and is redeemable
◦ within one year from the reporting period - part of current investment
◦ within three months from the reporting period - part of current investment
• Acquisition of property, plant and equipment: Always noncurrent even if expected to be disbursed next year
• Contingent fund: Noncurrent investment
• Insurance fund: Noncurrent investment
• Sinking fund: Noncurrent investment; if the related bonds payable is current, the fund is included as cash.
Note: Classification of cash fund as current or noncurrent should be parallel to the classification applied to the related liability. Thus, an entity should reclassify such noncurrent asset if the related liability becomes current.
CASH EQUIVALENTS
Cash equivalents are 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 7.6] Items that may qualify as cash equivalents include the following:
1. Time deposit
2. Money market instrument or commercial paper
3. Treasury bills, treasury notes and treasury bonds
4. Redeemable preference shares with mandatory redemption period.
If the above items are:
1. Originally invested/acquired for more than three months before maturity date
a) Remaining term is three months or less from the reporting date: Short-term investment
b) Remaining term is more than three months but within one year: Short-term investment
c) Remaining term is more than one year: Long-term investment
2. Originally invested/acquired for three months or less before maturity date: Cash equivalents
Note:
✓ If an item cannot be included as cash equivalent because it did not qualify the cut-off time period (i.e. three months), it will always be classified as investments (short term or long term) depending on the period up to maturity.
✓ The reckoning period for time deposit is its duration since time deposit generally does not have secondary market. For other securities with secondary market, the reckoning period would be three months from acquisition date until maturity date.
✓ If the problem is silent with regard to:
1. Treasury note and bonds - assumed non-current investment
2. Cash in money market account - cash and cash equivalent
3. Time deposit - cash and cash equivalent
Some Measurement Issues and Frequent Encountered Tricks in Cash and Cash Equivalents Computation
Cash
Measured at face value.
Cash in foreign currency
Should be translated to Philippine Peso using the closing rate or spot rate at the reporting date.
Deposit in foreign bank
a. Unrestricted - part of cash
b. Restricted - if material, classified separately among noncurrent assets as receivables
Cash in closed bank / banks in bankruptcy
Measured at estimated realizable value and be included among noncurrent assets if the amount recoverable is lower than face value.
Bank overdraft
Definition: Negative balance in the cash in bank account.
Treatment: If the company is maintaining two accounts in
a. Different banks
✓ current liability or may be netted against other bank if immaterial.
✓ netted against other account if it is part of cash management. [PAS 7.8]
b. Same bank - maybe netted against the account with positive amount but cannot be offset against restricted account.
Compensating balance
Definition: Compensating balance is minimum balance that must be maintained in connection with a borrowing agreement with a bank.
Treatment:
a. Not legally restricted - part of cash
b. Legally restricted - if the related loan is:
1. Short-term - presented as "cash held as compensating balance" (current receivable)
2. Long-term - presented as "cash held as compensating balance" (noncurrent receivable)
Note: if the problem is silent with regard to compensating balance, it is assumed not legally restricted.
Effect of compensating balance on:
a. Yield rate (lender) - increase
b. Effective rate (borrower) - increase
(Effective rate) = Net interest expense / Net proceeds
Undelivered/unreleased check
Reverted back to cash by a debit to Cash and credit to Accounts Payable.
Stale checks/checks long outstanding
Definition: Checks not encashed by the payee with a relatively long period of time. Under current banking practice, checks are considered stale if not encashed within 6 months from its date.
Treatment: Stale checks are reverted to cash by a debit to Cash and credit to Accounts Payable (if material) or Miscellaneous Income (if not material).
Postdated checks
Definition: Checks dated after the reporting date.
Treatment:
a. For company own PDC - reverted to cash with a debit to Cash and credit to Accounts Payable.
b. Customer’s check - will still remain as receivable.
IOUs (I owe you)
Included as part of receivable.
Equity securities
Generally cannot be classified as cash equivalents because equity securities do not have a maturity date (with the exception of redeemable preference shares).
Redeemable preference shares
Preference shares with specified redemption date.
✓ acquired three months before redemption date - cash equivalents
✓ acquired for more than three months before redemption date - current investment
Callable preference shares
Not classified as cash equivalents. It is part of shareholder’s equity on the part of issuer and part of long-term investment of the holder.
NSF/DAUD/DAIF
Definition:
• NSF - no sufficient funds
• DAUD - drawn against uncleared deposits
• DAIF - drawn against insufficient funds
Treatment: Reverted back as part of receivables.
Expense advances (e.g. travel advances)
Receivable or prepaid expense.
Temporary investments in shares of stocks
Either FVTPL or FVOCI but never to be included as part of cash & cash equivalents.
Unused credit line
Definition: Difference between the amount of line of credit applied for and approved by a bank and the amount actually borrowed.
Treatment: Disclosed in the notes.
Treasury warrants
Definition: A warrant for the payment of money into or from public treasury.
Treatment: Included as part of cash.
Escrow deposit
Definition: Restricted amount held in trust for another party, e.g., a deposit required by a court of law for a pending case.
Treatment: Part of other current/noncurrent asset and reported as liability.
Unrecorded cash disbursements
Record the disbursements by:
Debit Accounts Payable or other appropriate account
Credit Cash
Unrecorded cash collections/receipts
Record the collection by:
Debit Cash
Credit Accounts receivable or other appropriate account
Certificate of deposit (CD) for time deposits
Definition: A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the PDIC. The term of a CD generally ranges from one month to five years.
Treatment:
a. Invested three months before maturity - cash equivalents
b. Invested for more than three months - investment (short or long-term)
Postage stamps on hand
Should be reported as office supplies or as a prepaid expense.
Bank overdraft netted from cash in bank
Bank overdraft that was netted or deducted from cash in bank but should be presented as current liability should be added back to compute for the correct balance of cash in bank.
ILLUSTRATION 1: Cash Composition
On December 31, 2021, Wag Kang Aayaw Co.’s "cash and cash equivalents account" balance per ledger of P5,700,000 includes:
• Manager’s checks: P70,000
• Traveler’s checks: P100,000
• Treasury note: P50,000
• Treasury shares, purchased on 12/1/2021, to be reissued on 3/1/2022: P150,000
• Escrow deposit: P200,000
• Bank drafts: P20,000
• Postal money orders: P20,000
• Demand deposit: P100,000
• Treasury bills, purchased December 16, 2021 due March 15, 2022: P50,000
• 160-day treasury bill: P30,000
• Time deposit - PCI B, one-year, due March 31, 2022: P180,000
• Time deposit - PNB - 90 days: P170,000
• Time deposit - BPI - 120 days: P45,000
• Money market instrument-due 2/28/2022: P40,000
• Money market instrument-due 6/1/2022: P70,000
• Cash in bank - Metrobank, which includes a compensating balance of P50,000 for short-term borrowing arrangement. The compensating balance is not legally restricted as to withdrawal: P1,050,000
• Cash in bank - Metrobank (deduction): P(100,000)
• Cash in bank - Firstbank, which includes a compensating balance of P50,000 for long-term borrowing arrangement. The compensating balance is legally restricted as to withdrawal: P450,000
• Cash in bank - Secondbank (deduction): P(60,000)
• Cash in bank - Seatacbank, which includes a compensating balance of P40,000 for short-term borrowing arrangement. The compensating balance is legally restricted as to withdrawal: P150,000
Cash in bank - Seahbank, which includes a compensating balance of P40,000 for short-term borrowing arrangement: 250,000
Petty cash fund, which includes an unreplenished voucher for P4,000: 10,000
Payroll fund: 100,000
Travel fund: 20,000
Interest fund: 40,000
Tax fund: 30,000
Sinking fund: 420,000
Preferred redemption fund: 100,000
Contingent fund: 200,000
Insurance fund: 500,000
Fund for acquisition of PPE expected to be disbursed in 2022: 800,000
IOU from officers: 20,000
Customer’s post-dated checks: 70,000
Customer’s checks returned by bank marked "NSF": 20,000
Redeemable preferred shares - acquired 3 months before maturity date: 15,000
Unused credit line: 200,000
Revolving fund: 100,000
Visa Card-credit limit: 20,000
Total: P5,700,000
Required: Compute the cash and cash equivalents that should be shown in the statement of financial position.
SOLUTION:
• Manager’s checks: P70,000
• Traveler’s checks: P100,000
• Bank drafts: P20,000
• Postal money orders: P20,000
• Demand deposit: P100,000
• Treasury bills, purchased December 16, 2021 due March 15, 2022: P50,000
• Time deposit-PNB-90 days: P170,000
• Money market instrument-due date 2/28/2022: P40,000
• Cash in bank-Metrobank (including compensating balance): P1,050,000
• Cash in bank-Metrobank (overdraft) (deduction): P(100,000)
• Cash in bank-Firstbank, net of compensating balance (P450,000-P50,000): P400,000
• Cash in bank-Seatacbank, net of compensating balance (P150,000-P40,000): P110,000
• Cash in bank-Seahbank (including compensating balance): P250,000
• Petty cash fund, net of expenses (P10,000-P4,000): P6,000
• Payroll fund: P100,000
• Travel fund: P20,000
• Interest fund: P30,000
• Tax fund: P15,000
• Redeemable preferred shares - acquired 3 months before maturity date: P100,000
Total cash and cash equivalents: P2,591,000
Classification of the other items:
• Treasury note: Assumed Investment
• Treasury shares: Deduction to SHE
• Escrow deposit: Other noncurrent asset
• 160-day treasury bill: P30,000 - short term investment
• Time deposit-PCI B, one-year, due March 31, 2022: P180,000 - short term investment
• Time deposit - BPI - 120 days: P45,000 - short term investment
• Money market instrument-due date 6/1/2022: P70,000 - short term investment
• Cash in bank - Secondbank: (P60,000) - current liability
• Sinking fund: P420,000 - noncurrent investment
• Preferred redemption fund: P100,000 - noncurrent investment
• Contingent fund: P200,000 - noncurrent investment
• Insurance fund: P500,000 - noncurrent investment
• Fund for acquisition of PPE in 2022: P800,000 - noncurrent investment
• IOU from officers: P20,000 - advances to officers
• Customer’s post-dated checks: P70,000 - accounts receivable
• NSF customer’s checks: P20,000 - accounts receivable
• Unused credit line: Disclosed in the notes
• Visa Card-credit limit: P20,000 (not yet cash; should the company withdraws money from the bank then there will be a debit to cash and credit to accounts payable-bank)
ILLUSTRATION 2: Cash Composition
On December 31, 2021, GAME K N BA? Company’s cash and cash equivalents account balance per ledger of P4,000,000 includes:
• Demand deposit: P2,200,000
• Undeposited collection: P300,000
• Time deposit-30 days: P500,000
• NSF check of customer: P20,000
• 35-day money market placement due 1/28/2022: P30,000
• 45-day commercial papers due 2/4/2022: P80,000
Savings deposit in closed bank: 50,000
IOU from an employee: 150,000
Preferred redemption fund: 400,000
Total: P4,000,000
Additional information:
a) Included in the demand deposit of P2,200,000 was a customer check amounting to P50,000 dated January 25, 2022.
b) Also included in the demand deposit is a customer check amounting to P90,000 dated December 31, 2020. Game K N BA? neglected to encash the check. On December 31, 2021, the customer was informed and he was willing to replace this with a new one. New check is yet to be received from the customer.
c) Check of P60,000 dated January 31, 2022 in payment of accounts payable was recorded and mailed December 31, 2021.
d) Check of P70,000 in payment of accounts payable was recorded on December 31, 2021 but mailed to creditors on January 15, 2022.
e) The company uses the calendar year. The cash receipts journal was held open until January 15, 2022, during which time P80,000 was collected and recorded on December 31, 2021.
Required:
1. Prepare the adjusting entries to correct the cash account
2. Compute the cash and cash equivalents to be shown on December 31, 2021 statement of financial position.
Solution:
Requirement No. 1: Adjusting Entries
Debit Accounts receivable for 20,000.
Debit Cash in closed bank (other non-current asset) for 50,000.
Debit Advances to employees for 150,000.
Debit Preferred redemption fund for 400,000.
Credit Cash in bank for 620,000.
a) Debit Accounts receivable for 50,000.
Credit Cash in bank for 50,000.
b) Debit Accounts receivable for 90,000.
Credit Cash in bank for 90,000.
c) Debit Cash in bank for 60,000.
Credit Accounts payable for 60,000.
d) Debit Cash in bank for 70,000.
Credit Accounts payable for 70,000.
e) Debit Accounts receivable for 80,000.
Credit Cash in bank for 80,000.
Requirement No. 2
Unadjusted balance is P4,000,000.
AJE #1 reduces the balance by 620,000.
AJE a reduces the balance by 50,000.
AJE b reduces the balance by 90,000.
AJE c increases the balance by 60,000.
AJE d increases the balance by 70,000.
AJE e reduces the balance by 80,000.
Adjusted balance is P3,290,000.
PETTY CASH FUND
Imprest system is a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check. However, it is impractical for the company to make all payments through check. Therefore, a petty cash fund is established to cover small and miscellaneous expenditures. Petty cash fund may be accounted for using two methods: Imprest fund system and Fluctuating fund system.
Comparison of journal entries:
To establish the fund
Under Imprest Fund System: Debit Petty cash fund and Credit Cash in bank.
Under Fluctuating System: Debit Petty cash fund and Credit Cash in bank.
Payment of expenses
Under Imprest Fund System: Make a memo entry in the petty cash journal.
Under Fluctuating System: Debit Expenses and Credit Petty cash fund.
Replenishment of petty cash payments
Under Imprest Fund System: Debit Expenses and Credit Cash in bank.
Under Fluctuating System: Debit Petty cash fund and Credit Cash in bank.
To adjust the unreplenished expenses
Under Imprest Fund System: Debit Expenses and Credit Petty cash fund.
Under Fluctuating System: No adjusting entry is needed.
Increase in the fund
Under Imprest Fund System: Debit Petty cash fund and Credit Cash in bank.
Under Fluctuating System: Debit Petty cash fund and Credit Cash in bank.
Decrease in the fund
Under Imprest Fund System: Debit Cash in bank and Credit Petty cash fund.
Under Fluctuating System: Debit Cash in bank and Credit Petty cash fund.
The Cash Over and Short account is used as a plug (miscellaneous expense or miscellaneous revenue) when the petty cash fund fails to turn out to be satisfactory.
Replenishment check
The amount to be indicated in the replenishment check will be the total expense plus the cash shortage and less the cash overage. It can also be determined by subtracting the bills and coins from the petty cash accountability.
The Petty Cash Fund Count Sheet
The count sheet has basically four parts:
1. Accounting for petty cash items
2. Accountabilities
3. Petty cashier’s acknowledgment
4. Auditor’s adjusting entries
Accounting for Petty Cash Items
All petty cash items, inclusive of the impurities are accounted for in the working papers as the presence of the impurities may indicate some weaknesses in the accounting control systems. A summary of the weaknesses in the accounting control systems is prepared and submitted to the management after the general audit of the accounting records.
Petty Cash Impurities
Petty cash impurities are items which do not belong to the fund but for one reason or another are nevertheless found in the petty cash box. Examples of petty cash impurities are:
a. Bills and coins and customers’ check from the cashier’s collections (as these should have in the general cash)
b. Checks issued by the client in payment of utility bills (as these should have been delivered to the payees)
c. Checks issued to the client in payment of personal advances (as these should have been in the general cash)
Accountabilities
The accountabilities in the count sheet consist of the following:
1. Cash fund balance per general ledger
2. Petty cash impurities except checks issued to the client in settlement of cash advanced from the petty cash fund
Computation of Petty Cash shortage
Petty cash accounted is recorded first. Less: Petty cash accountabilities. The result is the Overage (or shortage).
Computation of Petty Cash Accounted and Petty Cash Accountabilities
Petty cash accounted
• Coins and currencies
• Unexpended employees contributions (e.g., contributions for Christmas party, birthday party, etc.)
• Cash collections of accounts receivable or sales
• Unclaimed salary
• Checks for deposits
• Stale checks
• Post-dated checks (checks that are dated after reporting date AND cash count date)
• Unreplenished vouchers (expenses, IOUs that are taken from the PC Fund)
Petty cash accountabilities
• PC Fund ledger balance
• Petty cash impurities except checks issued in settlement of cash advanced from the PCF
• Unexpended employees contributions (e.g., contributions for Christmas party, birthday party, etc.)
• Collections of accounts receivable or sales (in cash or in check)
• Unclaimed salary
• Unclaimed salary
• Stale checks
• Company’s check in payment of a liability (e.g. utilities) (if among the checks for deposits)
Note: For unexpended employees contributions, unclaimed salary and cash collections of accounts receivable or sales, they should be included in the accounted only when it is intact or the envelope is still closed on the cash count date. However, it is included as part of cash accountability whether intact or not.
Examples of Checks:
1. Employees’ checks (good, NSF or PDC) in settlement of cash advanced from the petty cash fund;
2. Check of the company as a replenishment of petty cash fund (replenishment check); and
3. Check of the company payable to the petty cash custodian representing his/her salary.
Employees’ checks or checks issued to the client in settlement of cash advanced from the petty cash fund are not treated as accountabilities in the count sheet as these checks simply serve as evidence that there were cash advances drawn from the petty cash fund. These are accommodated checks or checks cash out from the fund.
Note: If the problem is silent, check in which the payee is to "Cash" is assumed to be an accommodated check.
Examples of checks for deposits that are part of the petty cash impurities and if included in the petty cash accounted, must be included also in the petty cash accountabilities.
1. Customer’s checks - these are checks in the name of the client company and the maker is a customer. These represent collection of accounts receivable from a customer.
2. Company’s check in payment of a liability (e.g. utilities)
Cash collections of accounts receivable or sales
Cash collections of accounts receivable or Sales may be evidenced by sales invoices or official receipts that are included in the petty cash box.
Computation of adjusted PCF balance:
Start with coins and currencies (excluding collections, unexpended employees contribution, and unclaimed salary).
Add: Expenses paid out of the PCF after reporting date.
Add: Check of the company in the name of petty cash custodian as a
a. Replenishment check of the petty cash fund or
b. Salary of the petty cash custodian
Add: Employees’ check (good check only, exclude NSF check)
The result is the Adjusted PCF balance.
ILLUSTRATION 1: Petty Cash Fund
Your firm has been engaged to audit the financial statements of the Melben Company for the year ended December 31, 2021. In connection with this audit, you have been assigned to audit the petty cash fund. You conducted your count at 9:15 a.m. on January 4, 2022 in the presence of Mr. Rodel E. Ocon, the cashier and at the same time the petty cash custodian. A count of the petty cash fund under the custody of Rodel E. Ocon showed its composition as follows:
Currencies:
Bills:
• Denomination P1,000: 3 pieces
• Denomination 500: 7 pieces
• Denomination 100: 6 pieces
• Denomination 50: 4 pieces
• Denomination 20: 5 pieces
Coins:
• Denomination 10: 48 pieces
• Denomination 5: 20 pieces
• Denomination 1: 20 pieces
Checks:
• Maker: Rodel Ocon; Date: 03/01/21; Payee: Client; Particulars: Payment for cash advances drawn from the petty cash fund January 1, 2021; Amount: P9,600
• Merilou (Employee): Date: 12/02/21; Client; Particulars: Payment for cash advances drawn from the petty cash fund but was returned by the bank for insufficiency of fund; Amount: P1,000
• Debora (President): Date: 12/20/21; Client; Particulars: Payment for cash advances drawn from the petty cash fund December 1, 2021; Amount: P3,000
• Perita Company: Date: 12/28/21; Petty cash custodian; Particulars: Replenishment of PCF; Amount: P16,000
Vouchers:
• Taxi fare - OR No. 155: Date December 15, 2021; Amount P2,400
• Gasoline - OR No. 688: Date December 16, 2021; Amount P1,600
• Office supplies: Date December 22, 2021; Amount P2,000
• OR 64794 - Post Office: Date December 23, 2021; Amount P1,200
• IOU signed by Ilgo-company messenger: Date December 24, 2021; Amount P4,800
Others:
• Unused stamps, P400
• The general ledger shows an imprest petty cash fund balance of P50,000.
Required:
1. Prepare the working paper for Petty Cash Fund.
2. Compute for any petty cash shortage or overage.
3. Compute for the adjusted petty cash fund.
4. Prepare the adjusting journal entries.
Solution:
Requirement No. 1: Working Paper for the Petty Cash Fund
Melben Company
Petty Cash Count Sheet
January 4, 2022; 9:15 AM
Bills:
• P1,000 x 3 = P3,000
• 500 x 7 = P3,500
• 100 x 6 = P600
• 50 x 4 = P200
• 20 x 5 = P100
Coins:
• 10 x 48 = P480
• 5 x 20 = P100
• 1 x 20 = P20
Total Bills and Coins: P8,000
Checks for Deposits:
• Maker: Merilou; Date: December 20, 2021; Payee: Client; Particulars: Payment of Cash Advances-NSF; Amount: 1,000
• Maker: Debora; Date: December 20, 2021; Payee: Client; Particulars: Payment of Cash Advances; Amount: 3,000
• Maker: Melben Company; Date: December 28, 2021; Payee: Petty Cash Custodian; Particulars: PCF replenishment; Amount: 16,000
Total checks for deposit: 20,000
Vouchers:
• Taxi fare: Date December 15, 2021; Amount 2,400
• Gasoline: Date December 16, 2021; Amount 1,600
• Office Supplies: Date December 22, 2021; Amount 2,000
• Postage: Date December 23, 2021; Amount 1,200
• Advances - employees: Date December 24, 2021; Amount 4,800
Total voucher payment: 12,000
Bills and coins: 8,000
Checks for deposit: 20,000
Stale checks: 9,600
Vouchers paid: 12,000
Total Petty Cash Accounted: 49,600
Less: Petty Cash Accountabilities: 59,600
Petty Cash Shortage: (10,000)
Petty Cash Accountabilities:
Petty cash imprest balance: 50,000
Stale checks of Rodel Ocon: 9,600
Petty cash accountabilities total: 59,600
Acknowledgment
I hereby acknowledge that the above petty cash fund items were counted in my presence and the same were returned to me intact. I further acknowledge a petty cash short of ten thousand pesos (P10,000). I have no other fund accountabilities.
Rodel Ocon
Petty Cash Custodian
Requirement No. 2
Bills and coins: 8,000
Checks for deposit: 20,000
Stale checks: 9,600
Vouchers paid: 12,000
Total Petty Cash Accounted: 49,600
Less: Petty Cash Accountabilities: 59,600
Petty Cash Shortage: (10,000)
Requirement No. 3
Coins and currency: 8,000
Replenishment check: 16,000
Petty cash fund, 12/31/2021: 24,000
Requirement No. 4: Adjusting Entries
a) Debit Transportation expense: 2,400
Debit Gasoline and oil expense: 1,600
Debit Office supplies expense: 2,000
Debit Postage expense: 1,200
Debit Advances to employees: 4,800
Credit Petty cash fund: 12,000
b) Debit Postage expense: 400
Credit Petty cash fund: 400
c) Debit Advances to employees: 4,000
Credit Petty cash fund: 4,000
d) Debit Receivable from custodian: 10,000
Credit Petty cash fund: 10,000
ILLUSTRATION 2: Petty Cash Fund
You are examining the accounts of ABC Co. Your count of the imprest cash fund, made at 9:00 a.m. on January 4, 2022, in the presence of Stef Pangilinan petty cashier, revealed:
Currencies:
• 2 pieces of 1,000 denomination: Total 2,000
• 3 pieces of 500 denomination: Total 1,500
• 5 pieces of 200 denomination: Total 1,000
• 1 piece of 100 denomination: Total 100
• 5 pieces of 20 denomination: Total 100
• 15 pieces of 10 denomination: Total 150
• 6 pieces of 5 denomination: Total 30
Checks:
• Maker: G. Na, Asst. Manager; Date: 12/12/2021; Payee: ABC Co; Amount: 1,000
• Maker: Stef Pangilinan, PC custodian; Date: 12/15/2021; Payee: ABC Co; (Stef Pangilinan’s check was returned by the bank because of insufficiency of funds); Amount: 500
Unreimbursed vouchers:
• Payee: A Co; Date: 12/12/2021; Account charged: Advances to employees; Amount: 150
• Payee: B Na; Date: 12/15/2021; Account charged: Supplies; Amount: 200
• Payee: C Da; Date: 12/18/2021; Account charged: Freight; Amount: 300
• Payee: D Na; Date: 12/19/2021; Account charged: Repairs; Amount: 480
IOUs
• E. Na: Date 12/12/2021; Amount P550
• F. Ta: Date 12/15/2021; Amount 400
• P. Cu: Date 12/18/2021; Amount 250
Additional Information:
The balance of the petty cash fund per books is P11,000.
Required:
For each of the following independent cases, compute for the following:
1. Petty cash shortage or overage
2. Adjusted petty cash fund balance as of December 31, 2021.
CASE NO. 1: Use the above data
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
Total petty cash accounted: 8,710
Less: Petty cash accountabilities: 11,000
Shortage: (2,290)
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
Adjusted petty cash fund: 5,880
L Thor’s check was not included because of insufficiency of fund.
CASE NO. 2: With replenishment check, check of customers for collection, stale checks, post-dated checks
Assume instead that the checks included the following:
• Maker: Stef Pangilinan; Date: 02/15/2021; Payee: ABC Co; Amount: 600
• Maker: J. Muel, customer; Date: 12/15/2021; Payee: ABC Co; Amount: 1,000
• Maker: G. Ma, bookkeeper; Date: 12/15/2021; Payee: ABC Co; Amount: 880
• Maker: ABC Co; Date: 12/15/2021; Payee: Stef Pangilinan; Amount: 2,800
• Maker: R. Hood, employee; Date: 01/26/2021; Payee: Utility Company; Amount: 1,200
• Maker: ABC Co; Date: 01/15/2022; Payee: ABC Co; Amount: 550
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits (1,000+880+2,800+1,200): 5,880
• Postdated check of R. Hood: 550
• Stale check of Stef Pangilinan: 600
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
Total petty cash accounted: 14,240
Less: Petty cash accountabilities: 11,000
• Stale check of Stef Pangilinan: 600
• J. Muel, customer: 1,000
• Check for payment of utility company: 1,200
Total petty cash accountabilities: 13,800
Overage: 440
Requirement No. 2
• Coins and currencies: 4,880
• G. Ma, bookkeeper: 880
• ABC Co-replenishment check: 2,800
Adjusted petty cash fund: 8,560
CASE NO. 3: With postage, unused stamps and expenses cash out of PCF after reporting period
Go back to the original data and assume the following additional information:
• Unreimbursed vouchers:
◦ Payee: Bureau of Posts; Date: 12/12/2021; Account charged: Postage; Amount: P800
◦ Payee: M. Gaddo; Date: 01/02/2022; Account charged: Supplies; Amount: 300
• Unused stamps: P50
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (1,130+800+300): 2,230
• IOUs (550+400+250): 1,200
Total petty cash accounted: 9,810
Less: Petty cash accountabilities: 11,000
Shortage: (1,190)
(Unused stamps amounting to P50 is not included in the unreimbursed vouchers since there is already disbursement for postage.)
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
• Payment of supplies after reporting date: 300
Adjusted petty cash fund: 6,180
CASE NO. 4: Without postage, with unused stamps and expenses cash out of PCF after reporting period
Go back to the original data and assume the following additional information:
• Unreimbursed vouchers:
◦ Payee: M. Gaddo; Date: 01/02/2022; Account charged: Supplies; Amount: 300
• Unused stamps: P50
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (1,130+300+50): 1,480
• IOUs (550+400+250): 1,200
Total petty cash accounted: 9,060
Less: Petty cash accountabilities: 11,000
Shortage: (1,940)
Unused stamps amounting to P50 is included in the unreimbursed vouchers since there is no disbursement for postage.
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
• Payment of supplies after reporting date: 300
Adjusted petty cash fund: 6,180
CASE NO. 5: With unexpended employee’s contributions and unclaimed salary - amounts are intact
Go back to the original data and assume the following additional information:
A sheet of paper with names of employees together with contribution for a birthday gift of a co-employee amounting to P500 was included in the petty cash. The following employees’ pay envelopes have not been opened and the money still intact. Each envelope was marked "unclaimed."
• J. Masilyan: P400
• X. Humuwat: P200
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
• Unexpended employees’ contribution: 500
• Unclaimed salary (400+200): 600
Total petty cash accounted: 9,810
Less: Petty cash accountabilities: 11,000
• Unexpended employees’ contribution: 500
• Unclaimed salary: 600
Total petty cash accountabilities: 12,100
Shortage: (2,290)
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
Adjusted petty cash fund: 5,880
CASE NO. 6: With unexpended employee’s contributions and unclaimed salary - amounts are not intact
Go back to the original data and assume the following additional information:
A sheet of paper with names of employees together with contribution for a birthday gift of a co-employee amounting to P500 was included in the petty cash. The following employees’ pay envelopes have been opened and the money removed. Each envelope was marked "unclaimed."
• J. Masilyan: P400
• X. Humuwat: P200
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
• Unexpended employees’ contribution: 500
Total petty cash accounted: 9,210
Less: Petty cash accountabilities: 11,000
• Unexpended employees’ contribution: 500
• Unclaimed salary: 600
Total petty cash accountabilities: 12,100
Shortage: (2,890)
Requirement No. 2
• Coins and currencies: 4,880
• Less: Unclaimed salary: 600
• Check of G. Na: 1,000
Adjusted petty cash fund: 5,280
CASE NO. 7: With cash sales evidenced by sales invoice
Go back to the original data and assume the following additional information:
Sales invoices (for cash sales, all in cash, no checks):
• Invoice #143: Date 12/30/2021; Amount 2,000
• Invoice #144: Date 12/31/2021; Amount 600
• Invoice #145: Date 01/02/2022; Amount 2,050
Assume that for the purpose of computing the petty cash balance, available cash applies to cash collections and any remaining amount is for the petty cash fund.
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
Total petty cash accounted: 8,710
Less: Petty cash accountabilities: 11,000
Add: Cash sales: 4,650
Total petty cash accountabilities adjusted: 15,650
Shortage: (6,940)
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
Total cash: 5,880
Less: Cash sales: 4,650
Adjusted petty cash fund: 1,230
CASE NO. 8: With cash sales evidenced by sales records and deposit slips
Go back to the original data and assume the following additional information:
Cash sales on January 2, 2022 amounted to P9,000 per sales records, while cash receipts book and deposit slip showed that only P8,000 was deposited in the bank on January 3, 2022.
Requirement No. 1
Petty cash accounted:
• Coins and currencies: 4,880
• Checks for deposits: 1,500
• Unreimbursed vouchers (150+200+300+480): 1,130
• IOUs (550+400+250): 1,200
Total petty cash accounted: 8,710
Less: Petty cash accountabilities: 11,000
Add: Undeposited collection (9,000 - 8,000 deposited): 1,000
Total petty cash accountabilities adjusted: 12,000
Shortage: (3,290)
Requirement No. 2
• Coins and currencies: 4,880
• Check of G. Na: 1,000
Total cash: 5,880
Less: Undeposited collection: 1,000
Adjusted Petty cash fund: 4,880
BANK RECONCILIATION
Bank reconciliation is a schedule prepared that accounts for the differences between cash balances per book and per bank statement. It is prepared only for checking account/demand deposit and is prepared monthly because the bank provides the depositor with the bank statement at the beginning (normally first week) of the following month.
Forms of Bank Reconciliation
1. Adjusted balance method
2. Book to bank method
3. Bank to Book
Reconciling items
1. Book reconciling items
a. Credit memos
b. Debit memos
c. Errors
2. Bank reconciling items
a. Deposits in transit
b. Outstanding checks
c. Errors
Deposits in Transit
These are deposits already recorded in the cash books in one period but were taken up by the bank only in the next period.
Examples:
a. Collections already forwarded to the bank for deposit but too late to appear in the bank statement.
b. Undeposited collections awaiting delivery to the bank for deposit.
Outstanding Checks
These are checks written and released to payees and are already recorded in the cash books but are not yet presented for encashment or deposit to the bank.
Certified Checks
These are checks that the bank already certified as having sufficiency of funds and thus technically are no longer outstanding checks.
Debit Memo
These are charges and deductions made by the bank to the account of the entity but not yet recorded by the entity. Examples of debit memo:
a. Bank service charges. These include bank charges for interest collection, checkbook and penalty.
b. NSF/DAUD/DAIF checks. These are checks deposited and already recorded by the bank but subsequently returned by the bank to the entity because of insufficiency of fund.
c. Payment of loan. This pertains to amount deducted from the current account of the depositor in payment for loan which the depositor owes to the bank and which has already matured.
d. Final withholding tax on interest income.
Credit Memo
These are collections or deposits made by the bank to the account of the company but not yet recorded by the entity. Examples of credit memo:
a. Collections made by the bank on behalf of the entity.
b. Proceeds of bank loan credited to the account of the entity.
c. Matured time deposits transferred by the bank to the current account of the depositor.
d. Interest income credited to the account.
Bank or Depositor (Book) Errors
Errors made by the company or the bank that must be corrected for the reconciliation to balance.
The following are rules for errors assuming the company is using the adjusted balance method of presenting bank reconciliation:
1. Understatement of cash receipts: Add on the unadjusted cash in bank balance.
2. Overstatement of cash receipts: Deduct from the unadjusted cash in bank balance.
3. Understatement of cash disbursements: Deduct from the unadjusted cash in bank balance.
4. Overstatement of cash disbursements: Add on the unadjusted cash in bank balance.
Guidelines in Bank Reconciliation and Proof of Cash
Bank reconciliation is performed only after the company receives the bank statement in the next month. For example, the bank statement for the month of January is received in February, thus bank reconciliation of January will be prepared in February. Hence, unless otherwise stated, book reconciling items for January is assumed to be recorded in February after preparing the bank. Therefore, the following assumptions should be observed:
✓ Credit memo for January is assumed to have been debited (i.e. increasing cash receipts) in February.
✓ Debit memo for January is assumed to have been credited (i.e. increasing disbursement) in February.
✓ Overstatement in book receipts (i.e. credit) in January is assumed to be recorded by credit (i.e. increase in disbursement) in February.
✓ Understatement in book receipts (i.e. debit) in January is assumed to be recorded by debit (i.e. increase in receipts) in February.
✓ Overstatement in book disbursement (i.e. credit) in January is assumed to be recorded by debit (i.e. increase in receipts) in February.
✓ Understatement in book disbursement (i.e. credit) in January is assumed to be recorded by credit (i.e. increase in disbursement) in February.
From the point of view of the bank, it will only record the transaction upon actual receipt of deposit and upon presentment of payee for check payment or deposit. Unless otherwise stated, bank errors are assumed to be recorded in the next month following the month it committed the error. Therefore, the following should be observed:
✓ Deposit in transit at the end of January is assumed to have been credited (i.e. increase receipts) by the bank in February.
✓ Outstanding checks at the end of January is assumed to have been debited (i.e. increase disbursements) by the bank in February.
✓ Overstatement in bank receipts (i.e. credits) in January is assumed to be recorded by debit (i.e. increase in disbursement) in February.
✓ Understatement in bank receipts (i.e. credits) in January is assumed to be recorded by credit (i.e. increase in receipts) in February.
✓ Overstatement in bank disbursement (i.e. debits) in January is assumed to be recorded by credit (i.e. increase in receipts) in February.
✓ Understatement in bank disbursement (i.e. debits) in January is assumed to be recorded by debit (i.e. increase in disbursement) in February.
ILLUSTRATION 1: One-month Bank Reconciliation
On October 31, of the current year, the bank statement for the checking account Driftwood Company shows a balance of P126,300, while the company’s records show a balance of P123,310. Information that might be useful in preparing a bank reconciliation is as follows:
a) Outstanding checks are P14,300 which includes a certified check for P2,000.
b) The October 31 cash receipts of P7,850 are not deposited in the bank until November 2.
c) One check written in payment of utilities for P1,370 is correctly recorded by the bank but is recorded by Driftwood as a disbursement of P1,730.
d) In accordance with prior authorization, the bank debited P6,500 directly from the checking account as payment of interest amounting to P500 and the principal amounting to P6,000. Driftwood has not yet recorded the direct withdrawal.
e) Bank service charges of P240 are listed on the bank statement.
f) A deposit of P5,670 is recorded by the bank on October 31, but it did not belong to Driftwood. The deposit should have been made to the checking account of Hollybyster Company, a separate company.
g) The bank statement includes a charge of P750 for an NSF check. The check is returned with the bank statement and the company will seek payment from the customer.
4. Accounts receivable: 750
Cash in bank: 750
Required:
1. Prepare a bank reconciliation, using the adjusted balance method for the month of October.
2. Prepare the necessary adjusting journal entries.
SOLUTION:
Requirement No. 1
Unadjusted balances:
• Bank: P126,300
• Book: P123,310
Deduct: Outstanding checks, net of certified checks: (12,300)
Add: Deposit in transit (undeposited collections): 7,850
Add: Book error - disbursement for utilities: 360
Deduct: Note charged by the bank, including interest: (6,500)
Deduct: Bank service charge: (240)
Deduct: Erroneous bank credit: (5,670)
Deduct: NSF check: (750)
Adjusted balance:
• Bank: P116,180
• Book: P116,180
Requirement No. 2
The following are the adjusting entries to be recorded in the company’s books. Note that only book reconciling items are recorded.
ADJUSTING ENTRIES
1. Debit Utilities expense: 360
Credit Cash in bank: 360
2. Debit Notes payable: 6,000
Debit Interest expense: 500
Credit Cash in bank: 6,500
3. Debit Bank service charge: 240
Credit Cash in bank: 240
4. Debit Accounts receivable: 750
Credit Cash in bank: 750
ILLUSTRATION 2: One-month Bank Reconciliation
You have gathered the following data in the preparation of bank reconciliation on December 31, of the current year for Armelia Company:
a) Balance per bank statement: P2,000,000
b) Balance per book: P1,350,000
c) Bank service charge: P5,000
d) Outstanding checks: P300,000
e) Deposit in transit: P237,500
f) Proceeds of bank loan, December 1, discounted for 6 months at 12%, not recorded on Armelia Company’s books: P470,000
g) Customer’s NSF check charged back by bank: P25,000
h) Check of Joy Company charged by the bank against Armelia account: P75,000
i) Customer’s note collected by bank in favor of Armelia Company:
• Face amount: 200,000
• Interest: 20,000
• Total: 220,000
• Less: Service charge: 2,500
• Net amount: 217,500
j) Deposit of P50,000 incorrectly recorded by bank as P5,000
k) Erroneous debit memo of December 28, to charge Armelia account with settlement of bank loan: P1,000,000
l) Deposit of Joy Company credited to Armelia account: P150,000
Required:
1. Prepare bank reconciliation as of December 31, of the current year?
2. Prepare adjusting journal entries except for the amortization of discount on loans payable.
SOLUTION:
Requirement No. 1
Balance per bank: 2,000,000
Add: Deposit in transit: 237,500
Add: Understatement of deposit (50,000-5,000): 45,000
Add: Erroneous bank charge: 75,000
Add: Erroneous debit memo: 100,000
Total: 2,457,500
Less: Outstanding check: 300,000
Less: Erroneous bank credit: 150,000
Adjusted bank balance: 2,007,500
Balance per book: 1,350,000
Add: Proceeds of bank loan: 470,000
Add: Note collected by bank: 217,500
Total: 2,037,500
(Adjustments for deductions like bank service charge, NSF check to be considered for adjusted book balance matching the adjusted bank balance of 2,007,500)
Total: 2,037,500
Less: Service charge: 5,000
Less: Customer’s check charged back: 25,000
Adjusted book balance: 2,007,500
Requirement No. 2: Adjusting Entries
1. Debit Cash in bank for 470,000.
Debit Discount on loans payable for 30,000.
Credit Bank loans payable for 500,000.
To record bank loan. Discount is calculated as [(470,000 divided by (100% minus 12%)) multiplied by 6/12] minus 470,000.
2. Debit Cash in bank for 217,500.
Debit Bank service charge for 2,500.
Credit Interest income for 20,000.
Credit Notes receivable for 200,000.
To record collection of note and interest income less service charge.
3. Debit Bank service charge for 5,000.
Credit Cash in bank for 5,000.
To record bank service charge.
4. Debit Accounts receivable for 25,000.
Credit Cash in bank for 25,000.
To record NSF check returned.
PROOF OF CASH (TWO-DATE BANK RECONCILIATION)
Proof of cash, also called four-column bank reconciliation or two-date bank reconciliation, is an expanded reconciliation that includes proof of receipts and disbursements.
Formulas:
Start with Deposit in transit at the beginning.
Add deposits made by the company this month to get total deposits to be acknowledged by the bank.
Subtract deposits acknowledged by the bank this month to get Deposit in transit at the end.
Start with Outstanding checks at the beginning.
Add checks issued by the company this month to get total checks to be paid by the bank.
Subtract checks paid by the bank this month to get Outstanding checks at the end.
Computation of the deposits made by the company and the deposits acknowledged by the bank
For book receipts (debits):
Start with the total book receipts.
Subtract Credit Memos from last month and book errors from last month that are corrected this month (including understatement of credits and overstatement of debits). Also subtract bank errors this month involving overstatement of credits.
Add any understatement of credits.
The result is the deposits made by the company this month.
For bank receipts (credits):
Start with total bank receipts.
Subtract Credit Memos from this month and bank errors from last month that are corrected this month (including understatement of credits and overstatement of debits). Also subtract bank errors this month involving overstatement of credits.
Add any understatement of credits.
The result is the deposits acknowledged by the bank this month.
Computation of the checks issued by the company and the checks paid by the bank
For book disbursements (credits):
Start with total book disbursements.
Subtract Debit Memos from last month and book errors from last month that are corrected this month (including overstatement of credits and understatement of debits). Also subtract book errors this month involving overstatement of debits.
Add any understatement of debits.
The result is the checks issued by the company this month.
For bank disbursements (debits):
Start with total bank disbursements.
Subtract Debit Memos from this month and bank errors from last month that are corrected this month (including overstatement of credits and understatement of debits). Also subtract bank errors this month involving overstatement of debits.
Add any understatement of debits.
The result is the checks paid by the bank this month.
Note:
1. Deposit in transit should exclude customer’s post-dated checks. If these were included and recorded as receipts for the month, an adjustment is needed in the proof of cash or bank reconciliation when using the adjusted balance method. The unadjusted book balance will have corresponding adjustments at the beginning and end.
2. Outstanding checks should exclude company’s post-dated checks and unreleased or undelivered company’s checks. If these were included and recorded as disbursements for the month, an adjustment is needed in the proof of cash or bank reconciliation when using the adjusted balance method. The unadjusted book balance will have a corresponding adjustment in disbursements and at the end.
ILLUSTRATION 1: Computation of deposit in transit
The following data are available for the Cash in Bank of Ellen Company for February of the current year:
A. Deposit made by the company this February: P120,000.
B. Deposit in transit, January 31: P200,000.
C. Customer’s check representing receipts in January amounting to P21,000 was erroneously recorded by the bank as P12,000.
D. Check of the company in January amounting to P2,000 was erroneously recorded by the company as P20,000.
E. Erroneous bank credit in January: P13,000.
F. Customer’s note collected by bank in January: P10,000 face amount plus P1,000 interest, less service charge P500.
G. Erroneous debit memo in January: P1,000.
H. Deposit of Joy Company credited to Ellen account in February: P15,000.
Required: Compute for the following:
1. Deposit in transit on February 28.
2. Unadjusted book receipts in February.
3. Unadjusted bank receipts in February.
SOLUTION:
Requirement No. 1
Deposit in transit, Jan. 31: 200,000
Add: Deposit made by the company February: 120,000
Total deposits to be acknowledged by the bank: 320,000
Less: Deposits acknowledged by the bank this month: 150,000
Deposit in transit, Feb. 28: 170,000
Requirement No. 2
Unadjusted book receipts in February: 120,000
Add: Credit memo in January corrected in February: 10,000
Add: Note collected by bank in February: 21,000
Total unadjusted book receipts: 151,000
Requirement No. 3
Unadjusted bank receipts in February: 189,000
Add: Deposit in transit, Feb. 28: 17,000
Less: Erroneous bank credit in February: 15,000
Adjusted bank receipts: 191,000
ILLUSTRATION 1: Computation of deposit in transit
The following data are available for the Cash in Bank of Ellen Company for February of the current year:
A. Deposit made by the company this February: P120,000.
B. Deposit in transit, January 31: P200,000.
C. Customer’s check representing receipts in January amounting to P21,000 was erroneously recorded by the bank as P12,000.
D. Check of the company in January amounting to P2,000 was erroneously recorded by the company as P20,000.
E. Erroneous bank credit in January: P13,000.
F. Customer’s note collected by bank in January: P10,000 face amount plus P1,000 interest, less service charge P500.
Required:
1. Prepare bank reconciliation as of February 28, of the current year?
2. Prepare adjusting journal entries except for the amortization of discount on loans payable.
SOLUTION:
Requirement No. 1
Balance per bank: P189,000
Add: Deposit in transit: 17,000
Add: Understatement of deposit (21,000 - 12,000): 9,000
Add: Erroneous bank charge: 13,000
Add: Erroneous debit memo: 10,000
Total: 229,000
Less: Outstanding check: 30,000
Less: Erroneous bank credit: 15,000
Adjusted bank balance: P184,000
Balance per book: P135,000
Add: Proceeds of bank loan: 47,000
Add: Note collected by bank: 217,500
Total: 687,500
ILLUSTRATION 2: Deposit in Transit
You have gathered the following data in the preparation of bank reconciliation on December 31, of the current year for Amelia Company:
a) Balance per bank statement: P2,000,000
b) Balance per book: P1,350,000
c) Bank service charge: P5,000
d) Outstanding checks: P300,000
e) Deposit in transit: P237,500
f) Proceeds of bank loan, December 1, discounted for 6 months at 12%, not recorded on Amelia Company’s books: P470,000
g) Customer’s NSF check charged back by bank: P25,000
h) Check of Joy Company charged by the bank against Amelia account: P75,000
i) Customer’s note collected by bank in favor of Amelia Company:
• Face amount: 200,000
• Interest: 20,000
• Total: 220,000
• Less: Service charge: 2,500
• Net amount: 217,500
j) Deposit of P50,000 incorrectly recorded by bank as P5,000.
k) Erroneous debit memo of December 28, to charge Amelia account with settlement of bank loan, P1,000,000.
l) Deposit of Joy Company credited to Amelia account: P150,000.
SOLUTION:
Requirement No. 1
Balance per bank: P2,000,000
Add: Deposit in transit: 237,500
Add: Understatement of deposit (50,000 - 5,000): 45,000
Add: Erroneous bank charge: 75,000
Add: Erroneous debit memo: 100,000
Total: 2,457,500
Less: Outstanding check: 300,000
Less: Erroneous bank credit: 150,000
Adjusted bank balance: P2,007,500
Balance per book: P1,350,000
Add: Proceeds of bank loan: 470,000
Add: Note collected by bank: 217,500
Total: 2,037,500
ILLUSTRATION 1: Computation of deposit in transit
The following data are available for the Cash in Bank of Ellen Company for February of the current year:
A. Deposit made by the company this February: P120,000.
B. Deposit in transit, January 31: P200,000.
C. Customer’s check representing receipts in January amounting to P21,000 was erroneously recorded by the bank as P12,000.
D. Check of the company in January amounting to P2,000 was erroneously recorded by the company as P20,000.
E. Erroneous bank credit in January: P13,000.
F. Customer’s note collected by bank in January: P10,000 face amount plus P1,000 interest, less service charge P500.
Required:
1. Compute for the deposit in transit on February 28.
2. Compute unadjusted book receipts in February.
3. Compute unadjusted bank receipts in February.
SOLUTION:
Requirement No. 1
Deposit in transit, Jan. 31: 200,000
Add: Deposit made by the company February: 120,000
Total deposits to be acknowledged by the bank: 320,000
Less: Deposits acknowledged by the bank this month: 150,000
Deposit in transit, Feb. 28: 170,000
Requirement No. 2
Unadjusted book receipts in February: 120,000
Add: Credit memo in January corrected in February: 10,000
Add: Note collected by bank in February: 21,000
Total unadjusted book receipts: 151,000
Requirement No. 3
Unadjusted bank receipts in February: 189,000
Add: Deposit in transit: 17,000
Add: Understatement of deposit (21,000 - 12,000): 9,000
Add: Erroneous bank charge: 13,000
Add: Erroneous debit memo: 10,000
Total: 238,000
Less: Outstanding check: 30,000
Less: Erroneous bank credit: 15,000
Adjusted bank balance: 193,000
ILLUSTRATION 1: Computation of deposit in transit
The following data are available for the Cash in Bank of Ellen Company for February of the current year:
A. Deposit made by the company this February: P120,000.
B. Deposit in transit, January 31: P200,000.
C. Customer’s check representing receipts in January amounting to P21,000 was erroneously recorded by the bank as P12,000.
D. Check of the company in January amounting to P2,000 was erroneously recorded by the company as P20,000.
E. Erroneous bank credit in January: P13,000.
F. Customer’s note collected by bank in January: P10,000 face amount plus P1,000 interest, less service charge P500.
Required:
1. Compute for the deposit in transit on February 28.
2. Compute unadjusted book receipts in February.
3. Compute unadjusted bank receipts in February.
SOLUTION:
Requirement No. 1
Deposit in transit, Jan. 31: 200,000
Add: Deposit made by the company February: 120,000
Total deposits to be acknowledged by the bank: 320,000
Less: Deposits acknowledged by the bank this month: 150,000
Deposit in transit, Feb. 28: 170,000
Requirement No. 2
Unadjusted book receipts in February: 120,000
Add: Credit memo in January corrected in February: 10,000
Add: Note collected by bank in February: 21,000
Total unadjusted book receipts: 151,000
Requirement No. 3
Unadjusted bank receipts in February: 189,000
Add: Deposit in transit: 17,000
Add: Understatement of deposit (21,000 - 12,000): 9,000
Add: Erroneous bank charge: 13,000
Add: Erroneous debit memo: 10,000
Total: 238,000
Less: Outstanding check: 30,000
Less: Erroneous bank credit: 15,000
Adjusted bank balance: 193,000
ILLUSTRATION 2: Deposit in Transit
You have gathered the following data relative to the debits per books and credits per bank for Ann Company at the end of the current year:
a) Balance per bank statement: P380,000
b) Balance per book: P150,000
c) Bank service charge: P5,000
d) Outstanding checks: P300,000
e) Deposit in transit: P237,500
f) Proceeds of bank loan, December 1, discounted for 6 months at 12%, not recorded on Ann Company’s books: P470,000
g) Customer’s NSF check charged back by bank: P25,000
h) Check of Joy Company charged by the bank against Ann account: P75,000
i) Customer’s note collected by bank in favor of Ann Company:
• Face amount: 200,000
• Interest: 20,000
• Total: 220,000
• Less: Service charge: 2,500
• Net amount: 217,500
j) Deposit of P50,000 incorrectly recorded by bank as P5,000.
k) Erroneous debit memo of December 28, to charge Ann account with settlement of bank loan: P1,000,000.
l) Deposit of Joy Company credited to Ann account: P150,000.
Required:
1. Prepare bank reconciliation as of December 31, of the current year?
2. Prepare adjusting journal entries except for the amortization of discount on loans payable.
SOLUTION:
Requirement No. 1
Balance per bank: P2,000,000
Add: Deposit in transit: 237,500
Add: Understatement of deposit (50,000 - 5,000): 45,000
Add: Erroneous bank charge: 75,000
Add: Erroneous debit memo: 100,000
Total: 2,457,500
Less: Outstanding check: 300,000
Less: Erroneous bank credit: 150,000
Adjusted bank balance: P2,007,500
Balance per book: P1,350,000
Add: Proceeds of bank loan: 470,000
Add: Note collected by bank: 217,500
Total: P2,037,500
ILLUSTRATION 3: Outstanding Checks
The following data are available for the Cash in Bank of Rizza Company for February of the current year:
A. Checks issued by the company during February: P150,000.
B. Outstanding checks, January 31: P52,000.
C. Customer’s check representing receipts in January amounting to P12,000 was erroneously recorded by the bank as P21,000.
D. Check of the company in payment of cash advances to supplier amounting to P2,000 was recorded by the bank as P20,000.
E. Erroneous bank credit in January: P10,000.
F. Erroneous bank debit in February: P12,000.
Required:
1. Compute for the outstanding checks on February 28.
2. Compute unadjusted book disbursements in February.
3. Compute unadjusted bank disbursements in February.
SOLUTION:
Requirement No. 1
Outstanding checks, January 31: 52,000
Add: Checks issued by the company February: 150,000
Total checks to be paid by the bank: 202,000
Less: Checks paid by the bank February: 130,000
Outstanding checks, February 28: 72,000
Requirement No. 2
Unadjusted book disbursements:
• Checks issued by the company February: 150,000
• Erroneous book credit in January corrected in February: 10,000
Total: 160,000
Less: Erroneous book debit in February corrected in February: 12,000
Unadjusted book disbursements: 148,000
Requirement No. 3
Unadjusted bank disbursements:
• Checks paid by the bank February: 130,000
• Erroneous bank debit February corrected in February: 12,000
Total: 142,000
ILLUSTRATION 3: Outstanding Checks
The following data are available for the Cash in Bank of Rizza Company for February of the current year:
A. Checks issued by the company during February: P150,000.
B. Outstanding checks, January 31: P52,000.
C. A customer’s check for P12,000 received in January was erroneously recorded by the bank as P21,000.
D. A company check for P2,000 in payment of supplies was recorded by the bank as P20,000.
E. Erroneous bank credit in January: P10,000.
F. Erroneous bank debit in February: P12,000.
Required:
1. Compute outstanding checks on February 28.
2. Compute unadjusted book disbursements in February.
3. Compute unadjusted bank disbursements in February.
SOLUTION:
1. Outstanding checks, February 28
Outstanding checks, January 31: 52,000
Add: Checks issued by company February: 150,000
Total checks to be presented: 202,000
Less: Checks paid by bank February: 130,000
Outstanding checks, February 28: 72,000
2. Unadjusted book disbursements
Checks issued by company February: 150,000
Add: Error in recording customer’s check in January (21,000-12,000) corrected in February: 9,000
Total: 159,000
Less: Error in recording company check in January (20,000-2,000) corrected in February: 18,000
Unadjusted book disbursements: 141,000
3. Unadjusted bank disbursements
Checks paid by bank February: 130,000
Add: Error in recording company check in January (20,000-2,000) corrected in February: 18,000
Add: Erroneous bank debit February corrected in February: 12,000
Total: 160,000
Less: Erroneous bank credit January corrected in February: 10,000
Unadjusted bank disbursements: 150,000
ILLUSTRATION 4: Outstanding Checks
In the audit of the cash account of Prudlyn Company, the following data were gathered for the month of February:
• Checks issued by the company during February: P200,000.
• Outstanding checks, January 31: P30,000.
• Checks paid by the bank during February: P180,000.
• A check issued to a supplier for P10,000 in January was recorded by the company as P1,000 and was paid by the bank in February.
• A customer check for P5,000 received in January was returned by the bank in February for insufficiency of funds.
Required: Compute the outstanding checks on February 28.
SOLUTION:
Outstanding checks, January 31: 30,000
Add: Checks issued by company February: 200,000
Total checks to be paid: 230,000
Less: Checks paid by bank February: 180,000
Less: Error in recording supplier check (10,000-1,000) corrected in February: 9,000
Add: NSF check recorded in February: 5,000
Outstanding checks, February 28: 46,000
Total: P163,000
Less: Checks paid by the bank: P150,000
Unadjusted bank disbursements: P13,000
Less: Erroneous bank debit in February corrected in February: 12,000
Total unadjusted bank disbursements: P1,000
ILLUSTRATION 3: Outstanding Checks
The following data are available for the Cash in Bank of Rizza Company for February of the current year:
A. Checks issued by the company during February: P150,000
B. Outstanding checks, January 31: P52,000
C. Checks paid by the bank in February: P130,000
D. A customer’s check for P12,000 received in January was erroneously recorded by the bank as P21,000
E. A company check for P2,000 in payment of supplies was recorded by the bank as P20,000
F. Erroneous bank credit in January: P13,000
G. Erroneous bank debit in February: P12,000
Required:
1. Compute outstanding checks on February 28
2. Compute unadjusted book disbursements in February
3. Compute unadjusted bank disbursements in February
SOLUTION:
1. Outstanding checks on February 28
Outstanding checks, January 31: 52,000
Add: Checks issued by company February: 150,000
Total checks to be paid by bank: 202,000
Less: Checks paid by bank February: 130,000
Outstanding checks, February 28: 72,000
2. Unadjusted book disbursements
Checks issued by company February: 150,000
Add: Errors in recording customer’s check in January (21,000-12,000): 9,000
Total: 159,000
Less: Errors in recording company check in January (20,000-2,000): 18,000
Unadjusted book disbursements: 141,000
3. Unadjusted bank disbursements
Checks paid by bank February: 130,000
Add: Errors in recording company check in January (20,000-2,000): 18,000
Add: Erroneous bank debit February corrected in February: 12,000
Total: 160,000
Less: Erroneous bank credit January corrected in February: 13,000
Unadjusted bank disbursements: 147,000
ILLUSTRATION 4: Outstanding Checks
In the audit of Prudlyn Company’s cash account, these data were gathered for February:
• Book credits (disbursements) in February: P200,000
• Book debits (receipts) in February: P150,000
• Bank credits (receipts) in February: P310,000
• Bank debits (disbursements) in February: P180,000
• Outstanding checks, January 31: P15,000
• Check from customer in January for P20,000 was recorded by bank as P2,000
• Check to supplier in January for P10,000 was recorded by company as P1,000
• Erroneous bank credit in January: P18,000
• Erroneous bank debit in February: P10,000
Required: Compute unadjusted book receipts and unadjusted bank disbursements.
SOLUTION:
Unadjusted book receipts:
Book debits in February: 150,000
Add: Error in recording customer check January (20,000-2,000): 18,000
Add: Erroneous bank credit January corrected in February: 18,000
Total unadjusted book receipts: 186,000
Unadjusted bank disbursements:
Bank debits February: 180,000
Add: Error in recording supplier check January (10,000-1,000): 9,000
Add: Erroneous bank debit February corrected in February: 10,000
Total unadjusted bank disbursements: 199,000
Notes on Errors and Adjustments:
• Deposit in transit excludes post-dated checks and checks recorded for deposit but not yet submitted.
• Outstanding checks exclude company checks for loan payments and those with errors.
• Errors in recording receipts or disbursements in prior months are corrected in the current month’s proof of cash.
• Bank errors from prior months corrected in the current month affect both book and bank balances.
CHAPTER 8: REVIEW QUESTIONS - COMPUTATIONAL
PROBLEM 8-1 Cash and Cash Equivalents
The following pertains to Kerry Corporation on December 31, 2021:
Postage stamps 500
Credit memo from a vendor for a purchase return 10,000
Current account at BPI (50,000)
Current account at Metrobank 1,000,000
Employees postdated check 2,000
Foreign bank account – restricted (in equivalent pesos) 500,000
IOU from controller’s sister 5,000
Listed stock held as temporary investments 7,500
Payroll account 250,000
Petty cash fund (P2,000 in currency and expense receipts for P3,000) 5,000
Postal money order 15,000
Traveler’s check 25,000
Treasury bills, due 1/31/2022 (purchased 01/31/2021) 150,000
Treasury bills, due 3/31/2022 (purchased 12/31/2021) 100,000
Treasury warrants 150,000
Additional information:
1. Check of P100,000 drawn against Metrobank account in payment of accounts payable was recorded on December 31, 2021 but mailed to suppliers on January 5, 2022.
2. Check of P50,000 drawn against Metrobank account dated January 15, 2022 in payment of accounts payable was recorded and mailed on December 31, 2021.
3. Check of P25,000 drawn against Metrobank account dated January 15, 2021 in payment of accounts payable was recorded and mailed on January 15, 2021. As of the reporting period, the same has not been encashed by the payee and still outstanding.
How much cash and cash equivalents should Kerry Corp. report on the December 31, 2021 statement of financial position?
a. P1,565,000
c. P1,717,000
a. P1,700,000
d. P1,865,000
PROBLEM 8-2 Cash and Cash Equivalents
The following pertains to Kerry Corporation on December 31, 2021:
Postage stamps P 1,000
Employees postdated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
Postal money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 3/31/2022 (purchased 12/31/2021) 200,000
Treasury bills, due 1/31/2022 (purchased 01/31/2021) 30,000
Listed stock held as temporary investments 150,000
Current account at Metrobank 2,000,000
Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Treasury warrants 30,000
How much cash and cash equivalents should Kerry Corp. report on the December 31, 2021 statement of financial position?
a. P3,084,000
c. P2,784,000
b. P2,790,000
d. P2,704,000
PROBLEM 8-3 Cash and Cash Equivalents
The cash account of Ria on December 31, 2021 has a balance of P151,000 and it consists of the following:
Bills and coins on hand P 52,780
Traveler’s check 22,400
Credit memo from supplier’s for purchase returns 6,500
Postage stamps 120
Petty cash including paid cash vouchers of P1,650 2,000
Balance in Savings Account with a bank closed by the BSP 3,600
Customer’s check dated January 15, 2022 8,000
Money order 800
IOU of an employee 400
Checking Account Balance in Bank of Philippine Island 22,000
Total P151,000
The correct cash and cash equivalents balance on December 31, 2021 is
a. P98,900.
c. P97,530.
b. P98,730.
d. P98,330.
PROBLEM 8-4 Cash and Cash Equivalents
Assume the following data of Diane Corporation of its cash and short-term, highly liquid investments for December 31, 2021:
Cash on hand P80,000
Checking account No. 143 – BPI 200,000
Checking account No. 155 – BPI (30,000)
Securities:
Date Acquired, Maturity Date, Amount
120-day Certificate of Deposit: 12/10/2021, 01/31/2022, P600,000
BSP-Treasury Bills (No.1): 11/30/2021, 04/30/2022, P500,000
BSP-Treasury Bills (No.2): 10/31/2021, 01/20/2022, P1,000,000
180 days Commercial Paper: 12/01/2021, 06/20/2022, P1,400,000
Money Market Funds 11/21/2021 02/10/2022 2,000,000
The correct cash and cash equivalents balance on December 31, 2021 is
a. P3,850,000
c. P5,250,000
b. P3,880,000
d. P5,280,000
PROBLEM 8-5 Cash and Cash Equivalents
The statement of financial position of a company presents the following financial assets at December 31, 2021:
• Bank cheque account = P58,400.
• Bank savings account (collectible immediately) = P23,440.
• Cash = P10,000.
• Common stocks of Entity Z, one of the most traded assets in Country A’s stock exchange, purchased by the airline to speculate = P2,715.
• Oil price derivative entered into by the entity to hedge the commodity price risk of the anticipated future purchase of oil for use in the entity’s operating business = P6,720.
• A gold price derivative entered into by the entity to speculate = P9,880.
• Treasury bonds issued by the government of Country A = P8,500. The entity acquired the bonds from the government one week before the entity’s reporting date. The bonds mature 2 months after the date of acquisition (they are two-month bonds from date of issue).
• Treasury bonds issued by the government of Country A = P6,300. The entity acquired those bonds from the government in the previous annual reporting period. The bonds mature 15 months after the date of acquisition (they are 15-month bonds).
In the absence of evidence to the contrary, the entity’s total cash and cash equivalent at December 31, 2021 is:
a. P98,560
c. P109,775
b. P100,340
d. P107,060
PROBLEM 8-6 Cash and Cash Equivalents
The December 31, 2021 trial balance of Agee Company includes the following accounts:
Petty cash fund 70,000
Current account – Metro Bank 4,000,000
Current account – BPI (overdraft) (250,000)
120-day Money market placement – RCBC 1,000,000
Time deposit – PNB 2,000,000
Additional information:
• The petty cash fund includes unreplenished December 2021 petty cash expense vouchers for P15,000 and an employee check for P5,000 dated January 31, 2022.
• A check for P100,000 was drawn against Metro Bank current account dated and recorded December 27, 2021 but delivered to payee on January 10, 2022.
• The PNB time deposit is set aside for land acquisition in early January 2022.
What should be reported as “cash and cash equivalents” on December 31, 2021?
a. P5,130,000
c. P4,150,000
b. P5,150,000
d. P4,880,000
PROBLEM 8-7 Effective Interest Rate
Luke Company is in need of P3,375,000 to finance its building expansion program. Luke is currently negotiating a loan with Metro Bank which requires the company to maintain a compensating balance of 5% of the loan principal on deposit in a current account at the bank. Luke, Inc. currently maintains a balance P50,000 in its current account. The current account earns interest of 4% per annum; the interest rate on the loan is 12% per annum.
Questions:
Based on the above data, answer the following:
1. What is the principal amount of the loan?
a. P3,375,000
c. P3,500,000
b. P3,325,000
d. P3,480,000
2. What is the effective interest rate on the loan?
a. 8%
c. 12.30%
b. 12.91%
d. 12%
PROBLEM 8-8 Petty Cash Fund
As part of your engagement to audit the financial statements of ABC Company for the year ended December 31, 2021, you were assigned to verify the petty cash fund and the cash on hand in the morning of January 3, 2022. You began to count at 9:00 A.M. in the presence of W. Ally, the petty cash custodian. In the course of your counting, you found the following items:
Bills:
10 two-hundreds, 20 one-hundreds, 40 twenties
Coins:
10.00 10 rolls (10 pieces to a roll)
5.00 9 rolls (50 pieces to a roll)
1.00 8 rolls and 4 loose (100 pieces to a roll)
0.25 7 rolls and 10 loose (200 pieces to a roll)
0.10 5 rolls and 20 loose (300 pieces to a roll)
0.05 4 rolls and 10 loose (200 pieces to a roll)
Checks:
Maker, Date, Payee, Amount
Jose Manalo, Manager 12/05/21 ABC Company 800
W. Ally, petty cash custodian 12/28/21 ABC Company 500
Note: Jose Manalo’s check was returned on December 29, 2021 for insufficiency of fund.
I.O.U.s
Date, Amount
A. Abraham, janitor 12/19/2021 250
R. Tica, clerk 12/20/2021 150
P. Du, Bookkeeper 12/22/2021 200
Petty cash vouchers for replenishment:
Payee, Date, Account charged, Amount
J. Cruz, messenger 12/14/2021 Advances to employees 125.00
Cid Bookstore 12/15/2021 Supplies 150.00
Dalin Liner 12/19/2021 Freight-out 192.00
Bureau of Posts (stamps) 12/20/2021 Supplies 300.00
A. Bala, carpenter 12/21/2021 Repairs 450.00
B. Go 01/02/2022 Miscellaneous expense 154.00
Unused stamps:
Various denominations P50.00
Additional information:
1. The balance of petty cash fund per books is P12,000.
2. Cash sales of January 2, 2022 amounted to P8,000 per sales records, while cash receipts book and deposit slip showed that only P6,600 was deposited in the bank on January 3, 2022.
3. The following employees’ pay envelopes have been opened and the money removed. Each envelope was marked “unclaimed.”
D. Bill P400
G. Ng P200
Required:
1. Prepare working papers showing your cash count.
2. Prepare necessary adjusting journal entries as of December 31, 2021.
3. Determine the amount at which the Petty Cash Fund will be stated in the statement of financial position as of December 31, 2021.
PROBLEM 8-9 Petty Cash Fund
You are examining the accounts of Raymund Beauty Salon. Your count of the imprest cash fund, made at 8:30 a.m. on January 3, 2021, in the presence of Frances petty cashier, revealed:
Coins
Quantity, Denomination
50 P1.00
60 0.25
Bills
Quantity, Denomination
3 500
5 100
20 20
12 10
Checks:
Date, Payee, Maker, Amount
December 26 Cash Al, Beautician P 5,000
29 Raymund Rex, Hairdresser 6,100
29 Raymund Zev, customer 6,500
Unused stamps:
Various denominations P70
Vouchers:
Date, Nature of Disbursements, Amount
December 15 Transportation 65
16 Office supplies 70
17 Xerox fees 80
28 Postage 150
January 2 Newspaper 10
2 Freight charges 50
IOUs
Date, Maker, Amount
December 20 Rhad, employee 50
23 Andrix 100
The balance of the Petty Cash Account, December 31, 2021, was P5,000.
Sales invoices (for cash sales, all in cash, no checks)
Invoices, Date, Amount
#143 December 30 4,000
#144 December 31 5,100
#145 January 2 3,050
Required:
Compute the amount of cash shortage.
PROBLEM 8-10 Bank Reconciliation
The accounting period of Laurieleen Company ends on December 31. The following information is available about the company’s cash.
Laurieleen Company
Bank Reconciliation
October 31
Balance per bank statement P18,005
Add: Deposit in transit 1,720
Deduct: Outstanding checks
No. 143 P 4,563
No. 144 2,118 6,681
Correct cash balance P13,114
Balance per books P11,534
Add: Note collected by bank
Principal P1,500
Interest 100
1,600
Total P13,204
Deduct Bank service charge 12
Correct cash balance P13,114
PASSABLE NATIONAL BANK
GENERAL ACCOUNT: LAURIELEEN COMPANY
Date, Debits, Credits, Balance
10/31, , , P18,005
11/01, , 1,790, 19,795
11/02, 4,563, , 15,232
11/04, 2,118, 5,967, 19,081
11/05, 4,567, , 14,514
11/05, 963, , 13,551
11/06, , 3,410, 16,961
11/07, 2,515, , 14,446
11/11, , 1,037, 15,483
11/13, 2,264, , 13,319
11/18, 3,325, , 9,894
11/24, 964, 4,255, 13,185
11/28, 619, 750 CM, 13,316
11/29, 3,000, 500 CM, 10,816
11/29, 35 DM, , 10,781
11/30, 665 NSF, , 10,116
11/30, 22 SC, , 10,094
Total P25,620, P17,709
Legend: DM: Debit Memo; NSF: No sufficient fund check; CM: Credit Memo; SC: Service Charge
Laurieleen Company’s Cash Account
Taken from General Ledger
Cash
Balance, Oct. 31 11,534; Balance, Nov. 30 8,228
CR Journal, Nov. 30 18,269; CD Journal, Nov. 30 21,575
Legend: CR: Cash Receipts; CD: Cash Disbursements
Information taken from Laurieleen Company:
Cash Receipts Journal
Date, Cash Debit
11/03 5,967
11/06 3,410
11/11 1,037
11/23 4,255
11/30 3,600
Total 18,269
Cash Disbursements Journal
Date, Check No., Cash Credit
11/01 145 4,567
11/04 146 963
11/05 147 2,515
11/10 148 3,264
11/17 149 3,325
11/22 150 694
Total 21,575
11/27 151 619
11/28 152 760
11/29 153 3,000
11/30 154 1,868
Total 21,575
Additional Information:
1. After preparing the October 31 reconciliation, Laurieleen failed to record the necessary journal entries.
2. The NSF check had been received during November from a customer on account. Laurieleen has not yet recorded the return of the check.
3. The credit memos shown on the bank statement pertain to P750 of bond interest that Laurieleen earned during the current accounting period and that the bank collected on the company’s behalf (collection not yet recorded on Laurieleen’s books) and a P500 collection made for Dulawan Company that the bank erroneously credited to Laurieleen’s account.
4. The P35 debit memo shown on the bank statement pertains to the rental of a safe deposit box during November.
5. Laurieleen made two errors in recording cash payments during November:
Check No., Actual amount of check, Amount recorded
148 P2,264 P3,264
150 964 694
Check No 148 was issued to purchase equipment, check No. 150 was for advertising expense.
Questions:
Based on the above data and the result of your audit, compute for the following:
1. Deposit in transit on November 30
a. P2,600
c. P1,600
b. P3,600
d. P600
2. Outstanding checks on November 30
a. P2,628
c. P3,268
b. P8,286
d. P1,628
3. Adjusted receipts in November
a. P17,519
c. P15,419
b. P19,019
d. P21,309
4. Correct cash balance on November 30
a. P10,094
c. P11,066
b. P13,694
d. P10,566
5. Assuming each reconciling item will be given an adjusting entry, how many adjusting entries will be made on November 30
a. 8
c. 6
b. 4
d. 5
PROBLEM 8-11 Deposit in Transit
In your audit of the cash account of Karen Mae Company, you have ascertained the following data relative to the deposits per books and credits per bank:
Book debits in February 400,000
Bank credits in February 360,000
CM for interest earned in January but taken up in the books in February 5,000
CM for interest earned in February but taken up in the books in March 6,000
Check from customer in January amounting to P40,000 but was taken up in the books as 4,000
Check from customer in February amounting to P20,000 but was taken up in the books as 4,000
Check by the company issued to supplier in January amounting to P3,000 but was taken up in the books as 30,000
Erroneous bank credit-February 2,500
Erroneous bank charge-January 1,000
Deposit in transit-January 31 50,000
How much is the undeposited collections at the end of February?
a. P47,500
c. P15,500
b. P31,500
d. P46,500
PROBLEM 8-12 Outstanding Checks
Based on the following information, the causes of the discrepancies between the book credits and bank debits are ascertained:
Book credits in May 85,600
Bank debits in May 97,650
Check issued on May for P5,700 erroneously recorded in the books of the depositor as 7,500
Customer’s DAIF check, returned by the bank of the depositor in May 2,300
April bank service charges, taken up in the books in May 30
Payment of VISA credit card automatically debited by the bank on May 25, as per ADA, but taken up in the books of the depositor in June 3,000
Outstanding checks as of May 31 4,500
How much is the outstanding checks at the beginning of the period?
a. P4,500
c. P12,880
b. P5,300
d. P11,880
PROBLEM 8-13 Basics Of Proof Of Cash
Data regarding the cash in bank for the current year of Basic Company follow:
Jan. 31; Feb. 28
Cash per ledger 250,000; 290,000
Cash receipts for February 300,000
Unadjusted bank statement 237,500; 276,800
Bank disbursements 255,700; 252,700
Debit Memo for note collected 30,000; 35,000
Credit Memo for note collected 7,500; 4,200
Bank service charge 50,000; 60,000
Deposit in transit 15,000; 16,000
Outstanding checks
Required: Compute for the adjusted balance of the following:
1. Cash in bank, January 31
2. Cash receipts
3. Cash disbursements
4. Cash in bank, February 28
PROBLEM 8-14 Basics Of Proof Of Cash
Data regarding the cash in bank for the current year of Launch Attack Company follow:
Jan. 31; Feb. 28
Cash per ledger 250,000; 290,000
Cash receipts for February 300,000
Unadjusted bank statement 248,100; 282,400
Bank disbursements 269,600
Overstatement of customer’s checks per books 4,000; 3,000
Overstatement of company’s checks per books 300; 900
Erroneous bank credit 5,000; 4,000
Erroneous bank charge 3,200; 9,500
Required: Compute for the adjusted balance of the following:
1. Cash in bank, January 31
2. Cash receipts
3. Cash disbursements
4. Cash in bank, February 28
PROBLEM 8-15 Basics Of Proof Of Cash
Your client, Aira Marie Zhon Company, presented you the following data:
Jan. 31; Feb. 28
Cash per ledger 200,000; 270,000
Cash receipts for February 150,000
Bank statement balance 203,300; 273,200
Total credits per bank statement in February 157,700
Credit Memo for note collected 10,000; 15,000
NSF check 2,000; 3,000
Understatement of salaries expense per book (corrected the following month) 1,500
Deposit in transit 9,000; ?
Outstanding checks 3,000; ?
Erroneous bank credit 6,000; 4,000
Erroneous bank charge 3,200; 1,400
Questions:
Based on the above data, compute for the following:
1. Deposit in transit, February 28
a. P13,500
c. P9,500
b. P16,300
d. P19,500
2. Outstanding checks, February 28
a. P700
c. P5,700
b. P2,700
d. P1,300
3. Unadjusted bank disbursements in February
a. P81,500
c. P80,100
b. P87,800
d. P81,000
4. Adjusted cash in bank balance on January 31
a. P206,500
c. P203,300
b. P208,000
d. P208,500
5. Adjusted Cash receipts in February
a. P155,000
c. P162,200
b. P140,000
d. P158,200
6. Adjusted Cash disbursements in February
a. P81,000
c. P79,500
b. P80,100
d. P81,500
7. Adjusted cash in bank balance on February 28
a. P282,000
c. P284,000
b. P281,400
d. P280,000
PROBLEM 8-16 Proof of Cash
Reconciliation of Jazz Company’s bank account at May 31 of the current year is:
Balance per bank statement P2,600,000
Deposits outstanding 300,000
Bank service charge (10,000)
Erroneous bank charge (40,000)
Outstanding checks (100,000)
Erroneous bank credit (60,000)
CM for collection of note (60,000)
Balance per book P2,190,000
June data are as follows:
Bank; Book
Checks recorded 2,200,000; 2,500,000
Correction of erroneous bank credit in May 60,000; -
Deposits recorded 1,600,000; 1,800,000
Correction of erroneous bank charge 40,000; -
Service charges recorded 50,000; -
CM for collection by bank 50,000; 60,000
NSF checks returned with June 30 statement (will be redeposited) 100,000; -
Questions:
Based on the above data and the result of your audit, compute for the following:
1. How much is the total outstanding checks on June 30?
a. P400,000
c. P190,000
b. P510,000
d. P340,000
2. How much is the total deposit in transit on June 30?
a. P510,000
c. P90,000
b. P500,000
d. P100,000
3. How much is the total adjusted cash receipts in June?
a. P2,350,000
c. P2,190,000
b. P2,400,000
d. P2,030,000
4. How much is the total adjusted cash disbursements in June?
a. P2,650,000
c. P2,500,000
b. P2,410,000
d. P2,350,000
5. How much is the total adjusted cash balance as of June 30?
a. P2,280,000
c. P2,370,000
b. P2,480,000
d. P2,490,000
PROBLEM 8-17 Proof of Cash
In connection with your examination, the Seann Company presented to you the following information regarding its Cash in Bank account for the month of June of the current year:
a. Balances per bank statements: May 31, P1,250,000, and June 30, P1,350,000.
b. Balances of cash in bank account in company’s books: May 31, P1,251,000, and June 30, P1,051,000.
c. Total charges in the bank statement during June were P1,300,000.
d. Undeposited receipts were: May 31, P200,000 and June 30, P153,000.
e. Outstanding checks as of May 31, P150,000.
f. Erroneous bank credits were: May 31, P45,000 and June 30, P17,000.
g. Erroneous bank charge were: May 31, P20,000 and June 30, P30,000.
h. Collections by bank not recorded by Company were P125,000 in May and P150,000 in June.
i. NSF not entered in company’s books were: May 31, P110,000 and June 30, P75,000.
j. Customer’s check deposited in May amounting to P21,000 was erroneously entered in the books as P12,000. Assume this was corrected in June.
Questions:
Based on the above and the result of the audit, answer the following:
1. How much were the cash disbursements per books in June?
a. P1,365,000
c. P1,500,000
b. P1,491,000
d. P1,565,000
2. How much are the outstanding checks at the end of June?
a. P110,000
c. P380,000
b. P300,000
d. P390,000
3. How much is the adjusted cash balance as of May 30?
a. P1,257,000
c. P1,275,000
b. P1,266,000
d. P1,291,000
4. How much is the adjusted book disbursements for June?
a. P1,315,000
c. P1,456,000
b. P1,381,000
d. P1,465,000
5. How much is the adjusted cash balance as of June 30?
a. P1,126,000
c. P1,276,000
b. P1,135,000
d. P1,346,000
6. Which of the following adjusting entry would be made by the company at the end of June?
a. Bank service charge P75,000
Cash in bank P75,000
Accounts receivable P150,000
Cash in bank P150,000
b. Cash in bank P50,000
Accounts receivable P50,000
Cash in bank P125,000
Accounts receivable P125,000
c. Cash in bank P84,000
Accounts receivable P84,000
d. Cash in bank P75,000
Accounts receivable P75,000
PROBLEM 8-18 Proof of Cash
You have been hired by Sophia Manufacturing Co. as an internal auditor. One of your first assignments is to reconcile the bank account of the company.
The bank statement shows the following:
Beginning balance, Aug. 1, 2021 P 180,250
Deposits (20) 1,830,752
Checks-(64) plus debit memos (1,702,830)
(88)
Service charges-new checks P 308,084
Ending balance, Aug. 31, 2021
The cash account on the books of Sophia Manufacturing Co. is as follows:
CASH
7/1 Beginning 128,384 | 7/31 - Cash Disb. 1,330,882
7/31 - Cash Receipts 1,364,858 | 8/1 - Bank Recon 750
8/31 - Cash Receipts 1,839,744 | 8/31 - Cash Disb. 1,712,892
Your review of last month’s bank reconciliation and the current bank statement reveals the following:
1. Outstanding checks:
July 31, 2021 ?
August 31, 2021 P67,122
2. Deposits in transits:
July 31, 2021 P32,844
August 31, 2021 P41,836
3. Check No. 216 for the Office Furniture was written for P1,390 but recorded in the cash disbursements journal as P1,930. The error happened in July and is not yet corrected as of August 31.
4. A check written on the account of the Caleb Co. for P1,166 was deducted by the bank from Sophia’s account.
5. Included with the bank statement was a debit memorandum dated August 31 for P4,950 for interest on a note taken out by the Sophia Manufacturing Co. on July 30.
6. The service charge for new checks has not been recorded.
7. The July 31, 2021 bank reconciliation showed as reconciling item a service charge of P52 and an NSF check for P698.
Questions:
Based on the above data, compute for the following:
1. Unadjusted cash in bank per books, August 31, 2021
a. P288,289
c. P289,752
b. P289,212
d. P289,002
2. Outstanding checks as of July 31, 2021
a. P51,484
c. P50,944
b. P52,210
d. P51,570
3. The adjusted cash in bank per books, July 31, 2021
a. P162,160
c. P162,202
b. P162,848
d. P161,610
4. The adjusted disbursements for August, 2021
a. P1,717,470
c. P1,717,180
b. P1,717,930
d. P1,719,096
5. Adjusted cash in bank per books, August 31, 2021
a. P283,964
c. P282,798
b. P283,424
d. P288,914
PROBLEM 8-19 Proof of Cash
Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of December 2021.
The bank reconciliation prepared by Character Company at November 30 is reproduced below:
Unadj. bank balance P69,000; Unadj. book balance P66,000
Add:
Deposit in transit 11,000; CM for note collected 8,800
Total P80,000; Total P74,800
Less:
Outstanding checks; Bank service charge 1,800
No. 143 1,500
144 1,500
145 2,000
146 2,500; 7,000
Adjusted balance P73,000; P73,000
The bank statement, which has a beginning balance of P69,000, is reproduced below:
May Bank
Account Name: CHARACTER Company
Date, Debits, Credits
1-Dec 1,000; 11,000
4-Dec 25,000; 10,000
5-Dec ; 3,000 CM 1
6-Dec 2,000; 20,000
8-Dec 10,000 DM 1; 4,000
9-Dec 2,500; 5,000
17-Dec 30,000; 7,000
19-Dec 40,000 DM 2;
20-Dec 500 E; 500 EC
26-Dec ; 40,000
31-Dec 2,000 DM 3; 35,000 CM 2
Total P13,000; P171,500
DM 1 Customer’s DAIF check
DM 2 Customer’s DAIF check
DM 3 Service charges
CM 1 Account collected by the bank
CM 2 Note collected by the bank
E Error
EC Error Correction
The debit memo on December 8 and December 19 were customer NSF checks returned by the bank. The check on December 19 was redeposited on December 26 without entry. The company made a journal entry when the check returned on December 8 was received. This check was redeposited by the client in the bank on January 3 without entry.
The company’s cash receipts and cash disbursements journals for the month of December 2021 are provided below:
Cash Receipts Journal
Date, OR No., Amount
Dec.03 555 P 10,000
5 556 20,000
7 557 5,000
8 558 40,000
18 559 7,000
30 560 18,000
31 561 200
Total P102,000
Cash Disbursements Journal
Date, Check No., Amount
Dec.03 147 P 25,000
5 148 30,000
7 149 800
31 150 12,000
Total P75,000
The company’s Cash In Bank Ledger appears below:
Cash In Bank
Balance 12/1/2021 P66,000
12/8/2021 GJ (CM 1) 8,000
12/31/2021 GJ (DM 1) 10,000
12/31/2021 CRJ 102,000
12/31/2021 CDJ 75,000
Balance 12/31/2021 P81,000
Questions:
Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following:
1. How much is the outstanding checks as of December 31, 2021?
a. P21,500
c. P14,300
b. P20,000
d. P24,000
2. How much is the adjusted book receipts for December, 2021?
a. P140,000
c. P180,500
b. P140,500
d. P138,200
3. How much is the adjusted book disbursements for December, 2021?
a. P78,000
c. P79,800
b. P87,000
d. P127,500
4. How much is the adjusted cash balance as of December 31, 2021?
a. P127,800
c. P147,500
b. P126,000
d. P131,400
5. How much is the cash shortage as of December 31, 2021?
a. Nil
c. P3,800
b. P2,000
d. P1,800
PROBLEM 8-20 Proof of Cash
The following information was obtained in connection with the audit of Kathereen Hyacinth Co’s cash account as of December 31, 2021:
• Cash balance per general ledger on December 31 was P37,500. The company recorded actual company collections amounting to P152,500 from its customers during December. Also in December, the company recorded bank service charges of P2,500, including November bank service charges of P1,500. The December bank statement showed total deposits credited by the bank of P145,000 and total checks paid amounting to P133,750 and bank service charges of P3,250.
• The Outstanding checks on November 30 and December 31 were P16,250 and P12,500 respectively while deposit in transit on November 30 was P12,500.
• The cash receipts book of December is under-footed by P2,500.
• The bank erroneously charged the company’s account for a P3,750 check for another company. This bank error was corrected on January 2022.
Questions:
Based on the above data and the result of your audit, compute for the following:
1. Book disbursements in December 2021
a. P126,250
c. P128,750
b. P125,500
d. P129,750
2. Deposit in transit, December 31, 2021
a. P19,000
c. P22,000
b. P12,000
d. P20,000
3. Adjusted cash in bank balance, December 31, 2021
a. P26,500
c. P37,750
b. P37,500
d. P26,750
4. How much is the unrecorded bank service charges as of December 31, 2021?
a. P1,250
c. P2,350
b. P3,250
d. P2,250
5. Adjusted cash in bank balance, Nov. 30, 2021
a. P18,500
c. P12,250
b. P14,750
d. P17,450
PROBLEM 8-21 Proof of Cash
The following data were taken from the records of Brayden Company:
Undeposited collections:
September 30 5,000
October 31 7,000
Outstanding checks:
September 30 ?
October 31 6,000
Bank service charge, September 30
September 30 2,500
October 31 1,500
Customer’s notes collected, September 30
September 30 8,000
October 31 13,000
NSF returned this month redeposited also this month (no journal entry was made on the books both on the return and when it was redeposited) 3,000
Balances:
September 30 bank balance 100,000
September 30 book balance 91,500
October 31 book balance 139,500
October transactions:
Receipts:
Book (2,000 thereof was paid out in currency) 196,000
Bank 200,000
Disbursements:
Book ?
Bank 150,000
Questions:
Based on the above data, compute for the adjusted balances of the following:
1. Outstanding checks, September 30
a. P2,000
c. P6,000
b. P8,000
d. P4,000
2. Cash in bank balance, September 30
a. P97,000
c. P99,500
b. P95,000
d. P94,000
3. Cash receipts on October 31
a. P201,000
c. P188,000
b. P202,000
d. P209,000
4. Cash disbursements on October 31
a. P147,000
c. P148,000
b. P142,000
d. P152,000
5. Cash in bank balance, October 31
a. P151,000
c. P156,000
b. P157,000
d. P141,000
PROBLEM 8-22 Proof of Cash
Your firm has been engaged to examine the financial statements of the Aries Company for the year ended December 31, 2021. In connection with this audit, you have been assigned to audit the CASH account. You noted that there are two Cash in Bank account, one in RCBC and the other in BPI.
Data relating to RCBC Account No. 143:
On December 31, 2021, the bookkeeper prepared the following bank reconciliation on this bank account:
CASH
Bank Reconciliation
December 2021
Balance per bank statement P1,000,000
Add (Deduct): Reconciling items
Deposit in transit (Note 1) 100,000
Outstanding check (Note 2) (75,000)
Note charged by the bank (Note 3) (74,400)
Balance per general ledger P1,099,400
Audit Notes:
1. Includes a customer’s check in the amount of P20,000 (dated April 25, 2021), which is not yet deposited because it has been misplaced.
2. Includes two checks totaling P15,000 which were among the items counted during the cash count conducted early morning of January 2, 2022.
3. This is the maturity value of a two-year note maturing on December 31, 2021. The note bears a 12% interest. Interest for the year ended December 31, 2021 was properly accrued.
Data relating to BPI Account No. 544:
On November 30, 2021, the bookkeeper prepared the following bank reconciliation on this bank account:
Cash account balance P1,980,000
Add:
Outstanding check P250,000
Unrecorded collections 90,000 40,000
Balance P2,320,000
Less:
Bank service charge P 1,000
Deposit in transit 90,000
Check erroneously charged by bank against company’s account 20,000 120,000
Bank statement balance P2,200,000
Additional Information:
• The company’s book for the month of December showed the following entries:
November 30 balance P1,980,000
Credits 3,500,000
Debits 1,420,000
• The bank statement showed the following on December 31:
November 30 balance P2,200,000
Credits 1,000,000
Debits 2,000,000
• The December bank debits include the following:
Debit memo for service charge P 2,000
Debit memo for customer’s NSF check 100,000
• The company recorded as cash receipt a customer’s note of P200,000 placed with the bank for collection on December 31. The note was not collected until the subsequent month.
Questions:
Based on the above data and the result of your audit, compute the following:
1. Adjusted balance of the cash in bank (Account No. 143)
a. P1,020,000
c. P940,000
b. P1,080,000
d. P1,094,400
2. Total outstanding check as of December 31, 2021.
a. P1,920,000
c. P1,660,000
b. P1,860,000
d. P1,720,000
3. Adjusted receipts for December of the Cash in bank (Account No. 544)
a. P2,060,000
c. P1,150,000
b. P1,130,000
d. P1,330,000
4. Adjusted disbursements for December of the Cash in bank (Account No. 544)
a. P2,230,000
c. P1,750,000
b. P3,610,000
d. P3,510,000
5. Total adjusted cash in bank balance December 31, 2021.
a. P700,000
c. P600,000
b. P1,020,000
d. P820,000
PROBLEM 8-23 Proof of Cash
Your firm has been engaged to examine the financial statements of the Tiffany Company for the year ended December 31, 2021. In connection with this audit, you have been assigned to audit the CASH account. You noted that there are two Cash in Bank account, RCBC and Equitable PCI Bank.
You discovered the following items relating to RCBC Account:
1. Unadjusted cash in bank per books on December 31, P16,000.
2. Unadjusted cash in bank per bank statement on December 31, P125,000.
3. Proceeds of a note collected by the bank in December, P6,000.
4. Bank service charges for December, P1,000.
5. Outstanding checks for December, P25,000. These checks are issued to supplier.
6. Deposit in transit for December, P60,000. These are collections to be deposited in the bank.
You discovered the following items relating to Equitable PCI Bank Account:
1. Unadjusted cash in bank per bank on December 31, P93,000.
2. Proceeds of a note collected by the bank in December, P10,000.
3. Bank service charges for December, P2,000.
4. Outstanding checks for December, P28,000. These checks are issued to supplier.
5. Deposit in transit for December, P15,000. These are collections to be deposited in the bank.
In addition, below is a listing of interbank account cash transfers of a client for late December, 2021. All checks are dated December 31, 2021:
Fund Transfer Nos.
1: Amount P20,000; RCBC-Dishi Bank Date recorded Book: 31-Dec, Bank: 2-Jan; Equitable PCI Bank Date recorded Book: 31-Dec, Bank: 2-Jan
2: Amount P30,000; RCBC-Dishi Bank Date recorded Book: 2-Jan, Bank: 31-Dec; Equitable PCI Bank Date recorded Book: 2-Jan, Bank: 31-Dec
3: Amount P40,000; RCBC-Dishi Bank Date recorded Book: 31-Dec, Bank: 31-Dec; Equitable PCI Bank Date recorded Book: 31-Dec, Bank: 31-Dec
4: Amount P50,000; RCBC-Dishi Bank Date recorded Book: 31-Dec, Bank: 31-Dec; Equitable PCI Bank Date recorded Book: 2-Jan, Bank: 2-Jan
Questions:
Based on the above data, answer the following:
1. How much is the adjusted cash in bank of the RCBC Account on December 31, 2021?
a. P140,000
c. P170,000
b. P160,000
d. P100,000
2. How much is the adjusted cash in bank of the Equitable PCI Bank Account on December 31, 2021?
a. P150,000
c. P80,000
b. P70,000
d. P130,000
3. How much is the unadjusted cash in bank per books of the Equitable PCI Bank Account on December 31, 2021?
a. P92,000
c. P112,000
b. P62,000
d. P102,000
4. How much is total outstanding checks of the 2 accounts in 2021?
a. P53,000
c. P80,000
b. P73,000
d. P70,000
5. Which of the cash transfers would not appear as an outstanding check on the December 31, 2021 bank reconciliation?
a. Fund transfer No. 1
c. Fund transfer No. 3
b. Fund transfer No. 2
d. Fund transfer No. 4
PROBLEM 8-24 Proof of Cash
Data regarding the cash in bank for the current year of Hype Beast Company follow:
Jan. 31; Feb. 28
01 Cash per ledger 200,000; 270,000
02 Cash receipts for February 150,000
03 Bank statement balance 206,600; 276,950
Total credits per bank statement in February 159,000
04 Credit memo for note collected 9,000; 13,000
05 Bank service charge 100; 150
06 Deposit in transit 10,000; 11,000
07 Outstanding checks 4,200; 1,800
08 Erroneous bank credit 6,000; 4,000
09 Erroneous bank charge 3,200; 1,400
10 Check of the company issued in January was mutilated and returned by the payee. A replacement check was issued. Both checks were entered in the Check register but no entry was made to cancel the mutilated check, P700.
11 The company issued a stop payment order to the bank in February for check issued in February which was not received by the payee. A new check was written and recorded in the Check register in February. The old check was written off by a journal entry also in February, P1,200.
Questions:
Based on the above data, compute for the following:
1. The unadjusted bank disbursements in February
a. P78,850
c. P80,000
b. P79,900
d. P88,650
2. The adjusted cash in bank balance on January 31
a. P209,000
c. P209,600
b. P209,100
d. P216,600
3. The adjusted bank receipts in February
a. P141,000
c. P152,800
b. P149,000
d. P154,000
4. The adjusted bank disbursements in February
a. P78,850
c. P80,000
b. P79,900
d. P88,650
5. The adjusted cash in bank balance on February 28
a. P282,850
c. P283,550
b. P283,000
d. P287,950
PROBLEM 8-25 Computation of Cash Shortage
The records of Rossiter Company indicate a May 31 cash in bank balance of P242,310.50, which includes undeposited receipts for May 30 and 31. The cash balance on the bank statement as of May 31 is P225,400. This balance includes a note of P30,000.00 plus interest collected by the bank but not recorded in the journal. Checks outstanding on May 31 were as follows: No. 421, P8,834; No. 488, P4,561; No. 522, P6,524; No. 995, P9,551.50; No. 996, P5,961.
On May 31, the cashier resigned effective at the end of the month. Before leaving on May 31, the cashier prepared the following bank reconciliation:
Balance per books, May 31 P242,310.50
Add: Outstanding checks
992 P 9,551.50
995 4,577.00
996 5,961.00
Total 18,089.50; P260,400.00
Less: Undeposited receipts 35,000.00
Balance per bank, May 31 P225,400.00
Deduct: Unrecorded note with interest 30,900.00
True cash, May 31 P94,500.00
Subsequently, the owner of Rossiter Company discovered that the cashier had stolen all undeposited receipts in excess of the P35,000 on hand on May 31. The owner, a close family friend, has asked your help in determining the amount that the former cashier has stolen.
Questions:
Based on the above data and the result of your audit, compute the following:
1. Adjusted cash in balance (Cash accounted as) of May 31.
a. P225,400.00
c. P260,400.00
b. P221,052.50
d. P186,052.50
2. Cash in bank balance per books (Cash accountability) as of May 31.
a. P242,310.50
c. P243,210.50
b. P272,310.50
d. P273,210.50
3. Cash shortage
a. Nil
c. P17,189.50
b. P51,258.00
d. P87,185.00
PROBLEM 8-26 Computation of Cash Shortage
The Josiah engaged your services to audit its accounts. In your examination of cash, you find that the Cash account represents both cash on hand and cash in bank. You further noted that there is a very poor internal control of cash.
Your audit covers the period ended June 30, 2021. You started the audit July 15. Upon cash count on this date, cash on hand amounted to P4,800. Examination of the cash book and other evidence of transactions disclosed the following:
1. July collections per duplicate receipts, P18,800.
2. Total of duplicate slips, all dated July, P11,000, included a deposit representing collections of June 30.
3. Cash book balance at June 30, 2021 is P45,600, representing both cash on hand and cash in bank.
4. Bank statement for June showing a balance of P42,400.
5. Outstanding checks at June 30: May checks, No. 183 for P450, and No. 198 for P1,650; June checks, No. 205 for P600, No. 254 for P400, No. 280 for P5,000, No. 302 for P900, and No. 317 for P2,500.
6. Undeposited collections at June 30, P5,000.
7. An amount of P900 representing proceeds of a customer draft on a customer credited by bank, but not yet taken up in the company’s books.
8. Bank service charges for June, P100.
The company cashier presented to you the following reconciliation statement for June, 2021 which he has prepared:
Balance per books, June 30, 2021 P 45,600
Add: Outstanding checks:
No. 205 P 600
254 400
280 500
302 700
317 1,500
Total 3,600; P 49,200
Less: Bank charges (100)
Undeposited collections (5,100)
Balance per bank, June 30, 2021 P 44,000
Questions:
Based on the above data and the result of your audit, compute the following:
1. Adjusted cash in bank balance (Cash accounted as) of May 31.
a. P42,400
c. P35,900
b. P30,900
d. P47,400
2. Cash in bank balance per books (Cash accountability) as of May 31.
a. P46,500
c. P46,400
b. P47,400
d. P47,300
3. Cash shortage as of June 30.
a. Nil
c. P19,400
b. P1,400
d. P8,000
4. Cash shortage as of July 1-15
a. Nil
c. P19,400
b. P11,400
d. P8,000
5. Which of the following is incorrect on how the cashier attempted to cover up his shortage?
a. Understating of cash in bank per books by P900.
b. Overstating of cash in bank per bank by P1,600.
c. Understating of outstanding checks by P7,900.
d. Understating of undeposited collections by P100.
PROBLEM 8-27 Computation of Cash Shortage
You are conducting an audit of Sto. Tomas Company for the year ended December 31, 2021. The internal control procedures surrounding cash transactions were not adequate. Wakan Wakat, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and prepares the monthly reconciliation of the bank account.
The bookkeeper-cashier prepared the following reconciliation at the end of the year:
Balance per bank statement P 700,000
Add: Deposit in transit P 350,500
Note collected by the bank 30,000; 380,500
Balance P 1,080,500
Less: outstanding checks 493,500
Balance per general ledger P 587,000
In the process of your audit, you gathered the following:
a. At December 31, 2021, the bank statement and the general ledger showed balances of P700,000 and P587,000, respectively.
b. The cut-off bank statement showed a bank charge on January 2, 2022 for P60,000 representing a correction of an erroneous bank credit.
c. Included in the list of the outstanding check were the following:
1. A check payable to a supplier, dated December 29, 2021, in the amount of P29,500 released on January 5, 2022.
2. A check representing advance payment to a supplier in the amount of P74,420, the date of which is January 4, 2022 and released in December 2021.
d. On December 31, 2021, the company received and recorded customer’s postdated check amounting to P100,000.
Questions:
Based on the above data and the result of your audit, answer the following:
1. The adjusted deposit in transit as at December 31, 2021.
a. P350,500
c. P450,000
b. P250,500
d. P250,000
2. The adjusted outstanding checks as at December 31, 2021.
a. P597,420
c. P419,080
b. P464,000
d. P389,580
3. The adjusted cash to be presented as at December 31, 2021.
a. P470,920
c. P530,920
b. P500,920
d. P620,920
4. The cash shortage in 2021:
a. P90,000
c. P120,000
b. P116,080
d. P16,080
5. The net adjustment to the cash account in 2021.
a. P86,080
c. P116,080
b. P120,000
d. P90,000
PhilCPA EXAM
PROBLEM 8-28 Computation of Cash Shortage
As part of your engagement to audit the financial statements of Janong Company for the year ended December 31, 2021, you were able to gather the following information:
Janong Company started operation on October 2, 2021 with Janong investing P240,000 cash. Monthly bank reconciliation statements have not been prepared; however, bank statements for October, November, and December were made available to you. The bank statement in December, 2021 showed an ending balance of P101,000.
Examination of the paid checks disclosed that checks totaling P9,000 were issued by the company in December, 2021, and were presented for payment only in January, 2022. Cash count of the cashier’s accountability amounted to P16,400. You were told by the cashier that P10,000 of these, in checks, were cash sales on December 29, 2021, deposited on January 3, 2022. The balance, in currency and coins, represents petty cash fund.
Additional data:
1. Accounts receivable subsidiary ledgers had a total balance of P140,000 at December 31, 2021.
2. Merchandise inventory at December 31, 2021 amounted to P60,000.
3. Supplier’s unpaid invoices for merchandise totaled P120,000.
4. The bank statement in October showed a bank credit for P200,000, dated October 2, 2021 representing bank loan proceeds for 120-day, discounted bank note. P140,000 of this loan was paid back by check in December 2021.
5. Operating expenses paid during the period totaled P180,000; while merchandise purchases amounted to P480,000.
6. The gross profit rate is 25% based on sales.
Questions:
Based on the above data and your audit, answer the following:
1. How much is the adjusted balance per bank as of December 31, 2021?
a. P 92,000
c. P45,000
b. P102,000
d. P268,000
2. How much is the total payment for merchandise purchased in 2021?
a. P360,000
c. P500,000
b. P380,000
d. P600,000
3. How much is the cost of goods sold in 2021?
a. P380,000
c. P500,000
b. P420,000
d. P560,000
4. How much is the total sales in 2021?
a. P440,000
c. P560,000
b. P528,000
d. P968,000
5. How much is the amount of cash shortage as of December 31, 2021?
a. Nil
c. P118,000
b. P71,600
d. P155,000