DEFINITION OF CASH From the point of view of a layman, “cash' simply moans money. Money is the standard medium of exchange in business transactions. Money refers to the currency and coins which are in circulation and legal tender, However, in the accounting parlance, the term “cash” has a special and broader meaning and connotes more than money, As contemplated in accounting, cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. Accordingly, cash includes checks, bank drafts and money orders because these are acceptable by the bank for deposit or immediate encashment, For example, when checks are received in full settlement of an account receivable, cash is immediately debited. But postdated checks received cannot be considered as cash yet because the postdated checks are unacceptable by the bank for deposit and immediate credit or outright encashment. Unrestricted cash There is no specific standard dealing with "cash". The only guidance is found in PAS 1, paragraph 66, which provides that an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it is restricted to settle a liability for more than twelve months after the end of the reporting period, - Accordingly, to be reported as “cash”, an item must be unrestricted in use. This means that the cash must be readily available in the payment of current obligations and not be subject to any restrictions, contractual or otherwise. 2Cash items included in cash a. Cash on hand includes undeposited cash collections and other cash items awaiting deposit such as customers checks, cashier's or manager's checks, traveler's checks, bank drafts and money orders. b. Cash in bank includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal. c. Cash fund set aside for current purposes such as petty cash fund, payroll fund and dividend fund. Cash equivalents PAS 7, paragraph 6, defines cash equivalents as short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rate. The standard further states that only highly liquid investments acquired three months before maturity can qualify as cash equivalents. Examples of cash equivalents are: a. Three-month BSP treasury bill b. Three-year BSP treasury bill purchased three months before date of maturity c. Three-month time deposit d. Three-month money market instrument or commercial paper Equity securities cannot qualify as cash equivalents because shares do not have a maturity date. However, preference shares with specified redemption date and acquired three months before redemption date can qualify as cash equivalents. Note that what is important is the date of purchase which should be three months or less before maturity. Thus, a BSP treasury bill that was purchased one year ago cannot qualify as cash ‘equivalent even if the remaining maturity is three months or less from the end of reporting period. 3Le SS Investment of excess cash The control and proper use of cash is an important aspec management. Basically, the entity must maintain sufficient for use in current operations. Any cash accumulated in excess of that needed for current operations should be invested even temporarily in some type of revenue earning investment. Accordingly, excess cash may be invested in time deposits, money market instruments and treasury bills for the purpose of earning interest income. Classifications of investment of excess cash Investments in time deposit, money market instruments and treasury bills should be properly classified. a. If the term is three months or less, such instruments are classified as cash equivalents and therefore included in the caption “cash and cash equivalents”. b. If the term is more than three months but within one year, such investments are classified as short-term financial assets or temporary investments and presented separately as current assets. ie IE. the term is more than one year, such investments are classified as noncurrent or long-term investments. However, such investments that become due within one year from the end of the reporting period are reclassified as current or temporary investments.rement of cash ured at face value. hin foreign currency is measured at the current exchange ra. Ifa bank or financial institution holding the funds of an entity 1 bankruptey or financial difficulty, cash should be written to estimated realizable value if the amount recoverable ated to be lower than the face value. Financial statement presentation The caption cash and cash equivalents should be shown as the first line item under current assets. This caption includes all cash items, such as cash on hand, cash in bank, petty cash fund and cash equivalents which are unrestricted in use for current operations. However, the details comprising the cash and cash equivalents should be disclosed in the notes to financial statements. Foreign currency Cash in foreign currency should be translated to Philippine pesos using the current exchange rate. Deposits in. foreign countries which are not subject to any foreign exchange restriction are included in “cash”. Deposits in foreign bank which are subject to foreign exchange restriction should be classified separately among noncurrent assets and the restriction clearly indicated. Cash fund for a certain purpose If the cash fund-is set aside for use in current operations or for the payment of current obligation, it is a current asset. The cash fund is included as part of cash and cash equivalents. Examples of this fund are petty cash fund, payroll fund, travel fund, interest fund, dividend fund and tax fund. On the other hand, if the cash fund is set aside for noncurrent purpose or payment of noncurrent obligation, it is shown as long-term investment. Examples of this fund are sinking fund, preference share redemption fund, contingent fund, insurance fund and fund for acquisition or construction of property, plant and equipment.Exception to the rule on overdraft When an entity maintains two or more accounts in one bank and one account results in an overdraft, such overdraft can be offset against the other bank account with a debit balance in order to show cash, net of bank overdraft or bank overdraft, net of other bank account. An overdraft can also be offset against the other bank account if the amount is not material. Under IFRS, bank overdraft can be offset against other bank account when payable on demand and often fluctuates from positive to negative as an integral part of cash management. Compensating balance A compensating balance generally takes the form of minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank. 1 : For example, an entity borrows P5,000,000 from a bank and agrees to maintain a 10% or P500,000 minimum compensating balance in a demand deposit account. In effect, this arrangement results in the reduction of the amount borrowed because the compensating balance provides a source of fund to the bank as partial compensation for the loan extended. Classification of compensating balance If the deposit is not legally restricted as to withdrawal by the borrower because of an informal compensating balance agreement, the compensating balance is part of cash. If the deposit is legally restricted because of a formal compensating balance agreement, the compensating balance is classified separately as “cash held as compensating balance” under current assets if the related loan is short-term. If the related loan is long-term, the compensating balance is classified as noncurrent investment. aN.Undelivered or unreleased check An undelivered or unreleased check is one that is merely drawn and recorded but not given to the payee before the end of reporting period. There is no payment when the check is pending delivery to the payee at the end of reporting period. ‘The reason is tna undelivered check is still subject to the entity's control and may thus be canceled anytime before delivery at the discretion of the entity. Accordingly, an adjusting entry is required to restore the cash balance and set up the liability. 5 Cash OC Accounts payable or-appropriate account Xx In practice, the foregoing adjustment is sometimes ignored because the amount is not very substantial and there is.no evidence of actual cancelation of the check in the subsequent period. Postdated check delivered A postdated check delivered is a check drawn, recorded and already given to the payee but it bears a date subsequent to > the end of reporting period. The original entry recording a delivered postdated check shall also be reversed and therefore restored to the cash balance. Cash XX Accounts payable or appropriate account xX The reason is that there is no payment until the check can be presented to the bank for encashment or deposit.Stale check or check long outstanding A stale check is a check not encashed by the payee within a relatively long period of time. The question is how long a time must the check remain outstanding? The Negotiable Instruments Law provides that where the instrument is payable on demand, presentment must be made within a reasonable time after issue. In determining what is a reasonable time, consideration should be made regarding the nature of the instrument, the usage of trade or business, if any, with respect to such instrument and the facts of the particular case. Clearly, the law does not specify a definite period within which checks must be presented for encashment. Reference is made to usage of trade or business practice. In banking practice, a check becomes stale if not encashed within six months from the time of issuance. Of course, this is a matter of entity policy. Thus, even after three months only, the entity may issue a stop payment ‘order to the bank for the cancelation of a previously issued check. If the amount of stale check is immaterial, it is simply accounted for as miscellaneous income. - Cash er Miscellaneous income x However, if the amount is material and liability is expected to continue, the cash is restored and the liability is again set up. 7 ‘ ( Cash ne xx t Accounts payable or appropriate account, x iy ‘ 9Accounting for cash shortage cas hich is less than th here the cash count shows cash w i Nes per book, a cash shortage is to be recorded. Cash short or over Xxx Cash xx The cash short or ovér account is only a temporary or suspense account. When financial statements are prepared the same should be adjusted. Hence, if the cashier or cash custodian is held responsible for the cash shortage, the adjustment should be: Due from cashier xx Cash short or over iy However, if reasonable efforts fail to disclose the cause of the shortage, the adjustment is Loss from cash shortage x Cash short or over Accounting for cash overage Where the cash count shows cash which is more than the .balance per book, a cash overage is to be recorded. Cash : XxX Cash short or over x ge or cash overage, the r account. Such account are made. Note that whether it is a cash shorta; offsetting account is cash short or ove should be adjusted when statements The cash overage is treated as miscellaneous income if there is no claim on the same. Cash short or ‘over Miscellaneous income niet But where the cash overage is properly found to be the money of the cashier, the journal entry is: Cash short or over . ie Payable to cashier XX 10Imprest system The 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. While internal control ideally requires that all payments should be made by means of check, this is sometimes impossible. There are occasions when the issuance of checks becomes impractical or inconvenient such as when small amounts are paid or things are hurriedly bought or customers are entertained. Consequently, in such instances, it may be more economical and convenient to pay in cash rather than issue checks. Petty cash fund The petty cash fund is money set aside to pay small expenses which cannot be paid conveniently by means of check. There are two methods of handling the petty cash, namely: a. Imprest fund system b. Fluctuating fund system Imprest fund system The imprest fund system is the one usually followed in handling petty cash transactions. Accounting procedures a. A check is drawn to establish the fund. Petty cash fund x Cash in bank xx b. Payment of expenses out of the fund. No formal journal entries are made. The petty cashier generally requires a signed petty cash voucher for such payments and simply prepares memorandum entries in the petty cash journal. 11c. Replenishment of petty cash payments. Whenever the petty cash fund runs low, a check ig drawn to replenish the fund. The replenishment check is usually equal to the petty cash disbursements. It is at this time that the petty cash disbursements are recorded. Expenses xx Cash in bank “kx It is to be pointed out that the petty cash disbursements should be replenished only by means of check and not from undeposited collections. ; d. At the end of the accounting period, it is necessary to adjust the unreplenished expenses in order to state the correct petty cash balance. Expenses Petty cash fund xx The adjustment is to be reversed at the beginning of the next accounting period. The reversal is made in order that the normal replenishment procedures may be followed by simply debiting expenses and crediting cash in bank without distinguishing whether the expenses pertain to the current period or prior period. e. An inerease in the fund is recorded normally. Petty cash fund x Cash in bank i bar £ A decrease in the fund is recorded normally. : fe { Cashinbank xx Petty cash fund — * 412 ATS Illustration 2021 Nov. 10 29 The entity established an imprest fund of P10,000. Petty cash fund 10,000 Cash in bank 10,000 Replenished the fund. The petty cash items include the following: Currency and coin 2,000 Supplies 5,000 . Telephone 1,800 - Postage 1,200 Noy. 29 Dec, 31 2022 Jan. 1 The journal entry to record the replenishment is: Supplies + 5,000 Telephone 1,800 Postage 1,200 ash in bank 8,000 . The fund was not replenished. An adjustment is necessary to record, the unreplenished expenses. The fund is composed of the following: currency and ‘coin P7,000, supplies P1,500, postage P500, miscellaneous expense P1,000. Supplies 1,500 Postage 500 Miscellaneous expense 1,000 Petty cash fund 3,000 The adjustment made on December 31, 2021 is reversed. Petty cash fund 3,000 Supplies ; 1,500 a : 500 Miscellaneous expense 1,000 "age : 182022 Feb. 1 The fund is replenished and increased to P15,000. The composition of the fund: Currency and coin 1,000 Supplies 4,500 Postage 3,000 Miscellaneous expense 1,500 Total 10,000 Journal entry Petty cash fund 5,000 Supplies , 4,500 Postage 3,000 Miscellaneous expense 1,500 Cash in bank 14,000 The total ‘amount of the check drawn is P14,000 representing the petty cash disbursements of P9,000 and the fund increase of P5,000.Fluctuating fund system The system is called “fluctuating fund system” because the checks drawn to replenish the fund do not necessarily equal the petty cash disbursements. The replenishment checks are simply drawn upon the request of the petty cashier. Moreover, petty cash disbursements are immediately recorded thus resulting in a fluctuating petty cash balance per book from time to time: a. Bstablishment of the fund: Petty cash fund xx Cash in bank xx b. Payment of expenses out of the petty cash fund: Expenses Cox Petty cash fund xx Under this system, the disbursements from the petty cash fund are immediately recorded in contradistinction with the imprest fund system where the disbursements are recorded upon the replenishment of the fund. c. Replenishment or increase of the fund: Petty cash fund i xx Cash in bank xx The replenishment check may or may not be the same as the petty cash disbursements. d. At the end of the reporting period, no adjustment is necessary because the petty cash expenses are recorded outright. e. Decrease of the fund is reverted to the general cash. Cash in bank xX Petty cash fund oS ‘15Illustration Nov. 10 The entity established a petty cash fund of P10,000. Petty cash fund 10,000 Cash in bank 10,000 Nov. 11-28 Petty cash disbursements amounted to P8,0q0, Expenses 8,000 Petty cash fund 8,000 Nov. 29 Issued a check for P10,000 to replenish the fund, Petty cash fund 10,000 Cash in bank 10,000 At this point, the petty cash balance per book ig P12,000. Dec. 1-30 Petty.cash expenses amourited to P9,000. Expenses 9,000 Petty cash fund 9,000 ’ 81 Issued a check for P15,000 to replenish the fund. Petty ¢ash fund 15,000 Cash in bank 15,000 At this point, the petty cash balance is P18,000. 16QUESTIONS 1. Define cash. 2. Explain the meaning of unrestricted cash. 3. Define cash equivalents. 4. Explain the measurement of cash. 5. Explain the financial statement presentation of cash and cash equivalents. 6. Explain the classification of investments of excess cash in time deposits, money market instruments and treasury bills, 7. Explain the treatment of foreign currency. 8. Explain the classification of a cash fund. 9. Explain a bank overdraft. 10. Explain a compensating balance. 11. Explain undelivered check, postdated check delivered and stale check. 12. Explain the accounting for cash shortage ‘or cash overage. 13. Explain the imprest system of internal control. 14. Explain the nature and purpose of a petty cash fund? 15. Explain the two methods of accounting for petty cash fund. 17PROBLEMS Problem 1-1 (IAA) On December 31, 2021, Albania Company provided the following data: Cash in bank 3,000,000 Time deposit — 30 days 1,000,000 Money market placement due on June 30, 2022 2,000,000 Saving deposit in closed bank 100,000 Sinking fund for bond payable due June 30, 2023 1,500,000 Petty cash fund 20,000 *, The cash in bank included customer check of P200,000 outstanding for 18 months. . Check of P250,000 in payment of accounts payable was dated and recorded on December 31, 2021 but mailed to creditors on January 15, 2022. *. Check of P100,000 dated January 31, 2022 in payment of accounts payable was recorded and mailed December 31, 2021. The reporting period is the calendar year. The cash receipts journal was held open until January 15, 2022 during which time an amount of P450,000 was collected and recorded on December 31, 2021. Required: 1. Prepare adjusting entries on December 31, 2021. 2. Compute the total amount of cash and cash equivalents that should be reported on December $1, 2021. 3. Explain the presentation of the items excluded from cas and cash equivalents,’ 18Problem 1-2 (IAA) Argentina Company reported the following accounts on December 31, 2021: Cash on hand 1,000,000 Petty cash fund 50,000 Security Bank current account 2,000,000 PNB current account 1,500,000 BDO current account (overdraft) (200,000) BSP treasury bill - 120 days 3,000,000 BPI time deposit - 90 days 2,000,000 Bond sinking fund 2,500,000 * The cash on hand included a customer postdated check of P150,000 and postal money order of P50,000. * The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee check for P5,000 dated January 31, 2022. * The BPI time deposit is set aside for acquisition of land to be made in early January 2022. * ‘The bond sinking fund is set aside for payment of bond payable due December 31, 2022. Required: 1. Prepare adjusting entries on December 31, 2021. 2. Compute the total amount of cash and cash equivalents. 3. Explain the presentation of the items excluded from cash and cash equivalents. 19problem 1-3 (IAA) Armen. December 3 ia Company reported the following information on 31, 2021: 1,000,000 eee on hens on ny ‘ 4,01 Cash in bank 400,000 Saving deposit 2,000,000 7,050,000 Cash on hand included the following: a. Customer check of P100,000 returned by bank December 26, 2021 due to insufficient fund but subsequently redeposited and cleared by bank January 5, 2022. b. Customer check for P150,000 dated January 15, 2022 received December 22, 2021. c. Postal money orders received from customers, 200,000. The petty cash fund consisted of the following items: Currency and coins 2,000 Employees’ 1OUs ‘ ‘i 10,000 Currency in envelope marked collections for Christmas party 5,000 Check drawn by Armenia payable to petty cashier 33,000 50,000 Check written and dated December 22, 2021 and delivered to payee on January 5, 2022, P200,000. Check written December 26, 2021 and dated January 31, 2022 delivered to payee on December 26, 2021, 300,000. Required: x Prepare adjusting entries on December 31, 2021. . Compute the total cash on December 31, 2021. 20Problem 1-4 (PHILCPA Adapted) Callous Company reported the following accounts on December 31, 2021: Cashonhand 200,000 Petty cash fund 20,000 Philippine Bank current account 5,000,000 City Bank current account No. 1 4,000,000 City Bank current account No. 2 (overdraft) (- 100,000) Asia Bank saving account 250,000 Asia Bank time deposit, 90 days 2,000,000 * Cash on hand included the following items: Customer check for P35,000 returned by bank December 26, 2021 due to insufficient fund but subsequently redeposited and cleared by the bank on January 10, 2022. Customer check for P15,000 dated Januarv 10, 2022, received December. 23, 2021. The petty cash fund consisted of the following items: Currency and coins 5,000 10Us from officers 2,000 Unreplenished petty cash vouchers 12,000 * Included among the.checks drawn by Callous Company against the Philippine Bank current account and recorded in December 2021 were the following: Check written and dated December 23, 2021 and delivered to payee on January 31, 2022, P25,000. Check written December 26, 2021, dated January 30, 2022, delivered to payee on December 28, 2021, P45,000. Required: . 1. Compute the total cash and cash equivalents. 2. Prepare adjusting entries on December 31, 2021. 21Problem 1-5 (ACP) Zealous Company established a petty cash fund. 1, Established a petty cash fund of P10,000 on January 2. 2. Petty cash expenses — January 2-31 are: Postage 1,500 Supplies 5,500 Transportation 1,200 Miscellaneous expense 800 3. The fund is replenished on February 1 and increased by P5,000. Required: Prepare journal entries to record the transactions under the fluctuating fund system and imprest fund system. Problem 1-6 (ACP) Zenith Company provided the following chronological transactions in relation to petty cash: 1. The entity established a petty cash fund of P10,000. 2. Petty cash disbursements were: Postage 1,500 Supplies 3,000 3. Petty cash disbursements were: : Transportation _ 1,000 Accounts payable 3,500 Issued check for an amount to replenish the fund and bring the balance of the petty cash to P20,000. Required: Prepare journal entries to record the transactions under fluctuating fund system and imprest fund system. 22Problem 1-7 (IAA) Laborious Company closed the accounts on June 30. The entity provided the following transactions: May 2 The entity established an imprest fund of P10,000. 29 The fund is replenished. The petty cash items include: Currency and coin Postage Supplies Transportation Miscellaneous expense 2,000 1,000 3,000 2,500 1,500 June30 The fund was not replenished. The fund is composed of the following: Currency and coin Supplies Postage Transportation 6,000 2,000 1,000 1,000 July 15 The fund is replenished and increased to P15,000. Currency and coin 3,000 3,500 1,500 1,500 500 Prepare journal entries to record the transactions under imprest fund system and fluctuating fund system. 23Problem 1-8 (IAA) Tacit Company provided the following transactions: 2021 Nov. 2 The entity established an imprest petty cash fung Dec. 31 The fund was not replenished. Currency and coin 11,000 Memoranda showing expenditures for: Postage 3,000 Supplies 4,000 Deposit for 20 cases of softdrinks 2,000 2022 Jan. 2 The deposit for the 20 cases of softdrinks is collected. 31 A check was drawn to replenish the fund. Currency andcoin * 1,000 Postage stamps 500 Memoranda showing expenditures since f November 30, 2021 for: Postage 5,000 Supplies 6,000 Payment of account 7,000 Required: 30 of P10,000. ‘An examination of the cash fund disclosed: Currency and coin 3,000 Memoranda showing expenditures for: Postage [ 2,000 Supplies 5,000 A check was drawn to replenish the fund and to increase its amount to P20,000. Prepare journal entries to record the transactions. 24Problem 1-9 (IAA) On December 1, 2021, Wacky Company established an imprest petty cash fund. 2021 : Dec.. 1 Established an imprest petty cash fund of P10,000 by writing a check on National Bank. 20 Replenished the petty cash fund by writing a check on National Bank. The fund contained: ~ Currency and coins 1,000 Vouchers for selling expenses 5,000 Vouchers for miscellaneous expenses 2,000 Vouchers for equipment 2,000 Dec. 31 The petty cash fund was not replenished. The fund contained: * Currency and coins 6,000 Postdated employee's check 2,000 Vouchers for selling expenses 1,500 Vouchers for transportation 500 2022 Jan. 15 Encashed the employee’s check. The proceeds were retained in the fund. 31 Replenished the petty cash fund by writing a check _ on National Bank. The petty cash youchers for January expenditures were: Distribution costs 500 Administrative expenses 2,000 Transportation 1,000 Payment for supplier's invoice 1,200 Required: 1. Prepare journal entries to record the transactions. 2. How much is the petty cash on January 31, 2022 before the replenishment? 25Problem 1-10 (AICPA Adapted) Tranvia Company revealed the following information on December 31, 2021: Cash in checking account 350,000 Cash in money market account 750,000 Treasury bill, purchased November 1, 2021 maturing January 31, 2022 3,500,000 ‘Time deposit purchased December 1, 2021 maturing March 31, 2022 4,000,000 What amount should be reported as cash and cash equivalents on December 31, 2021? 1,100,000 3,850,000 4,600,000 8,600,000 Eee SD Problem 1-11 (IAA) At year-end, Myra Company reported cash and cash equivalents which comprised the following: Cash on hand 500,000 Demand deposit 4,000,000 Certificate of deposit 2,000,000 Postdated customer check 300,000 Petty cash fund 50,000 Traveler check * 200,000 Manager check : 100,000. Money order 150,000 What total amount should be reported as cash at year-end? 7,000,000 4,800,000 6,800,000 . 5,000,000 sO 26Problem 1-12 PHILCPA Adapted) Starex Company provided the following information at year-end: Checking account at Metrobank 3,000,000 Employee's postdated check 120,000 Foreign bank account unrestricted and in equivalent pesos 2,500,000 TOU from company president. 500,000 NSF customer check 100,000 Petty cash fund, expense receipts P40,000 ‘ 50,000 Postage stamps 10,000 Treasury bonds 500,000 Value added tax account 1,500,000 What amount should be reported as unrestricted cash? 7,050,000 5,500,000 7,010,000 5,510,000 Problem 1-13 (PHILCPA Adapted) At year-end, ABC Company reported cash account per ledger at P4,700,000 which consisted of the following: op ps Petty cash fund 50,000 Undeposited receipts, including a postdated customer check for P100,000 1,500,000 Cash in bank a 2,500,000 Deposit in bank closed by BSP 500,000 Vouchers paid out of collections, not yet recorded 150,000 10Us signed by employees, taken from collections 100,000 4,800,000 What amount should be reported as cash at year-end? 3,750,000 3,950,000 4,250,000 4,050,000 BOlD p 27Problem 1-14 (AICPA Adapted) Thor Company provided the following data on December 31, 2021: Checkbook balance 4,000,000 Bank statement balance : 000,000 Check drawn on Thor's account, payable to supplier, dated and recorded on December 31, 2021 but not mailed until January 31, 2022 500,000 Cash in sinking fund 2,000,000 On December 31, 2021, what amount should be reported as cash under current assets? a. 4,500,000 b. 5,500,000 c. 3,500,000 d. 6,500,000 Problem 1-15 (AICPA Adapted) Joana Company had the following account balances on December 31, 2021: Petty cash fund 50,000 Cash on hand 500,000 Cash in bank — current account 4,000,000 Cash in bank — payroll account 1,000,000 Time deposit : 2,000,000 Cash in bank — restricted account for plant addition, expected to be disbursed in early Jani 2022 500,000. Cash in sinking fund set aside for bond payable due . yi June 30, 2022 1,500,000 The petty cash fund included unreplenished December 2021 Bea cut expense vouchers of P5,000 and employee IOU of The cash on hand included a P100,001 10 check payable to Joana Company dated January 31, 2022. What total amount should be rep. equivalents on December 31, 2021? a. 6,940,000 : b. 8,940,000 ¢. 7,940,000 d. 7,440,000: orted as cash and cash 92Problem 1-16 (AICPA Adapted) On December 31, 2021 Lamentable Company had the following cash balances: Cash in bank ~ current account 6,000,000 Petty cash fund —all funds were reimbursed at year-end _50,000 Time deposit — three months, due January 15, 2022 2,500,000 Saving deposit 1,000,000 Cash in bank included P400,000 of compensating balance against short term borrowing arrangement. The compensating balance is legally restricted as to withdrawal. What total amount should be reported as cash and cash equivalents? 9,500,000 9,150,000 9,100,000 6,950,000 Problem 1-17 (AICPA Adapted) Baloney Company had the following account balances on December 31, 2021: Cash in bank 2,250,000 Cash on hand 125,000 Cash restricted for addition to plant in January 2022 1,600,000 Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement. peop The compensating balance is not legally restricted as to withdrawal. What total amount should be reported as cash on December 81, 2021? a. 1,775,000 b. 2,250,000 c.. 2,375,000 d. 3,975,000Problem 1-18 (IAA) Yasmin Company provided the following on December 31, 2021: 50,000 tty cash fund , Geet ‘account — First Bank 4,000,000 Current account — Second Bank (overdraft) ( 250,000) Money market placement — Third Bank 1,000,000 ‘Time deposit - Fourth Bank 2,000,000 * k for P100,000 was drawn against First Bank ae account dated and recorded December 29, 2021 put delivered to payee on January 15, 2022. * The Fourth Bank time deposit is set aside for land acquisition in early January 2022. What total amount should be reported as cash and cash equivalents on December 31, 2021? 5,050,000 5,150,000 4,900,000 4,150,000 Boop Problem 1-19 (IAA) On December 31, 2021, Roma Company reported cash balance of P9,950,000. Undeposited collections 600,000 Cash in bank - BDO checking account 4,000,000 Undeposited NSF check received from customer, dated December 1, 2021 150,000 Undeposited check from a customer, dated January 15, 2022 250,000 Cash in bank -BDO fund for payroll. 1,000,000 Cash in bank -BDO time deposit, 90 days 2,000,000 Cash in foreign bank restricted 4 1,500,000 Cash in bank-BDO value added tax account i 450,000 Total 9,950,000 On December 31, 2021, what total amount should be reported as cash and cash equivalents? a. 7,600,000 b. 8,200,000 c. 6,050,000 d. 8,050,000 80Problem 1-20 (AICPA Adapted) Ral Company reported the checkbook balance on December 31, 2021 at P5,000,000'and held the following items on same date: Check payable to Ral, dated January 2, 2022 in payment ofa sale made in December 2021, not included in December 31 checkbook balance 2,000,000 Check payable to Ral, deposited December 15 anid included in December 31 checkbook. balance, but returned by bank on December 30 stamped “NSF.” The check was redeposited on January 2, 2022 and cleared on January 9, 2022 500,000 Check drawn on Ral’s account, payable to a vendor, dated and recorded in Ral’s books on December 31, 2021 but not mailed until January 10, 2022 Certificate of time deposit What amount should be reported as cash on December 31, 2021? a. 4,800,000 b. 5,300,000 c. 6,500,000 d. 5,800,000 300,000 1,000,000 Problem 1-21 (IAA) Everlast Company reported the following information at year-end: * Share investments of P1,000,000 that are very actively traded. ‘ * Government treasury bills of P2,000,000 with a 10-year term but purchased on December 31 with two months to go until maturity. } * Cash of P3,400,000 in the form of coin, currency, saving account and checking account. ¢ * Commercial papers of P1,500,000 with term of nine months but purchased on December 31 with three months to go until maturity. What total amount should be reported as cash and cash equivalents? 6,900,000 7,900,000 3,400,000 5,400,000 Re op 31Problem 1-22: (AICPA Adapted) Isabel Company provided the following information’ on December 31, 2021: Cash on hand 5,000,004 Security Bank current account 000,000 Manila Bank current account No. 1 4,000,000 Manila Bank current account No. 2 (bank overdraft) (00,000) BDO account set aside for bond payable due December 31, 2022 3,000,000 United Bank saving account for equipment acquisition 1,500,000 United Bank time deposit, 90 days 2,000,000 Treasury bills 1,000,000 Included among the checks drawn by Isabel Company against the Security Bank current account and recorded in December 2021 are: Check written and dated December 23, 2021 and delivered! to payee on January 3, 2022, P100,000. Check written December 26, 2021, dated January 30, 2028 delivered to payee on December 28, 2021, P150,000. What total amount should be reported as cash on December 31, 2021? a. 12,160,000 b. 12,650,000 c. 9,150,000 d. 9,400,000 What total amount should be reported as cash equivalents on December 31, 2021? a. 8,000,000 b. 4,500,000 ©. 2,000,000 a. 2,500,000Problem 1-23 (ACP) Love Company reported the following information in relation to cash on December 31, 2021: * Checkbook balance, P4,000,000. Undeposited collections, P400,000. A customer check amounting to P200,000 dated January 2, 2022 was included in the December 31, 2021 checkbook balance. Another customer check for P500,000 deposited on December 22, 2021 was included in the checkbook balance but returned by the bank for insufficiency of fund. This check was redeposited on December 26, 2021 and cleared two days later. * A P400,000 check payable to supplier dated and recorded on December 30, 2021 was mailed on January 16, 2022. A petty cash fund of P50,000 comprised the following on December 31, 2021: * * Coins and currencies 5,000 Petty cash vouchers 40,000 Refundable deposit for returnable containers 5,000 * A check of P40,000 was drawn on December 31, 2021 payable to Petty Cash. 1. What amount should be reported as adjusted cash in bank on December 31, 2021? a. 4,600,000 b. 4,200,000 c. 4,400,000 d. 3,700,000 2. What total amount should be reported as cash on December 31, 2021? 4,645,000 b. 4,845,000 c. 4,600,000 d. 4,650,000 S 33Problem 1-24 (PHILCPA Adapted) Marjorie Company established.a petty cash fund of P59 0 with the following information: ,009 Coins and currency Petty cash vouchers: 22,009 Gasoline Medical supplies ie Repairs fe IOU from an employee 380) Check drawn payable to the order of Ann Cruz, petty cash 00m custodian, representing her salary en Check of an employee returned by bank marked "NSF" 3,000 A sheet of paper with the names of several employees together with a contribution for a birthday party and attached to the sheet of paper is a currency of 5,000 What amount of petty cash fund should be reported? a. 42,000 b. 27,000 ec. 37,000 d. 22,000 _ Problem 1-25 (PHILCPA Adapted) Admirable Company had a petty cash fund which included the following details: Coins and currency 2,000 Paid vouchers Transportation Gasoline Office supplies Postage stamps Due from employees ay 3,000 Employee's check returned by bank marked “NSF” 1,000 Check drawn to the order of of petty cash custodian 4,000 3e258 | What amount of petty cash should be reported? 2,000 7,000 6,000 © 9,000 Boop 34Problem 1-26 (PHILCPA Adapted) On December 1, 2021, Andi Company established a petty cash fund of P50,000. On December 31, 2021, the netty cash fund was examined and found to comprise the following information: Coins and currencies Petty cash vouchers for expenses 6,000 46,000 The petty cash fund was replenished on December 31, 2021. 1. What amount should be reported as cash shortage or cash overage? a. 2,000 over b. 2,000 short ec, 4,000 short d. 0 2. What entry should Andi Company make on December 31, 2021 to record the replenishment of petty cash fund? a. Petty cash . Cash in bank Cash short and over b. Miscellaneous expenses Cash in bank Cash short and over c. Miscellaneous expenses Cash short and over Cash in bank d. Miscellaneous expenses Petty cash Cash short and over 35 46,000 46,000 44,000 2,000 ~ 46,000 44,000 2,000 44,000 2,000 46,000 44,000 2,000Problem 1-27 Multiple choice (LAA) 1. Which of the following should not be considered cash? peop Petty cash fund Money order Coin and currency 10U 2. Which of the following is usually considered cash? a. b. Checking account a d. Postdated check Certificate of deposit Money market certificate 3. Which of the following should not be included in cash? BO op Travel cash advance Certified check Personal check Manager check 4. All of the following may be included in cash, except Boop Currency Money market instrument Checking account balance Saving account balance 5. Under IFRS, which of the following statements is true about reporting bank overdraft? a. b. cy d. Overdraft typically cannot be offset against positive balance in other cash account but reported as current liability. Generally, cash overdraft is not allowed. Overdraft can be offset against other bank account when Payable on demand and often fluctuates from Positive to overdrawn as an integral part of Management. All of these statements are true about bank overdraft10. . Technically, cash may not include Foreign currency Money order Restricted cash Undeposited customer check ae op . Restricted deposits in foreign bank are classified as a. Current asset with appropriate disclosure. b. Noncurrent asset with appropriate disclosure. c. Be written off as loss. d. As part of cash and cash equivalents. . What is a compensating balance? Saving account balance Demand deposit account balance Temporary investment as collateral for loan Minimum deposit required to be maintained in connection with a borrowing arrangement Boop . Compensating balance represents a. Fund in a bank account that cannot be spent b. Balance in a payroll checking account c. Account that is subject to bank service charge d. Account on which a bank pays interest A compensating balance Must be included in cash and cash equivalent. Which is legally restricted and related to a long-term loan is classified as current asset. c. Which is legally restricted and related to a short-term loan is classified separately as current asset. d. Which is not legally restricted as to withdrawal is classified separately as current asset. op 37Problem 1-28 Multiple choice (IAA) 1. Acash equivalent is a short-term, highly liquid invest readily convertible into known amount of cash and ‘Ment Is acceptable as a means to pay current liability Has a greater current fair value Bears a prime interest rate Is so near maturity that it presents insignificant risk of change in interest rate BO pS 2. Highly liquid investments are cash equivalents if the maturity is 90 days or less a. From the date the investments are acquired b. From the end of reporting period c. From the date of issue of financial statements d. From the beginning of reporting period 3. All of the following can be classified as cash and cash equivalents, except a, Redeemable preference shares due in 60 days b. Commercial papers due for repayment in 90 days c. Equity investments d. A bank overdraft 4. Cash equivalents do not include a. Money market funds b. High grade marketable equity investments c. BSP treasury bills d. Commercial papers 5. Cash equivalents are - a. Treasury bills and money market instruments. b. eee ae with original maturity of three months 0° ess. ¢. Readily convertible into known amount of cash. d. All of these are features of cash equivalents. 38Problem 1-29 Multiple choice (IAA) 1. The internal control feature specific to petty cash is Separation of duties Assignment of responsibility Proper authorization Imprest system Boop 2. What is the major purpose of an imprest petty cash fund? To effectively plan cash inflows and outflows To ease the payment of cash to vendors To determine the honesty of the petty cashier To effectively control cash disbursements Boop 3. The imprest petty cash fund account is debited Only when the fund is created. When the fund is created and everytime it is replenished. c. When the fund is created and when the size of the fund is increased. d. When the fund is created and when the size of the fund is decreased. of 4. A cash over and short account a. Is not generally accepted. b. Is debited when the petty cash fund proves out over. c. Is debited when the petty cash fund proves out short. d. Is a contra account to cash. 5. Petty cash fund is a. Separately classified as current asset b. Money kept on hand for making minor disbursements of coin and currency rather than by writing checks c. Set aside for the payment of payroll d. Restricted cash 39