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Proof of Cash Discussion

Here are the steps to solve this problem: 1. Balance per books - beginning of month: P150,000 2. Add: Book debits during May: P124,000 (from 4.2) Total: P150,000 + P124,000 = P274,000 3. Less: Book credits during May: P79,600 (from 4.3) Balance per books - end of month: P274,000 - P79,600 = P194,400 4. Balance per bank - beginning of month: P150,000 (given) 5. Add: Bank credits during May: P110,000 (total deposits) Total: P150

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62 views

Proof of Cash Discussion

Here are the steps to solve this problem: 1. Balance per books - beginning of month: P150,000 2. Add: Book debits during May: P124,000 (from 4.2) Total: P150,000 + P124,000 = P274,000 3. Less: Book credits during May: P79,600 (from 4.3) Balance per books - end of month: P274,000 - P79,600 = P194,400 4. Balance per bank - beginning of month: P150,000 (given) 5. Add: Bank credits during May: P110,000 (total deposits) Total: P150

Uploaded by

Lucas Bantiling
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Module 2_Topic 3

PROOF OF CASH
Typical Errors and Their Correction
 Understatement of cash receipts on the book of depositor
Cash In Bank xx
Accounts Receivable xx

 Understatement of check drawn by depositor


Accounts Payable xx
Cash In Bank xx

 Deposit of another entity is credited by the bank to the


account of the depositor
No adjustment
 Check of another entity charged to the account of the
depositor
No adjustment
Proof of Cash

A proof of cash is an expanded reconciliation in that it


includes proof of receipts and disbursements.

 Three forms of proof of cash :


A. Adjusted balance method
B. Book to bank method
C. Bank to book method
Two-date bank reconciliation

 This is so-called “two-date” because it literally involves


two dates
 Omitted information may be any one or a combination of
the following:

a. Book Balance – beginning and ending

b. Bank Balance – beginning and ending

c. Deposit in transit – beginning and ending

d. Outstanding checks – beginning and ending


Computation of Book Balance

Balance per book - beginning of month XX


Add : Book debits during the month XX
Total XX
Less : Book credits during the month XX
Balance per book - end of the month XX

 Book debits – cash receipts or all items debited to the


cash in bank account
 Book credits – cash disbursements or all items credited to
the cash in bank account
Computation of Bank Balance

Balance per bank - beginning of month XX


Add : Bank credits during the month XX
Total XX
Less : Bank debits during the month XX
Balance per bank - end of the month XX

 Bank credits – all items credited to the account of the


depositor (e.g. deposits acknowledge by bank)
 Bank debits – all items debited to the account of the
depositor (e.g. checks paid by bank)
Computation of Deposits in Transit &
Outstanding Checks

Deposits in Transit - beginning of month XX


Add : Cash receipts deposited during the month XX
Total deposits to be acknowledge by bank XX
Less : Deposits acknowledged by bank during the month XX
Deposits in Transit - end of month XX

Outstanding checks - beginning of month XX


Add : Checks drawn by depositor during the month XX
Total checks to be paid by bank XX
Less : Checks paid by bank during the month XX
Outstanding checks - end of month XX
Sample Problem
Humanizer Company provided the following information:

Required :
1. What is the amount of outstanding checks on June 30?
2. What is the amount of deposit in transit on June 30?
3. What is the adjusted cash in bank on June 30?
Sample Problem : Humanizer Company
Proof of Cash

 Three forms of proof of cash :


A. Adjusted balance method
B. Book to bank method
C. Bank to book method
Proof of Cash
A. ADJUSTED BALANCE METHOD
Disburse
31-Jan Receipts 28-Feb
ments

Book Balance XX XX XX XX
Add : Credit Memos
January XX (XX)
February XX XX
Less : Debit Memos
January (XX) (XX)
February XX (XX)
Adjusted Book Balance XX XX XX XX

Bank Balance XX XX XX XX
Add : Deposits in Transit
January XX (XX)
February XX XX
Less : Outstanding checks
January (XX) (XX)
February XX (XX)
Adjusted Bank Balance XX XX XX XX
Proof of Cash
A. ADJUSTED BALANCE METHOD
Sassy Company provided the following data for the month of July :
Cash in Bank
Balance June 30 1,000,000
Book debits for July including June CM for note
collected, P300,000 4,000,000
Book credits for July including June NSF of
P100,000 and service charge of P4,000 3,600,000
Bank Statement for July
Balance June 30 1,650,000
Bank debits for July including service charge of
P1,000 and June outstanding checks of P854,000 2,500,000
Bank credits for July including CM for bank loan of
P500,000 and June deposit in transit of P400,000 3,500,000
Required : Prepare bank reconciliation on June 30 and July 31, and adjusting entries on
July 31.
Proof of Cash : Adjusted Balance Method
Proof of Cash
B. BOOK TO BANK METHOD
Disburse
31-Jan Receipts 28-Feb
ments
Book Balance XX XX XX XX
Add :Credit Memos
January XX (XX)
February XX XX
Outstanding checks
January XX XX
February (XX) XX
Less: Debit Memos
January (XX) (XX)
February XX (XX)
Deposits in Transit
January (XX) XX
February (XX) (XX)
Bank Balance XX XX XX XX
Proof of Cash
C. BANK TO BOOK METHOD
Disburse
31-Jan Receipts 28-Feb
ments
Bank Balance XX XX XX XX
Add : Debit Memos
January (XX) XX
February (XX) (XX)
Deposits in Transit
January XX (XX)
February XX XX
Less: Credit Memos
January XX XX
February (XX) XX
Oustanding checks
January (XX) (XX)
February XX XX
Book Balance XX XX XX XX
PROOF OF CASH

PROBLEM EXERCISES
Exercise 1
Edible Company provided the following information :

Required : Prepare a four column bank reconciliation showing adjusted balances.


Exercise 1
MAY RECEIPTS DISBURSEMENTS JUNE
Balance per book 2,500,000 5,300,000 5,400,000 2,400,000
Add : Credit Memo
June 75,000 75,000
Less : Debit Memo
May (20,000) (20,000)
June 25,000 (25,000)
NSF June 200,000 (200,000)
Add : Check recorded in error (300,000) 300,000
Adjusted book balance 2,480,000 5,375,000 5,305,000 2,550,000

Balance per bank 2,700,000 5,500,000 5,600,000 2,600,000


Add : DIT
May 625,000 (625,000)
June 500,000 500,000
Less : O/C
May (845,000) (845,000)
June 550,000 (550,000)
Adjusted bank balance 2,480,000 5,375,000 5,305,000 2,550,000
Exercise 2
Exercise 2
4.1
Cash per bank balance, Apr. 30, 2014 P 150,000
Add : Total deposits per bank statement 110,000
Total 260,000
Less : Total charges per bank statement 96,000
Balance per bank, May 31, 2014 164,000
Exercise 2
4.2

?
Balance per book - beginning of month
Add : Book debits during the month
Total
Less : Book credits during the month
Balance per book - end of the month

Total deposits per bank statement P 110,000


Less : Deposits in transit, Apr 30 24,000
May receipts cleared through the bank 86,000
Add deposits in transit, May 31 38,000
May receipts per books 124,000
Exercise 2
4.3

?
Balance per book - beginning of month
Add : Book debits during the month
Total
Less : Book credits during the month
Balance per book - end of the month

Total charges per bank statement 96,000


Less : Outstanding checks, Apr 30 28,000
Correction of erroneous bank credit 10,000
May NSF check 8,000
May bank service charge 400 46,400
May disbursement cleared through bank 49,600
Add : Outstanding checks, May 31 30,000
May disbursements per book 79,600
Exercise 2
4.4
Balance per books, Apr 30 136,000
Add : May receipts per books 124,000
Total 260,000
Less : May disbursements per books 79,600
Balance per book – May 31 180,400

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