Financial Accounting and Reporting University of Luzon

Cash and Cash Equivalents College of Accountancy

Cash includes money or its equivalent that is readily available for unrestricted use.

Cash includes the following:

a. Cash on hand- includes undeposited collections and other negotiable instruments awaiting deposits. (e.g.
coins and bills, checks, bank drafts, money orders)
b. Cash in bank- includes deposit in banks that are available for immediate withdrawal and unrestricted
use. (e.g. demand deposit/checking account, savings account)
c. Working fund- cash funds set aside for use in current operations such as
 Petty cash fund
 Revolving fund
 Payroll fund
 Change fund
 Dividend fund
 Interest fund
 Tax fund
 Travel fund

Items not included as Cash

a. Postdated checks
b. Cash funds not available in use for current operations such as Sinking fund, Plant Expansion fund,
Depreciation fund, Preference Share Redemption fund, Contingency fund and Insurance fund.
c. Postage stamps and other expense advances
d. IOUs/advances to employees

Cash Equivalents

PAS 7 Statement of Cash Flows defines cash equivalents as short-term, highly liquid investments that are readily
convertible to known amount of cash and which are subject to an insignificant risk of changes in value. An
investment qualifies as cash equivalent if it matures within a short period of time, normally three months or
less, from the date of acquisition. (e.g. 3-month treasury bill, 90-day money market instrument, 3-month time
deposit, 1-year treasury bill acquired 3 months before maturity date)

Measurement

Cash is measured at face amount. Cash denominated in foreign currency is translated at the current exchange
rate as of reporting date.

MULTIPLE CHOICE QUESTIONS

1. Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash.
b. Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three months.
c. Short-term and highly liquid investments that are readily convertible into cash and so near their
maturity represent significant risk of changes in value because of changes in interest rates.
d. Short-term and highly liquid investments that are readily convertible into cash and acquired three
months before its maturity.

2. Statement 1: A cash item, though restricted, may still be reported as part of “cash and cash equivalents”.
Statement 2: “Cash and cash equivalents” may be presented as the last item in the asset section of the
statement of financial position.
a. True; False c. False; True
b. True; True d. False; False

3. Which of the following would not be classified as cash equivalent in the financial statements assuming the
balance sheet date is October 31, 2015?
a. 1-month money market placement
Page 1 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy
b. 3-month BSP treasury bill acquired on September 15, 2015 (due on December 15, 2015)
c. 6-month BSP treasury note acquired on October 1, 2015 (due on November 30, 2015)
d. 12-month BSP treasury note acquired on August 1, 2015 (due November 30, 2015)

4. Cash and cash equivalents in the statement of financial position excludes

a. Checks drawn before the reporting date but held for later delivery to creditors.
b. Time deposits
c. US dollar deposited in a foreign currency depository account
d. Cash reserved for the acquisition of fixed assets.

5. The amount reported as “cash” on a company’s statement of financial position normally should exclude
a. Petty cash fund
b. Postdated check issued by the company
c. Postdated check payable to the company
d. Undelivered check to the payee written and signed by the company

6. Which of the following would not be classified as cash?

a. Stale check issued to a customer c. Cashier’s checks
b. Traveler’s checks d. Personal check

7. Statement 1: Deposits in foreign banks are always reported as receivables.

Statement 2: A cash overdraft should be reported as a current liability.
c. True; False c. False; True
d. True; True d. False; False

8. Deposits held as compensating balances

a. Usually do not earn interest
b. If legally restricted and held against short-term credit may be included as cash
c. If legally restricted and held against long-term credit may be included among current assets
d. If legally restricted and held against short-term credit should not be included in the cash balance but is
reported among current assets.

9. Statement 1: Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related purpose or obligation for which cash was restricted.
Statement 2: Compensating balance required by a bank should always be excluded from the “cash”
classification on the balance sheet.
a. True; False c. False; True
b. True; True d. False; False

10. Bank overdraft, if material,

a. Should be reported as a deduction from the current asset section
b. May be offset against a demand deposit account maintained in another bank
c. Should be netted against cash and a net cash amount reported
d. Should be reported as a current liability

11. All of the following are necessary components of internal control over cash, except:
a. Imprest system c. Petty cash system
b. Bank reconciliation d. Cash reserve

12. A petty cash system is designed to

a. Cash checks for employees c. Account for all cash receipts and disbursements
b. Handle cash sales d. Pay small miscellaneous expenses

13. Under the imprest fund system, which of the following is not true?
a. The imprest petty cash system in effect adheres to the rule of disbursement by check.
b. Entries are made to the Petty cash account only to increase or decrease the size of the fund or to adjust
the balance if not replenished at year-end.
c. The Petty cash account is debited when the fund is replenished.
d. The account “Cash short/over” if debit balance, is presented as part of operating expenses.
Page 2 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy

14. A Cash short and over 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

15. The payments of accounts payable made subsequent to the close of the accounting period are recorded as if
they were made at the end of the current period.
a. Imprest system c. Window dressing
b. Lapping d. Kiting

16. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the
depositor’s records and to identify bank error. Adjustments should be recorded for
a. All books and bank reconciling items
b. All items except bank reconciling items
c. Book errors, bank errors, deposit in transit and outstanding checks
d. All book reconciling items and bank errors

17. In preparing monthly bank reconciliation, which of the following items would be added to the balance
reported on the general ledger to arrive at the correct cash balance?
a. Outstanding checks c. Debit memos
b. Deposit in transit d. Credit memos

18. In preparing monthly bank reconciliation, which of the following items would be deducted to the balance
reported on the bank statement to arrive at the correct cash balance?
a. Outstanding checks c. Debit memos
b. Deposit in transit d. Credit memos

19. Which of the following statement is true?

a. Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the
bank, all other things being equal.
b. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank,
all other things being equal.
c. In a bank reconciliation statement, the items found immediately below the “balance per bank statement”
caption needs journal entries.
d. In preparing monthly bank reconciliation, the amount of matured time deposits transferred by the bank
to the current account of the depositor must be added to the balance reported on the bank statement to
arrive at the correct cash balance.

20. Bank statements provide information about all of the following except
a. Checks cleared during the period c. NSF checks
b. Errors made by the company d. Bank charges for the period

21. AAA Company had the following transactions in its first year of operations:
Sales (90% percent collected) 7,500,000
Disbursements for costs and expenses 6,000,000
Purchase of equipment for cash 2,000,000
Proceeds from issuance of share capital 2,500,000
Payments on short-term borrowings 250,000
Proceeds from short-term borrowings 500,000
Depreciation of equipment 400,000
Disbursements for income taxes 450,000
Bad debts written off 300,000
Based on the above information, compute for the cash and cash equivalent that would be reported on the
December 31, 2015 statement of financial position.
a. P1,400,000 c. P850,000
b. P1,050,000 d. P750,000

Page 3 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy
22. The following data pertain to AAA Corporation on December 31, 2015:
Current account at Metrobank P 2,000,000
Current account at BPI ( 100,000 )
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s post dated 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 3/31/16 (purchased 12/31/15) 200,000
Treasury bills, due 1/31/16 (purchased 01/31/15) 300,000
Listed stock held as temporary investments 15,000

Based on the above information, compute for the cash and cash equivalent that would be reported on the
December 31, 2015 statement of financial position.
a. P3,084,000 c. P2,784,000
b. P2,790,000 d. P2,704,000

23. On December 31, 2015, the cash account of AAA Company shows the following composition:
Petty cash fund, P60,000; Cash in bank (payroll fund), P4,000,000; Travel fund, P300,000; Interest fund,
P400,000; Dividend fund, P100,000; Tax Fund, P240,000; Cash in bank (current account), P6,000,000;
Certificate of deposit (term of 90 days), P2,000,000; Certificate of deposits (term of 180 days), P3,000,000; Cash
in foreign bank-restricted, P1,000,000; Money market fund (60 days), P1,000,000; Money market fund (6
months), P1,800,000; Customer’s check dated January 15, 2016, P120,000; Customer’s check dated December
30, 2015 returned for lack of funds, P80,000; 30-day BSP treasury bill, P2,000,000; 3-year BSP treasury bonds
acquired three months prior to maturity, P2,400,000; Sinking fund cash, P1,600,000; Preferred redemption
fund, P800,000; Contingent fund, P600,000; Insurance fund, P400,000; Fund for the acquisition of a long lived
asset expected to be disbursed on January 5, 2016, P1,000,000; Traveler’s checks, P120,000; and Cashier’s
check, P200,000.

What is the correct cash and cash equivalents balance to be reported by AAA Company on December 31,
2015?
a. P19,220,000 c. P16,420,000
b. P18,820,000 d. P15,620,000

24. You noted the following composition of AAA Company’s “cash account” as of December 31, 2015:
Demand deposit account P 2,000,000
30-day Time deposit 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2016) 1,500,000
Savings deposit in a closed bank 100,000
Sinking fund cash 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer check dated January 1, 2016 50,000
Customer check outstanding for 18 months 40,000
Total P 7,760,000
Additional information follows:
 Check of P200,000 in payment of accounts payable was recorded on December 31, 2015 but mailed to
suppliers on January 5, 2016.
 Check of P100,000 dated January 15, 2016 in payment of accounts payable was recorded and mailed on
December 31, 2015.
 The company uses the calendar year. The cash receipts journal was held open until January 15, 2011,
during which time P400,000 was collected and recorded on December 31, 2015.
The cash and cash equivalents to be shown on the December 31, 2015 statement of financial position is
a. P1,910,000 c. P3,110,000
Page 4 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy
b. P2,910,000 d. P4,410,000

25. On December 31, 2015, the cash account of AAA Company showed the following details:
Undeposited collection P 60,000
Cash in bank – PCIB checking account 70,000
Undeposited DAUD check received from customer, dated December 1 15,000
Cash in bank – PNB fund for payroll 150,000
Cash in bank – PCIB savings deposit 100,000
Cash in bank – PCIB (overdraft) ( 50,000 )
Cash in bank – PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
Receivable from officers 10,000
Sinking fund cash (to be disbursed on April 1, 2016) 450,000
Preferential shares (to be redeemed on May 10, 2016) 120,000
On December 31, 2015, the “cash and cash equivalents” should be
a. P2,810,000 d. P2,660,000
b. P2,780,000 c. P780,000

26. The following pertains to AAA Trading on September 30, 2015:

Correct cash balance in a general checking account – BDO P 320,000
Overdraft in a special checking account – Metrobank 20,000
Cash accumulated in a special fund for plant expansion (to be disbursed
on November 1, 2015) 150,000
Cash surrender value of life insurance policy 32,000
Cash travel advances in the hands of sales personnel 12,000
Currency and coins in a petty cash fund (AAA has not replenished the fund
to the imprest amount of P2,000) 580
On September 30, 2015, the “cash and cash equivalents” should be
a. P332,580 c. P322,000
b. P320,580 d. P302,000

27. The petty cash fund of AAA Company on December 31, 2015 is composed of the following:
Coins and currencies P 14,000
Petty cash vouchers:
Gasoline payments 3,000
Medical supplies 1,000
Cash advances to employees 2,000
Employee’s check returned by bank marked NSF 5,000
Check drawn by the company payable to the order of Kristine
Anson, petty cash custodian 20,000
A sheet of paper with names of employees together with contribution
for a bereaved co-employee, attached is a currency of 8,000
Total P 53,000
The petty cash ledger account has an imprest balance of P50,000. What is the correct amount of petty cash
on December 31, 2015?
a. P34,000 c. P14,000
b. P39,000 d. P42,000

28. The bookkeeper of AAA Company recently prepared the following bank reconciliation on December 31,
2015:
Balance per bank statement P 4,500,000
Add: Deposit in transit P 1,200,000
Checkbook and other bank charges 15,000
Customer check marked NSF 150,000 1,365,000
Total P 5,865,000
Deduct: Outstanding checks P 700,000
Error made by AAA in recording check
number 0000-0478 issued in December 45,000
Note collected by bank (excludes P2,000
Page 5 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy
collection fee) 568,000 1,313,000
Balance per book statement P 4,552,000

Page 6 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy
AAA Company has P150,000 cash on hand and a time deposit in the same bank of P500,000 on December 31,
2015. The amount to be reported as cash and cash equivalents in the statement of financial position on
December 31, 2015 should be
a. P5,000,000 c. P5,150,000
b. P5,650,000 d. P5,152,000

29. AAA Corporation reported a balance of P43,000 in its Cash account at the end of the month. There were
P20,000 deposits in transit and P15,000 of outstanding checks. The bank statement showed a balance of
P50,000, service charges of P6,000 and the proceeds of note collected by the bank for the company. The note
had a face value of P15,000. The interest of the note collected by the bank was
a. P12,000 c. P6,000
b. P 9,000 d. P3,000

30. Reconciliation of AAA Corporation’s bank account at November 30, 2015 follows:
Balance per bank statement P 3,150,000
Deposit in transit 450,000
Checks outstanding ( 45,000 )
Correct cash balance P 3,555,000

Balance per books P 3,558,000

Bank service charge ( 3,000 )
Correct cash balance P 3,555,000

December data are as follows:

Bank Book
Checks recorded P 3,450,000 P 3,540,000
Deposits recorded 2,430,000 2,700,000
Collections by bank (P600,000 plus interest) 630,000 -
NSF check returned with December bank statement 15,000 -
Balances 2,745,000 2,715,000

The checks outstanding on December 31, 2015 amount to

a. P 45,000 c. P90,000
b. P135,000 d. P0

PROBLEMS

PROBLEM 1
While checking the cash accounts of Rule Company on December 31, 2015, you find the following information:
Balance per books P67,760
Balance in checking account (outstanding checks of P9,876) 65,323
Deposit in bank closed by BSP 16,000
Deposit in transit 12,345
Currencies and coins counted 9,500
Petty cash fund (of which P450 is in the form of paid vouchers) 1,000
Bank charges not yet taken up in the books 58
Sinking fund 10,000
Receivables from employees 700
Book error in recording a check, the correct amount as paid by the bank
is P890 instead of P980 as recorded in the books, or a difference of 90

Required: What is the correct cash for Rule Company on December 31, 2015?

Page 7 of 8
Financial Accounting and Reporting University of Luzon
Cash and Cash Equivalents College of Accountancy

PROBLEM 2
Shown below is the bank reconciliation for Len Company for May 2015.

Balance per bank, May 31, 2014 P75,000

Add: Deposit in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank credit recorded in error 5,000 19,000
Cash balance per book, May 31, 2014 P68,000

The bank statement for June 2015 contains the following data:

Total deposits P55,000

Total charges, including an NSF check of P4,000 and a service
charge of P200 48,000

All outstanding checks on May 31, 2015, including the bank credit, were cleared in bank in June 2015. There
were outstanding checks of P15,000 and deposits in transit of P19,000 on June 30, 2015.

Required:

 What is the cash balance per bank on June 30, 2015?

 What is the cash balance per books on June 30, 2015?

PROBLEM 3
Taken from the records of ABC Co. are the following:
Balance per bank statement, October 31 P4,600
Balance per bank statement, November 30 3,800
Total credits per bank statement, November 1,500
Balance per books, October 31 3,700
Total credits per books, November 5,200
Balance per books, November 30 1,600
Collection of note directly credited to ABC in October 500
Proceeds of loan directly credited to ABC in November 300
NSF checks returned in October 900
NSF checks returned in November 200
Checks received from a customer amounting to P200 was recorded in
the books in October as 2,000
Checks issued to supplier amounting to P100 was recorded in the
books in November as 1,000
Collections in November for P1,300 was recorded as 300
Checks properly drawn for P1,900 was recorded by the bank in
October as 190
Deposit amounting to P1,500 was recorded by the bank in November
as 150
Deposits in transit- October 31 800
Outstanding checks- October 31 2,190

Required: Prepare a 4-column proof of cash for the month of November.

-----end-----

Page 8 of 8