I.

Accounting Definition
A. Cash
1. Medium of exchange acceptable by banks for deposit at face value
2. Usual composition of cash in F/S
a. Cash on Hand (BBMMCT) Bank drafts, bills & coins, money orders,
managers check, customers check, travelers check
b. Cash in Bank (Savings & Checking account)
c. Working Funds separated for current use (DIPPCT) dividend fund,
interest fund, payroll fund, petty cash fund, change fund, tax fund.
B. Cash Equivalents
1. Short term & highly liquid investment subject to an insignificant risk of
change and value
2. Criterion for determining Cash Equivalent matures within short period of
time from date of acquisition, not balance sheet date, not date of
instrument (3 months/90 days or less)
3. Equity shares are not Cash Equivalent (they dont have maturity)
4. Redeemable Preference Share required to redeem by issuing corporation
can be CE if acquired 3 months before redemption/maturity date
(liability in substance)
5. Examples of Cash Equivalent treasury bills, commercial paper, money
market instrument with maturity of 3 months or less with date of
acquisition. (If silent CE)
II. Criteria for Cash Presentation
A. Cash item qualifies to be presented as cash if unrestricted and immediately
available for current operations (purchase of current assets, payment of
current liability, payment of operating expenses.
B. Presentation of cash as to whether current or non-current parallel the intentions
of the management
Presented as
1. Sinking Fund fund segregated for the bonds (NCL)
Cash
X
2. Plant expansion for expansion Ex. to be disbursed in
X
3 months
X
to be disbursed in 1 year
X
to be disbursed in 2 years
*regardless the time of disbursement, other non-current financial asset
III. Special Consideration on Presentation & Measurement of Cash in F/S (Inclusion
& Exclusion to Cash)

A. Foreign currency denominated cash

*unrestricted cash (+) (Convert using exchange rate at Balance Sheet
date)
*restricted exclude
B. Cash in Closed Bank classified to receivable & write down to its
recoverable amount
Ex. 3A6 Corp. has a deposit to ABC bank amounting to 750000. On July 1,
2012, the bank is held under bankruptcy.
Journal Entry: Receivable 500000
Loss
250000
Cash
750000
C. Compensating Balance amount required by bank to maintain as support
*Cash unless legally restricted

Accounting for Cash and Cash EquivalentsPage 1

*if silent unrestricted cash

*if legally restricted exclude as cash
- long term NCA
- short term CA but not cash
D. Bank Overdraft reported as current liability except
1. There is another account with the same bank.
2. Right of offset exists.
E. Expense Advances reported as Prepaid Expense.
F. Customers Postdated Check excludes to cash & reported to cash and
recognize as liability.
Journal Entry:
Cash xx
AJE: A/R
xx
A/R
xx
Cash
xx
G. No Sufficient Fund or I Owe You reported as receivable (the same as
Cust. PDC)
H. Companys Undelivered/Unreleased Check must be reverted to cash &
recognize as liability.
Journal Entry:
Expense/Payable xx
AJE: Cash
xx
Cash
xx
Payable
xx
I. Companys Postdated Check same as letter H (even if delivered)
*Rule for H and I deducted to cash only if check is already dated and check
is released.
IV. Accounting for Petty Cash Fund (Imprest System)
A. Purpose for payment of small amount expenses
B. Accounting Entries (ERAI)
1. Establishment 2. Replenishment Exp.
xx

PCF
xx
CIB
xx
Expense/AR/Pre.
CIB

xx
3. Adjustment at period end (remove cash items)
Expense/AR/Pre. Exp.
xx
PCF
xx
4. Increase/Decrease in PCF Balance
PCF
xx
CIB
xx
CIB
xx
PCF
xx
*No entry is being made upon actual disbursement under imprest system
C. Cash Shortage/Overage Profit and Loss
1. Formula: Total Accountability Total Accounted = (+) Shortage, (-)
Overage
Example: 3A6 Co. is petty cash custodian of AMV Co. Petty cash is
establish for 48000. During the month the expense voucher is 25000. At
the end of the month the PCF is composed of the ff.
Expense Vouchers
25000
Bills and Coins
15000
Petty Cash Custodian Sal. Check
5000
IOU
3000
Postage Stamps
Envelope containing collections from
other employees that reserve as cash
Accounting for Cash and Cash EquivalentsPage 2

gift for another employee. (Envelope

sealed or close)
4500

a. Establishment:

PCF
48000
CIB
48000
b. Disbursement of 25000 No entry
c. Adjustment:
c.1. Compute Shortage/Overage:
Accountability : 48k+4.5k =
52500
Accounted: 25k+15k+5k+3k+1k+4.5K =
-53500
-1000
over
c.2. AJE:
Expense
25000
Rec from Employee
3000
1000
Prepaid Expense
1000
PCF
29000

Entry for overage:

Cash in Bank
1000
Cash Overage

c.3. How much is the PCF?

c.3.1Formula:
Bills and Coins (deduct cash that does not belong to the group)
15000
+ Replenishment Check
+ Certified Check
+ Dated Employee Check
+ Custodian Salary Check
- Cash Overage

5000

(1000)
19000
c.3.2 T-Account
*What if envelope is found to be open?
Compute Shortage/Overage:
Accountability: 48k+4.5k
= 52500
Accounted:
25k+15k+5k+3k+1k
= -49000
3500
short
AJE:
the PCF?
Expense
25000
Rec from Employee3000
Prepaid Expense
1000
Accounting for Cash and Cash EquivalentsPage 3

How much is
Formula:

Cash Shortage

3500

T-

Account
PCF

32500

V. Bank Reconciliation
A. Purpose - to agree bank statement and cash balance for records of company to
make sure all cash is accounted
B. Entries
Company's
Cash in Bank
Deposist
Disbursem
ent
Debit
Memo

A/R
A/P or Exp
CIB
Exp or A/R
CIB
CIB
Inc/Rec/Pa
y

Bank
CIB
Liab to
dep.
Liab. to dep.
CIB
Liab. to dep.
CIB
CIB
Liab to
dep.

Credit
C. Types
of Bank
Memo
Recon
1. 2 Column / Single date reconciliation reconciles ending cash balance
a. Unadjusted to Adjusted method
per bank
per book
Unadjusted Balance
xxx
xxx
+ Recon Items
xxx
xxx
Adjusted Balance
xxx
xxx
b. Bank to Books
Unadjusted Balance per bank
+ Recon Items
Unadjusted Balance per book

xxx
xxx
xxx

c. Book to Bank
Unadjusted Balance per book
+ Recon Items
Unadjusted Balance per bank

xxx
xxx
xxx

2. 4 Column / Proof of Cash

reconciliation of beginning cash balance, receipts, disbursements and
ending cash balance
VI. 2 Column Bank Reconciliation / Treatment in Reconciling Items
A. Bank Reconciling Items it is reconciling items to be effected in bank
balance for purpose of bank recon.
1. Deposit in Transit / Undeposited Collection receipts already added
to the companys books but not yet reflected in the bank statement
DIT addition to
cash balance
Accounting for Cash and Cash EquivalentsPage 4 per bank

*good check check is not yet deposited, check deposited but didnt
reconcile in the bank (cutoff)
Journal Entry in book:
Cash
xx
A/R
xx
*If Customer PDC adjust first the book balance before reconciliation
Example: Deposit in Transit of 30, included in the DIT is Customer PDC
amounting to 10
per bank
per book
Unadjusted
100
130 120
DIT
20
Adjusted
120
120
2. Outstanding Check companys check already recorded as
disbursement in the books but not yet reflected in the bank statement
because it is not yet presented to the bank for payment. (delivered and
dated check)
OC
Journal Entry in book:
A/P or Exp xx
deduction to
Cash
xx
cash balance
*If Companys PDC adjust first the book balance before reconciliation
per bank
Example: Outstanding Check of 30, included in the OC is Companys PDC
amounting to 10
per bank
per book
Unadjusted
100
70 80
OC
(20)
Adjusted
80
80
3. Bank Errors
a. Erroneous Bank Credit liability to the depositor (nadagdagdan
ang cash)
deduct bank balance
b. Erroneous Bank Debit add to book balance
B. Book Reconciling Items require AJE to books
1. Debit Memo charges or deduction to the depositors account made
by
deducted
to
bank
cash per
a. Bank Service Charge cost of check booklet and payment ofbook
bank
loan
bank Liab.
xx
book Expense
xx
Loans pay
xx
CIB
xx
CIB
xx
CIB
xx
b. NSF / DAIF / DAUD Bounce check
Company
Upon
Deposit
Upon
Return
Upon
Redeposit

CIB
A/R
A/R
CIB
CIB
A/R

Accounting for Cash and Cash EquivalentsPage 5

Bank
CIB
Liab to
dep.
Liab. to dep.
CIB
CIB
Liab to
dep.

b.1. NSF returned and redeposited this month, no entry made on the
return and redeposit
Unadj bank 20000, Unadj book 15000, DIT 5000, OC
10000, NSF 5000
Company
Upon
Deposit
DM no
effect

CIB

CIB
Liab to dep.
Liab. to dep.
CIB
CIB
Liab to dep.

A/R

Upon Return

No Entry

Upon
Redeposit

No Entry

per bank
20000
5000
(10000)
15000

Unadjusted
DIT
OC
Adjusted

DM add to
book

Bank

per book
15000
15000

b.2. NSF returned & redeposited this month, made entry for return but
no entry on redeposit
Unadj bank 25000, Unadj book 15000, DIT 5000, OC
10000, NSF 5000
Company

Bank

CIB

Upon
Deposit
Upon Return
Upon
Redeposit

CIB
A/R
Liab to dep.
A/R
Liab. to dep.
CIB
CIB
CIB
No Entry: needs AJE
Liab to dep.
per bank
per book
Unadjusted
25000
DIT
5000
OC
(10000)
DM
Adjusted
20000

15000
5000
20000

b.3. NSF returned this month and redeposited next month, no entry on
return and redeposit
Unadj bank 15000, Unadj book 15000, DIT 5000, OC
10000, NSF 5000
DM deduct
to book

Company
Upon
Deposit
Upon Return

CIB
A/R
No Entry: needs AJE

Accounting for Cash and Cash EquivalentsPage 6

Bank
CIB
Liab to dep.
Liab. to dep.
CIB

per bank
15000
5000
(10000)

Unadjusted
DIT
OC
DM
Adjusted

per book
15000
(5000)
10000

10000

b.4. NSF returned this month and redeposited next month, entry made
on return & no to redeposit
Unadj bank 20000, Unadj book 15000, DIT 5000, OC
10000, NSF 5000
DM no
effect

Company
Upon
Deposit

per bank
per book

DM deduct
to book

Upon Return
Unadjusted
DIT
OC
Adjusted

CIB

Bank
CIB
Liab to dep.
Liab. to dep.
CIB

A/R
A/R
CIB
20000
5000
(10000)
15000

15000
15000

b.5. NSF silent as to return or redeposit (NSF during the month treat as
normal debit memo)

c. Customers Check
c.1. Stale checks which were not deposited within 6 months
c.2. Mutilated crampled
Initial Entry: Cash xx
AJE: A/R
xx
A/R
xx
Cash
xx
2. Credit memo credit made directly by the bank
- additions / deposits made directly by bank
- if not yet reflected in the books at the date of recon, add to
cash per books
a.
Book (AJE)
Notes
CIB
collected by
bank
A/R
CIB
Proceeds of
bank loan
Notes Payable
b.
CIB
Interest
Income
Interest Income
Companys Check
b.1. Stale checks which were not deposited
b.2. Mutilated crampled
Initial Entry: A/P or Exp
xx
Cash
xx
Accounting for Cash and Cash EquivalentsPage 7

Bank
CIB
Liab to dep.
CIB
Liab to dep.
CIB
Liab to dep.
within 6 months
AJE: Cash
xx
A/P
xx

3. Booking Errors
a. Over / Understatement in recording of receipt
b. Over / Under recording of disbursement
VII. Proof of Cash / Treatment of reconciling items
A. Bank Recon Item
1. DIT / Undeposited collection

DIT Beg
DIT End
undeposite
d
collection
last month
& this
month

Bank
Beg
xx

Receipt

Disburseme
nt

(xx)
xx

Bank
End
xx

xx

xx

Bank Beg
OC Beg
OC End
OC beg &
End

Receipt

(xx)

Disburseme
nt
(xx)
xx

(xx)

2.
Outstanding
Check
Bank End
(xx)
(xx)

3. Bank Error
a. Erroneous bank credit
*last month deposit to Birch Co 10000, erroneously credited to Bench
*this month deposit to Birch Co 10000, erroneously credited to Bench
Bank Beg

Receipt

Disbursem
ent

Bank End

Bank Cr
(10000)
(10000)
b.
Beg
Bank Cr
(10000)
(10000)
End
Erroneous bank dedit
*last month beg charges to Birch Co 10000, erroneously debited to
Bench
*this month beg charges to Birch Co 10000, erroneously debited to
Bench

Bank Dr
Beg
Bank Dr
End

Bank Beg

Receipt

10000

(10000)

B. Book Reconciling Items

Accounting for Cash and Cash EquivalentsPage 8

Disbursem
ent

Bank End

(10000)

10000

1. Debit Memos
a. Bank Service Charges
Book Beg
BSC Beg

Receipt

(xx)

Disbursem
ent
(xx)

BSC End

xx

Book End
(xx)

b. NSF
b.1
Bank
Add R &
D Beg
of books

Receipt

Book Beg

Receipt

10000
10000

10000
AJE:Beg
10000
Bank

Add R &
End of
books

Book Beg

Disburseme
nt
10000
Disburseme
nt

Bank End

Book End

AJE: 10000 Disburseme

Receipt
nt
10000
10000
10000
Receipt
10000
AJE: 10000

Disburseme
nt
10000

b.2
Bank End

Book End
AJE: 10000

b.3
Bank Beg

Add D &
Deduct End
of books

Receipt
10000

Book Beg

Receipt

Disburseme
nt
10000

Bank End

Disburseme
nt

Book End

AJE: 10000

AJE: (10000)

10000
b.4

No
Adjustment

Bank Beg

Receipt
10000

Book Beg

Receipt
10000

Disburseme
nt
10000
Disburseme
nt
10000

Accounting for Cash and Cash EquivalentsPage 9

Bank End

Book End

b.5 NSF returned last month, redeposit this month, no entry made for
return and redeposit
Deduct Beg
and R of
books

Bank Beg

Receipt

Disburseme
nt

Bank End

Disburseme
nt

Book End

10000

Book Beg

Receipt

10000
(10000)

10000

2. Credit Memo

CM Beg

Book Beg

Receipt

xx

(xx)

CM End

Disburse
ment

Book End

xx

xx

3. Book Error
a. Error in recording receipt
*error last month, correct amount 9000, recorded 8000
*error this month, correct amount 9000, recorded 8000

last
month
this
month

Book Beg

Receipt

1000

(1000)

Disburse
ment

1000

Book End

1000

b. Error in recording disbursement

*error last month, correct amount 9000, recorded 8000
*error this month, correct amount 9000, recorded 8000
Book Beg
last
month
this
month

Receipt

(1000)

Accounting for Cash and Cash EquivalentsPage 10

Disburse
ment

Book End

(1000)
1000

(1000)