05 Cash Cash Equivalents

FINANCIAL ACCOUNTING
THEORY & PRACTICE

CASH AND CASH EQUIVALENT
QUIZZER
Cash and Cash Equivalent
CASH AND CASH EQUIVALENTS
Essay Questions
1. What is cash?
From the point of view of a layman, "cash" simply means money. Money is the standard
medium of exchange in business transactions which 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. It 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.
2. What is the meaning of "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 it is cash
or a cash equivalent unless it is restricted from being exchanged or used to settle a liability
for at least twelve months after the end of reporting period." Accordingly, to be reported as
"cash" as a current asset, 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. Thus, unrestricted cash includes cash on hand, cash in
bank and cash fund set aside for current purposes.
3. What is the meaning of "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 rates. PAS 7 further states that "only
highly liquid investments that are 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
Essay Questions Page 1

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.
4. Explain the valuation of cash in the statement of financial position.
Cash is valued at face value. Cash in foreign currency is valued at the current exchange rate.
If a bank or financial institution holding the funds of the entity is in bankruptcy or financial
difficulty, cash should be written down to estimated realizable value if the amount recoverable
is estimated to be lower than the face value.
5. Explain the financial statement presentation and classification of cash and cash equivalents.
The caption "cash and cash equivalents" should be shown as the first item among the 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.
6. Explain the classification of investments in time deposit, money market instrument, and
treasury bills.
Investments in time deposit, money market instruments and treasury bills should be classified
as follows:
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 or temporary investments and presented separately as current assets.
c. If the term is more than one year, such investments are classified as long-term
investments. However, if such investments become due within one year from the end of
the reporting period, they are reclassified as temporary investments.
7. Explain the treatment of foreign currency.
Cash in foreign currency shall 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, if material, shall
be classified separately among noncurrent assets and the restriction clearly indicated.
8. Explain the classification of a cash fund set aside for a certain purpose.
If the cash fund is set aside for use in current operations, it is a current asset. It is included
as part of cash and cash equivalents. Examples of such 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 purposes, it is shown as long-term investment. Examples of
such fund are sinking fund, preferred redemption fund, contingent fund, insurance fund and
fund for acquisition or construction of property, plant and equipment. Classification of a cash
fund as current or noncurrent should parallel the classification of the related liability.
9. Explain the treatment of a bank overdraft.
When the cash in bank account has a credit balance, it is said to be an overdraft. The credit
balance in the cash in bank account results from the issuance of checks in excess of the
deposits. A bank overdraft is classified as a current liability and should not be offset against
other bank accounts with debit balances.
However, when the entity maintains two or more accounts in one bank and one account
results in an overdraft, such overdraft may be offset against the other bank account with a
debit balance. Moreover, an overdraft may also be offset against the other bank account if
the amount is not material.
10. What is a compensating balance? Explain the classification in the statement of financial
position.
A compensating balance is the minimum checking or demand deposit account balance that
must be maintained in connection with a borrowing arrangement with a bank.
For example, an entity borrows P2,000,000 from a bank and agrees to maintain 10%
compensating balance or P200,000 in a current or checking account.
In effect, this arrangement results in the reduction of the amount borrowed because the
compensating balance provides a source of funds to the bank as partial compensation for
the loan extended.

11. Explain fully the treatment 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.
In many instances and in accordance with normal banking practices, deposits are not legally
restricted because most often compensating balance agreements are informal and therefore
not legally binding. The amount and nature of such agreements whether legally or not legally
restricted shall be fully disclosed in the notes to financial statements.
12. What is the meaning of undelivered check? Postdated check? Stale 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. The unreleased check shall not be treated
as outstanding check. Accordingly, the original entry for the payment shall be reversed so as
to restore the cash balance and the related liability account.
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.
A stale check is a check not encashed by the payee within a relatively long period of time. 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, the entity
may issue a "stop payment order" to the bank for the cancelation of the stale check. The
stale check previously issued by an entity shall also be restored to the cash balance.
13. Explain window dressing, lapping and kiting.
Window dressing is a practice of opening the books of accounts beyond the close of the
accounting period for the purpose of showing a better financial position and performance.
Window dressing is usually perpetrated as follows:
a. By recording as of the last day of the accounting period collections made subsequent to
the close of the period.

b. By recording as of the last day of the accounting period payments of accounts made
subsequent to the close of the period.
Lapping consists of misappropriating a collection from one customer and concealing this
defalcation when collection is made from another customer.
Kiting is a transfer of cash from one bank to another bank. Kiting is usually employed at the
end of the month. Kiting occurs when a check is drawn against a first bank and depositing
the same check in a second bank to cover the shortage in the latter bank.
14. Explain the imprest system.
The imprest system is an internal control device for cash which requires that all cash receipts
should be deposited intact and all cash payments should be made by means of check. Small
disbursements are paid out of the petty cash fund.
15. What are the two systems of handling petty cash fund? Explain briefly.
1. Imprest fund system - Pretty cash expenses are recorded upon replenishment. The
amount of the replenishment is normally equal to the petty cash disbursements.
2. Fluctuating fund system — Petty cash expenses are immediately recorded. The amount
of replenishment may be equal to, more or less than, the petty cash disbursements.
16. What is a bank reconciliation?
A bank reconciliation is a statement which brings into agreement the cash balance per book
and cash balance per bank. It is usually prepared monthly because the bank provides the
depositor with the bank statement at the end of every month.
A bank statement is a monthly report of the bank to the depositor showing the cash balance
per bank at the beginning, the deposits acknowledged, the checks paid, other charges and
credits and the daily cash balance per bank during the month. Actually, the bank statement
is an exact copy of the depositor's ledger in the records of the bank.
17. What are credit memos and debit memos?
Credit memos refer to items not representing deposits credited by the bank to the account of
the depositor but not yet recorded by the depositor as cash receipts. They have the effect of

increasing the bank balance. Typical examples of credit memos are note collected by bank
in favor of the depositor and proceeds of bank loan credited to the account of the depositor.
Debit memos refer to items not representing checks paid by bank which are charged or
debited by the bank to the account of the depositor but not yet recorded by the depositor as
cash disbursements. They have the effect of decreasing the bank balance.
Typical examples of debit memos are NSF checks and bank service charges.
18. Explain deposits in transit.
Deposits in transit are collections already recorded by the depositor as cash receipts but not
yet reflected on the bank statement.
Deposits in transit include:

a. Collections already forwarded to the bank for deposit but too late to appear in the bank
statement.
b. Undeposited collections or those still in the hands of the depositor. In effect, these are
cash on hand awaiting delivery to the bank for deposit.
19. Explain outstanding checks.
Outstanding checks are checks already recorded by the depositor as cash disbursements
but not yet reflected on the bank statement. Outstanding checks include:
a. Checks drawn and already given to payees but not yet presented for payment.
b. Certified checks - A certified check is one where the bank has stamped on its face the
word "accepted" or "certified" indicating sufficiency of fund.
When the bank certifies a check, the account of the depositor is immediately debited or
charged to insure the eventual payment of the check.
Certified checks should be deducted from the total outstanding checks (if included therein)
because they are no longer outstanding for bank reconciliation purposes.
20. What are the three forms of bank reconciliation?
1. Adjusted balance method - Under this method, the book balance and the bank balance
are brought to a correct cash balance that must appear on the balance sheet.

2. Book to bank method - Under this method, the book balance is reconciled with the bank
balance or the book balance is adjusted to equal the bank balance.
3. Bank to book method - Under this method, the bank balance is reconciled with the book
balance or the bank balance is adjusted to equal the book balance.
21. What is a "proof of cash"?
A proof of cash is an expanded reconciliation in that it includes proof of receipts and

disbursements. This approach may be useful in discovering possible discrepancies in
handling cash particularly when cash receipts have been recorded but have not been
deposited.

Multiple Choice - Theory
Cash
1. Which of the following is usually considered cash?
A. Certificate of deposit C. Money market saving certificate
B. Checking account D. Postdated check FA © 2014
2. Which of the following shall not be considered cash for financial reporting purposes?
A. Coin and currency C. Money orders
B. IOUs D. Petty cash fund FA © 2014
3. All of the following may be included in "cash", except

A. Checking account balance C. Money market instrument
B. Currency D. Saving account balance FA © 2014
4. Which of the following should not be considered "cash"?

A. Certified check C. Personal check
B. Change fund D. Postdated check FA © 2014
5. Which of the following should not be included in "cash"?

A. Certified check C. Personal check
B. Manager check D. Travel cash advance FA © 2014
6. At the end of the current year, an entity had various checks and papers in the safe. Which of
the following should not be included in "cash" in the current year-end statement of financial
position?
A. US $20,000 cash.
B. Past due promissory note issued in favor of the entity by the President.
C. The entity's undelivered check payable to a supplier dated December 31 of the current
year.
D. Another entity's P150,000 check payable to the entity dated December 15 of the current
year. FA © 2014
Cash equivalent
7. A cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amount of cash and
A. Is acceptable as a means to pay current liabilities.
B. Has a current market value that is greater than the original cost.
C. Is so near maturity that it presents insignificant risk of change in interest rate.
MCQ – Theory Page 8

D. Bears an interest rate that is at least equal to the prime interest rate at the date of
liquidation. FA © 2014
8. Which of the following is not considered as a cash equivalent?

A. A 90-day T-bill
B. A 60-day money market placement
C. A three-year treasury note maturing on May 30 of the current year purchased by the
entity on April 15 of the current year
D. A three-year treasury note maturing on May 30 of the current year purchased by the
entity on January 15 of the current year FA © 2014
Cash & cash equivalent

9. What is the basic requirement for cash and cash equivalent?
A. Deposited in bank
B. Unrestricted in use for current operations
C. Set aside for the liquidation of long-term debt
D. Available for the purchase of property, plant and equipment FA © 2014
10. Which of the following should be excluded from cash and cash equivalents?
A. Time deposit which matures in one year.
B. A customer's check denominated in a foreign currency.
C. The minimum cash balance in the current account which is maintained to avoid service
charge.
D. A check issued by the entity on December 27 of the current year but dated January 15
of next year. FA © 2014
11. All of the following can be classified as cash and cash equivalents, except?
A. A bank overdraft
B. Equity investments
C. Commercial papers held and due for repayment in 90 days
D. Redeemable preference shares acquired and due in 60 days FA © 2014
12. Which is false concerning measurement of cash and cash equivalents?

A. Cash is measured at face value.
B. Cash in foreign currency is measured at the current exchange rate.
C. Cash equivalents should be measured at maturity value, meaning face value plus
interest.
D. If a bank or financial institution holding the funds of the entity is in bankruptcy or financial
difficulty, cash should be written down to estimated realizable value. FA © 2014

Internal control over cash

13. Which of the following statements is incorrect?
A. Certain clerical personnel should be rotated among various jobs.
B. An entity's personnel should be given well-defined responsibilities.
C. The accounting function should be separated from the custodianship of assets.
D. The responsibility for receiving merchandise and paying for it should usually be given to
one person. FA © 2014
14. Which of the following is not a characteristic of a system of cash control?

A. Use of a voucher system
B. Daily deposit of all cash received
C. Internal audits at irregular intervals
D. Combined responsibility for handling and recording cash FA © 2014
Petty cash fund

15. Petty cash fund is
A. Restricted cash
B. Set aside for the payment of payroll
C. Separately classified as current asset
D. Money kept on hand for making minor disbursements of coin and currency rather than
by writing checks FA © 2014
16. The internal control feature specific to petty cash is

A. Assignment of responsibility C. Proper authorization
B. Imprest system D. Separation of duties FA © 2014
17. What is the major purpose of an imprest petty cash fund?

A. To ease the payment of cash to vendors
B. To effectively control cash disbursements
C. To effectively plan cash inflows and outflows
D. To determine the honesty of the petty cashier FA © 2014
18. The petty cash fund account under the imprest fund system is debited
A. Only when the fund is created.
B. When the fund is created and everytime it is replenished.
C. When the fund is created and when the fund is decreased.
D. When the fund is created and when the size of the fund is increased. FA © 2014

19. In reimbursing the petty cash fund, which of the following is true?
A. Cash in debited C. Petty cash is credited
B. Expense accounts are debited D. Petty cash is debited FA © 2014
20. Which of the following statements in relation to petty cash is incorrect?

A. The petty cash fund is reported as part of current assets.
B. The petty cash account is debited when the fund is replenished.
C. The imprest petty cash system in effect adheres to the rule of disbursement by check.
D. 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. FA © 2014
21. When a petty cash fund is used, which of the following statements is true?
A. The reimbursement of the petty cash fund should be credited to the cash account.
B. The balance of the petty cash fund should be reported in the statement of financial
position as a long-term investment.
C. The petty cashier's summary of petty cash payments serves as a journal entry that is
posted to the appropriate general ledger account.
D. Entries that include a credit to the cash account should be recorded at the time the
payments from the petty cash fund are made. FA © 2014
22. A Cash Over and Short account

A. Is not generally accepted.
B. Is a contra account to cash.
C. Is debited when the petty cash fund proves out over.
D. Is debited when the petty cash fund proves out short. FA © 2014
23. Which of the following statements in relation to the cash short or over account is true?
A. It would be impossible to have cash shortage or overage if employees were paid in cash
rather than by check.
B. If the cash short or over account has a debit balance at the end of the period it must be
debited to an expense account.
C. The entry to account for daily cash sales for which a small amount of cash shortage
existed would include a debit to cash short or over account.
D. A credit balance in a cash short or over account should be considered a liability because
the short changed customer will demand return of this amount. FA © 2014
24. Which of the following statements in relation to petty cash fund is false?
A. Each disbursement from petty cash should be supported by a petty cash voucher.
B. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund

out of the general cash account.

C. With the establishment of an imprest petty cash fund, one person is given the authority
and responsibility for issuing checks to cover minor disbursements.
D. At any time, the sum of the cash in the petty cash fund and the total of petty cash
vouchers should equal the amount for which the imprest petty cash fund was
established. FA © 2014
Presentation & disclosure

25. What is the treatment of customers' postdated checks?
A. Accounts payable C. Cash
B. Accounts receivable D. Prepaid expenses FA © 2014
26. If material, deposits in foreign bank which are subject to foreign exchange restriction shall be
classified
A. Be written off as loss.
B. As part of cash and cash equivalents.
C. Separately as current asset, with appropriate disclosure.
D. Separately as noncurrent asset with appropriate disclosure. FA © 2014
27. Under which classification is cash restricted for plant expansion reported?
A. Current assets C. Equity
B. Current liabilities D. Noncurrent assets FA © 2014
28. Bank overdraft generally should be
A. Reported as a current liability.
B. Reported as a deduction from cash.
C. Reported as a deduction from current assets.
D. Netted against cash and a net cash amount reported. FA © 2014
29. What is a compensating balance?

A. Saving account balance
B. Demand deposit account balance
C. Temporary investment serving as collateral for outstanding loan FA © 2014
D. Minimum deposit required to be maintained in connection with a borrowing arrangement
30. Deposits held as compensating balance

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. None of these FA © 2014

31. A compensating balance

A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as current asset.
C. Which is not legally restricted as to withdrawal is classified separately as current asset.
D. Which is legally restricted and related to a short-term loan is classified separately as
current asset. FA © 2014
32. At the end of the current year, an entity had cash accounts at three different banks. One
account is segregated solely for payment into a bond sinking fund. A second account, used
for branch operations, is overdrawn. The third account, used for regular corporate operations,
has a positive balance. How should these accounts be reported?
A. The segregated and regular accounts should be reported as current assets net of the
overdraft
B. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current Iiability
C. The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft
D. The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset, and the overdraft should be reported as a current
liability FA © 2014
Bank reconciliation
33. A bank reconciliation is
A. A merger of two banks that previously were competitors.
B. A statement sent by the bank to depositor on a monthly basis.
C. A formal financial statement that lists all of the bank account balances of an entity.
D. A schedule that accounts for the differences between an entity's cash balance as shown
in the bank statement and the cash balance shown in the general ledger. FA © 2014
34. Bank statements provide information about all of the following, except
A. Bank charges for the period C. Errors made by the depositor
B. Checks cleared during the period D. NSF checks FA © 2014
35. Which of the following items must be added to the cash balance per ledger in preparing a
bank reconciliation which ends with adjusted cash balance?
A. Service charge
B. NSF customer check
C. Erroneous bank debit
D. Note receivable collected by bank in favor of the depositor and credited to the account
of the depositor FA © 2014

36. When preparing a bank reconciliation, bank credits are

A. Added to the balance per book.
B. Added to the bank statement balance.
C. Deducted from the balance per book.
D. Deducted from the bank statement balance. FA © 2014
37. In preparing a bank reconciliation, interest paid by the bank on the account is FA © 2014
A. Added to the bank balance C. Subtracted from the bank balance
B. Added to the book balance D. Subtracted from the book balance
38. In preparing a monthly bank reconciliation, which of the following would be added to the
balance per bank statement to arrive at the correct cash balance?
A. Deposits in transit
B. Outstanding checks
C. Bank service charge
D. A customer's note collected by the bank on behalf of the depositor FA © 2014
39. Which of the following must be deducted from the bank statement balance in preparing a
bank reconciliation which ends with adjusted cash balance?
A. Certified check
B. Deposit in transit
C. Outstanding check
D. Reduction of loan charged to the account of the depositor FA © 2014
40. If the balance shown on an entity's bank statement is less than the correct cash balance and
neither the entity nor the bank has made any errors, there must be
C. Bank charges not yet recorded by the entity
D. Deposits credited by the bank but not yet recorded by the entity FA © 2014
41. If the cash balance shown on entity's accounting records is less than the correct cash balance
and neither the entity nor the bank has made any errors, there must be
C. Bank charges not yet recorded by the entity
D. Deposits credited by the bank but not yet recorded by the entity FA © 2014

42. Which of the following would not require an adjusting entry on the depositor's books?
A. Bank service charge
B. NSF check from customer FA © 2014
C. Deposit of another entity is credited by the bank to the account of the depositor
D. Check in payment of account payable as recorded by the depositor is overstated
43. The adjusting entries for a bank reconciliation

A. Are taken from the "balance per bank" section only.
B. May include a debit to office expense for bank service charge.
C. May include a debit to accounts payable for an NSF customer check.
D. May include a credit to accounts receivable for an NSF customer check. FA © 2014
44. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed
in the depositor's records and to identify bank errors. Adjustments on the part of the depositor
should be, recorded for
A. Outstanding checks and deposits in transit.
B. Bank errors, outstanding checks and deposits in transit.
C. Book errors, bank errors, deposits in transit and outstanding checks.
D. All items except bank errors, outstanding checks and deposits in transit. FA © 2014
45. Which of the following statements in relation to bank reconciliation is true?

A. The cash amount reported in the statement of financial position must be the balance
reported in the bank statement.
B. Credit memos will cause the cash balance per ledger to be higher than that reported by
the bank, all other things being equal.
C. Bank service charge will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal.
D. Outstanding checks will cause the cash balance per ledger to be greater than the
balance reported by the bank, all other things being equal. FA © 2014
46. Which of the following statements is false?

A. A certified check is a liability of the bank certifying it.
B. A certified check is one drawn by a bank upon itself.
C. A certified check should not be included in the outstanding checks.
D. A certified check will be accepted by many persons who would not otherwise accept a
personal check. FA © 2014

Proof of cash
47. A proof of cash
A. Is a summary of cash receipts and cash payments.
B. Is a formal statement showing the total cash receipts during the year.
C. Is a physical count of currencies on hand at the end of reporting period. FA © 2014
D. Is a four-column bank reconciliation showing reconciliation of cash balances per book
and per bank at the beginning and end of the current month and reconciliation of cash
receipts and cash disbursements of the bank and the depositor during the current month.
48. A proof of cash would be useful for

A. Discovering time lag in making deposits
B. Discovering cash receipts that have not been recorded in the journal FA © 2014
C. Discovering an inadequate separation of incompatible duties of employees
D. Discovering cash receipts that have been recorded but have not been deposited

Multiple Choice Problems

Petty cash fund
1. Timex Company reported petty cash fund which comprised the following:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager's check returned by bank marked "NSF" 1,000
Check drawn by the entity to the order of petty cash custodian 2,700
What is the correct amount of petty cash fund for statement presentation purposes?
A. 6,000 C. 9,000
B. 7,000 D. 10,000 P1 © 2014
2. Liwanag Company reported petty cash fund with the following details:
Coins & Currencies 22,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500
Loans to employees 3,500
A check drawn by the entity payable to the order of Grace de la Cruz,
petty cash custodian, representing her salary 15,000
An employee's check returned by the bank for insufficiency of funds 3,000
A sheet of paper with names of several employees together with contribution for a birthday
gift of a co-employee. Attached to the sheet of paper is a currency of 5,000
The petty cash general ledger account has an imprest balance of P50,000.
What is the amount of petty cash fund that should be reported in the statement of financial
position?
A. 22,000 C. 37,000
B. 27,000 D. 42,000 FA © 2014
MCQ – Problems Page 17

Cash
3. Thor Company provided the following data on December 31, 2014:
Checkbook balance 4,000,000
Bank statement balance 5,000,000
Check drawn on Thor's account, payable to supplier, dated and
recorded on December 31, 2014, but not mailed until January 15,2015 500,000
Cash in sinking fund 2,000,000
On December 31, 2014, what amount should be reported as "cash" under current assets?
A. 3,500,000 C. 5,500,000
B. 4,500,000 D. 6,500,000 P1 © 2014
4. 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's check ' 200,000
Manager's check 100,000
Money order 150,000
What total amount should be reported as "cash" at year-end?
A. 4,800,000 C. 6,800,000
B. 5,000,000 D. 7,000,000 P1 © 2014
5. ABC Company reported that the cash account per ledger had a balance on December 31,
2014 of P4,415,000 which consisted of the following:
Undeposited receipts, including a postdated customer check for P70,000 1,220,000
Cash in Allied Bank, per bank statement, with
a check for P40,000 still outstanding 2,245,000
Bond sinking fund 850,000
Vouchers paid out of collections, not yet recorded 43,000
IOUs signed by employees, taken from collections 33,000
4,415,000
What amount should be reported as cash on December 31,2014?
A. 3,379,000 C. 3,449,000
B. 3,419,000 D. 3,489,000 P1 © 2014

6. Dove Company reported checkbook balance on December 31, 2014 at P4,000,000. Data
about certain cash items follow:
* A customer check amounting to P200,000 dated January 2, 2015 was included in the
December 31, 2014 checkbook balance.
* Another customer check for P500,000 deposited on December 22, 2014 was included in
the checkbook balance but returned by the bank for insufficiency of fund. This check
was redeposited on December 26, 2014 and cleared two days later.
* A P400,000 check payable to supplier dated and recorded on December 30, 2014 was
mailed on January 16, 2015.
* A petty cash fund of P50,000 with the following summary on December 31,2014:
Coins and currencies 5,000
Petty cash vouchers 43,000
Return value of 20 cases of soft drinks 2,000
50,000
* A check of P43,000 was drawn on December 31, 2014 payable to Petty Cash.
What total amount should be reported as "cash" on December 31, 2014?
A. 3,748,000 C. 4,205,000
B. 4,200,000 D. 4,248,000 P1 © 2014
Unrestricted cash
7. Islander Company provided the following information with respect to the cash and cash
equivalents on December 31,2014:
Checking account at First Bank (200,000)
Checking account at Second Bank 3,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account - unrestricted (in equivalent pesos) 2,000,000
Postage stamps 50,000
Employee's postdated check 300,000
IOU from president 750,000
Credit memo from a vendor for a purchase return 80,000
Traveler's check 300,000
Not-sufficient-fund check 150,000
Petty cash fund (P20,000 in currency and expense receipts for P30,000) 50,000
Money order 180,000
What amount should be reported as unrestricted cash on December 31, 2014?
A. 4,600,000 C. 5,900,000
B. 4,900,000 D. 6,900,000 P1 © 2014

Cash & cash equivalents

8. On December 31, 2014, West Company had the following cash balances:
Cash in bank 1,800,000
Petty cash fund (all funds were reimbursed on 12/31/2014) 50,000
Time deposit (due February 1,2015) 250,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement on December 31, 2014. The compensating balance is legally restricted as to
withdrawal. On December 31,2014, what total amount should be reported as cash and cash
equivalents?
A. 1,250,000 C. 1,850,000
B. 1,500,000 D. 2,100,000 P1 © 2014
9. Pygmalion Company had the following account balances on December 31, 2014:
Cash in bank - current account 5,000,000
Cash in bank - payroll account 1,000,000
Cash in bank - restricted account for building
construction expected to be disbursed in 2015 3,000,000
Time deposit, purchased December 15, 2014 and due March 15, 2015 2,000,000
The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2015.
What total amount should be reported as "cash and cash equivalents" on December 31,
2014?
A. 6,300,000 C. 8,300,000
B. 6,500,000 D. 8,700,000 P1 © 2014
10. Everlast Company reported the following information at the current year-end:
* Investment securities of P1,000,000. These securities are share investments in entities
that are traded in the Philippine Stock Exchange. As a result, the shares are very actively
traded in the market.
* Investment securities of P2,000,000. These securities are government treasury bills. The
treasury bills have a 10-year term and purchased on December 31 at which time they
had two months to go until they mature.
* Cash of P3,400,000 in the form of coin, currency, saving account and checking account.
* Investment securities of P1,500,000. These securities are commercial papers. The term
of the papers is nine months and they were purchased on December 31 at which time
they had three months to go until they mature.
What total amount should be reported as cash and cash equivalents at the current year-end?
A. 5,400,000 C. 6,900,000
B. 6,400,000 D. 7,900,000 P1 © 2014

11. On December 31,2014, Roel Company reported cash accounts with the following details:
Undeposited collections 60,000
Cash in bank - PCIB checking account 500,000
Cash in bank - PNB (overdraft) ( 50,000)
Undeposited NSF check received from customer, dated Dec. 1, 2014 15,000
Undeposited check from a customer, dated January 15, 2015 25,000
Cash in bank - PCIB (fund for payroll) 150,000
Cash in bank - PCIB (saving deposit) 100,000
Cash in bank - PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank restricted 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Financial asset held for trading 120,000
On December 31, 2014, what total amount should be reported as "cash and cash
equivalents"?
A. 810,000 C. 2,770,000
B. 2,660,000 D. 2,810,000 P1 © 2014
12. Campbell Company had the following account balances on December 31, 2014:
Cash in bank - sinking fund 2,000,000
Cash in bank - restricted account for plant addition,
expected to be disbursed in 2015 1,500,000
Treasury bills 1,000,000
The petty cash fund included unreplenished December 2014 petty cash expense vouchers
of PI 0,000 and employee IOU of P5,000. The cash on hand included a P100,000 check
payable to Campbell dated January 15,2015. In exchange for a guaranteed line of credit, the
entity has agreed to maintain a minimum balance of P200,000 in its unrestricted current bank
account. The sinking fund is set aside to settle a bond payable that is due on June 30,2015.
What total amount should be reported as "cash and cash equivalents" on December 31,
2014?
A. 4,435,000 C. 5,535,000
B. 5,435,000 D. 7,435,000 P1 © 2014

13. Yasmin Company provided the following information on December 31, 2014:
Current 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
* The petty cash fund included unreplenished December 2014 petty cash expense
vouchers for P15,000 and an employee check for P5,000 dated January 31,2015.
* A check for PI00,000 was drawn against First Bank current account dated and recorded
December 29,2014 but delivered to payee on January 15,2015.
* The Fourth Bank time deposit is set aside for land acquisition in early January 2015.
What total amount should be reported as "cash and cash equivalents" on December
31,2014?
A. 4,130,000 C. 5,130,000
B. 4,880,000 D. 5,150,000 P1 © 2014
14. Karla Company provided the following information on December 31,2014:

Security Bank current account 1,000,000
PNB Current account No. 1 400,000
PNB Current account No. 2 ' ( 50,000)
BSP treasury bill - 60 days 3,000,000
BPI time deposit - 30 days 2,000,000
* The cash on hand included a customer postdated check of P 100,000 and postal money
order of P40,000.
* A check for P200,000 was drawn against Security Bank account, dated January 15,
2015, delivered to the payee and recorded December 31, 2014.
* The BPI time deposit is set aside for acquisition of equipment.
What total amount of cash and cash equivalents should be reported on December 31,2014?
A. 1,970,000 C. 4,970,000
B. 4,770,000 D. 6,970,000 P1 © 2014
15. On December 31,2014, Erika Company reported "cash account" balance per ledger of
P3,600,000 which included the following:
Time deposit - 30 days 500,000
NSF check of customer 20,000
Money market placement due on June 30, 2015 1,000,000

Saving deposit 50,000

IOU from an employee 30,000
Pension fund 400,000
Customer check dated January 31,2015 60,000
Customer check outstanding for 18 months 30,000
3,600,000
* Check of P100,000 in payment of accounts payable was dated and recorded on
December 31, 2014 but mailed to creditors on January 15,2015.
* Check of P50,000 dated January 31, 2015 in payment of accounts payable was recorded
and mailed December 31,2014.
* The entity used the calendar year. The cash receipts journal was held open until January
15, 2015, during which time P200,000 was collected and recorded on December
31,2014.
What total amount should be reported as "cash and cash equivalents" on December
31,2014?
A. 1,510,000 C. 1,960,000
B. 1,860,000 D. 2,010,000 P1 © 2014
16. Celine Company provided the following information on December 31,2014:

Philippine Bank current account 5,000,000
Manila Bank current account 4,000,000
City Bank current account (bank overdraft) (100,000)
Asia Bank saving account for equipment acquisition 250,000
Asia Bank time deposit, 90 days 2,000,000
Cash on hand included customer check of P30,000 dated January 10, 2015 received on
December 23,2014.
Included among the checks drawn by Celine against the Philippine Bank current account and
recorded in December 2014 are:
* Check written and dated December 23, 2014 and delivered to payee on January 3,2015,
P25,000.
* Check written December 26, 2014, dated January 30, 2015, delivered to payee on
December 28, 2014, P45,000.
What total amount should be reported as cash and cash equivalents on December 31,2014?
A. 11,160,000 C. 11,330,000
B. 11,260,000 D. 11,510,000 P1 © 2014

Cash - current assets

17. Burr Company had the following account balances on December 31, 2014:
Cash restricted for addition to plant (expected to be disbursed in 2015) 1,600,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement. The compensating balance is not. legally restricted as to withdrawal. On
December 31, 2014, what total cash should be reported under current assets?
A. 1,775,000 C. 2,375,000
B. 2,250,000 D. 3,975,000 P1 © 2014
18. Tawiran Company reported cash account which consisted of the following:
Bond sinking fund 1,500,000
Checking account in BPI (A P320,000 check is still outstanding
per bank statement) 3,155,000
Currency and coins awaiting deposit 1,135,000
Deposit in a bank closed by BSP 500,000
Petty cash fund (of which P10,000 in is the form of paid vouchers) 50,000
Receivables from officers and employees 175,000
6,515,000
What total amount of cash should be reported under current assets?
A. 4,330,000 C. 4,830,000
B. 4,440,000 D. 5,830,000 P1 © 2014
19. ABC Company provided the following information on December 31, 2014:
Balance per book 6,776,000
Balance per bank statement 6,532,000
Deposit in bank closed by BSP 1,600,000
Deposit in transit 1,234,000
Outstanding checks 987,000
Currency and coins counted 950,000
Petty cash fund (of which P10,000 is in the form of paid vouchers) 50,000
Bank service charge not yet taken up in the book 6,000
Bond sinking fund 1,000,000
Receivables from employees 70,000
Error in recording a check in the book. The correct amount as paid by the
bank is P89,000 instead of P98,000 as recorded in the book, or a difference of9,000

What total amount of cash should be reported as current asset on December31,2014?

A. 6,779,000 C. 8,769,000
B. 7,769,000 D. 9,309,000 P1 © 2014
Bank reconciliation
Adjusted cash balance
20. Esteem Company provided the month-end bank statement which showed a balance of
P3,600,000. Outstanding checks amounted to PI,200,000, a deposit of P400,000 was
in transit at month-end, and a check for P50,000 was erroneously charged by the bank
against the account. What amount should be reported as cash in bank at month-end?
A. 2,050,000 C. 2,850,000
B. 2,750,000 D. 4,350,000 FA © 2014
21. Gallant Company showed a cash account balance of P4,500,000. The bank statement
did not include a deposit of P230,000 made on the last day of the month. The bank
statement showed a collection by the bank of P94,000 and a customer check for
P32,000 returned because it was NSF. A customer check for P45,000 was recorded
on the books as P54,000, and a check written for P79,000 was recorded as P97,000.
What amount should be reported as cash in bank?
A. 4,571,000 C. 4,801,000
B. 4,765,000 D. 4,819,000 FA © 2014
22. In preparing the August 31,2014 bank reconciliation, Apex Company provided the
following information:
Deposit in transit 325,000
Return of customer's check for insufficient fund 60,000
Bank service charge for August 10,000
On August 31,2014, what is the adjusted cash in bank?
A. 1,755,000 C. 1,795,000
B. 1,785,000 D. 1,855,000 FA © 2014
23. In preparing the bank reconciliation on December 31, 2014, Case Company provided
the following data:
Amount erroneously credited by bank to Case's account 40,000
Bank service charge for December 5,000

What is the adjusted cash in bank on December 31, 2014?.

A. 3,600,000 C. 3,645,000
B. 3,605,000 D. 3,685,000 FA © 2014
24. In an audit of Mindanao Company on December 31,2014, the following data are gathered:
Bank charges 3,000
Customer note collected by bank 375,000
Interest on customer note 15,000
Customer check returned NSF 62,000
Depositor's note charged to account 250,000
What is the adjusted cash in bank on December 31,2014?
A. 1,065,000 C. 1,325,000
B. 1,075,000 D. 1,575,000 P1 © 2014
25. Core Company provided the following data for the purpose of reconciling the cash
balance per book with the balance per bank statement on December 31,2014:
Outstanding checks (including certified check of P100,000) 500,000
December NSF checks (of which P50,000 had
been redeposited and cleared by December 27) 150,000
Erroneous credit to Core's account, representing
proceeds of loan granted to another company 300,000
Proceeds of note collected by bank for Core, net of service charge of P20,000750,000
What amount should be reported as cash in bank on December 31,2014?
A. 1,400,000 C. 1,500,000
B. 1,450,000 D. 1,800,000 FA © 2014
26. Aries Company kept all cash in a checking account. An examination of the accounting
records and bank statement for the month ended June 30, 2014 revealed the following
information:
* The cash balance per book on June 30 is P8,500,000.
* A deposit of P1,000,000 that was placed in the bank's night depository on June
30 does not appear on the bank statement. * The bank statement shows on June
30, the bank collected note for Aries and credited the proceeds of P950,000 to the
entity's account. * Checks outstanding on June 30 amount to P300,000.

* Aries discovered that a check written in June for P200,000 in payment of an

account payable, had been recorded in the entity's records as P20,000.
* Included with the June bank statement was NSF check for P250,000 that Aries
had received from a customer on June 26. * The bank statement shows a P20,000
service charge for June.
What amount should be reported as cash in bank on June 30,2014?
A. 8,300,000 C. 9,180,000
B. 9,000,000 D. 9,360,000 FA © 2014
27. Letty Company provided the bank statement for the month of April which included the
following information:
Bank service charge for April 15,000
Check deposited by Letty during April was not collectible
and has been marked "NSF" by the bank and returned 40,000
In comparing the bank statement to its own records, the entity found the following:
Deposits made but not yet recorded by bank 130,000
Checks written and mailed but not yet recorded by bank 100,000
All deposits in transit and outstanding checks have been properly recorded in the
entity's books. A customer check for P35,000 payable to Letty Company had not yet
been deposited and had not been recorded by the entity.
The cash in bank account balance per ledger is P920,000.
What is the adjusted cash in bank on April 30?
A. 865,000 C. 930,000
B. 900,000 D. 965,000 FA © 2014
28. Divine Company prepared the following bank reconciliation on December 31, 2014:
Add: Deposit in transit 195,000
Checkbook printing charge 5,000
Error made by Divine in recording check No. 45
(issued in December) 35,000
NSF check 110,000 345,000
3,145,000
Less: Outstanding check 100,000
Note collected by bank (includes P15,000 interest) 215,000 315,000
The entity had P200,000 cash on hand on December 31, 2014.

What amount should be reported as cash in the statement of financial position on December
31,2014?
A. 2,895,000 C. 3,095,000
B. 2,930,000 D. 3,130,000 FA © 2014
29. Ron Company provided the following data for the month of January of the current year:
Balance per book, January 31 3,130,000
Balance per bank statement, January 31 3,500,000
Collections on January 31 but undeposited 550,000
NSF check received from a customer returned by the
bank on February 5 with the January bank statement 50,000
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not recorded by depositor 5,000
A creditor check for P30,000 was incorrectly recorded in the depositor's book as
300,000
A customer check for P200,000 was recorded by the depositor as 20,000
The depositor neglected to make an entry in its books for a check
drawn in payment of an account payable 125,000
What is the adjusted cash in bank on January 31 ?
A. 2,950,000 C. 3,400,000
B. 3,130,000 D. 3,500,000 P1 © 2014
30. In reconciling the cash balance on December 31,2014 with that shown in the bank
statement, Sam Company provided the following information:
Service charge 10,000
Proceeds of bank loan, December 1, discounted for 6 months at 12%, not
recorded on Sam Company's books 940,000
Customer's check charged back by bank for absence of counter signature 50,000
Deposit of P100,000 incorrectly recorded by bank as 10,000
Check of Sim Company charged by bank against Sam account 150,000
Customer's note collected by bank in favor of Sam Company.
Face 400,000
Interest 40,000
Total 440,000
Collection fee 5,000
435,000

Erroneous debit memo of December 28, to charge Sam account with

settlement of bank loan 200,000
Deposit of Sim Company credited to Sam account 300,000
What is the adjusted cash in bank on December 31,2014?
A. 3,075,000 C. 4,015,000
B. 3,925,000 D. 4,315,000 P1 © 2014
31. Susan Company showed the following information on August 31, 2014.
Balance of cash in bank account 1,300,000
Balance of bank statement 1,200,000
Outstanding checks, August 31:
Number 555 10,000
761 55,000
762 40,000
763 25,000
764 65,000
765 70,000
Receipts of August 31, deposited September 1 275,000
Service charge for August 5,000
NSF check received from a customer 85,000
The cashier-bookkeeper had misappropriated P30,000 and an additional PI 0,000
by charging sales discounts and crediting accounts receivable. The stub for check
number 765 and the invoice relating thereto show that it was for P50,000. It was
recorded incorrectly in the cash disbursements journal as P70,000. This check was
drawn in payment of an account payable. Payment has been stopped on check
number 555 which was drawn in payment of an account payable. The payee cannot
be located. What is the adjusted cash in bank on August 31, 2014?
A. 1,200,000 C. 1,230,000
B. 1,210,000 D. 1,240,000 P1 © 2014
32. Mcbride Company provided the following data pertaining to the cash transactions and bank
account for May of the current year:
Cash balance per accounting record 1,719,000
Cash balance per bank statement 3,195,000
Bank service charge 10,000
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting record 12,000
Deposit of May 30 not recorded by bank until June 1 500,000

Proceeds of a bank loan on May 30, not recorded in

the accounting record, net of interest of P30,000 570,000
Proceeds from a customer's promissory note, principal amount P800,000
collected by the bank not taken up in the accounting record with interest 810,000
Check No. 1086 issued to a supplier entered in the accounting record as
P210,000 but deducted in the bank statement at an erroneous amount of 120,000
Stolen check lacking an authorized signature deducted
from Mcbride's account by the bank in error 80,000
Customer's check returned by the bank marked NSF, indicating that the
customer's balance was not adequate to cover the check; no entry has been
made in the accounting record to record the returned check 77,000
What is the adjusted cash in bank?
A. 2,910,000 C. 3,000,000
B. 2,990,000 D. 3,080,000 P1 © 2014
33. Carefree Company prepared the following bank reconciliation on March 31:
Book balance 1,405,000
Add: March 31 deposit 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total 4,805,000
Less: Careless Company's deposit to our account 1,100,000
Bank service charge 45,000 1,145,000
Adjusted book balance 3,660,000
Bank balance 5,630,000

Add: Error on check No. 175 45,000
Total 5,675,000
Less: Preauthorized payments for water bills 205,000
NSF check 220,000
Outstanding check 1,650,000 2,075,000
Adjusted bank balance 3,600,000
Check No. 175 was made for the proper amount of P249,000 in payment of account.
However it was entered in the cash payments journal as P294,000. The entity authorized
the bank to automatically pay its water bills as submitted directly to the bank. What is the
adjusted cash in bank on March 31 ?
A. 2,880,000 C. 3,630,000
B. 3,600,000 D. 3,660,000 P1 © 2014

Cash balance per ledger

34. Stellar Company provided the bank statement for the month of December which
included the following information:
Ending balance, December 31 2,800,000
Bank service charge for December 12,000
Interest paid by bank to Stellar Company for December 10,000
In comparing the bank statement to its own cash records, the entity found the following:
Deposits made but not yet recorded by the bank 350,000
Checks written and mailed but not yet recorded by the bank 650,000
In addition, the entity discovered that it had drawn and erroneously recorded a check
for P46,000 that should have been recorded for P64,000.
What is the cash balance per ledger on December 31?
A. 2,500,000 C. 2,540,000
B. 2,520,000 D. 2,800,000 FA © 2014
35. On June 30,2014, the bank statement of Bougainvilla Company had an ending
balance of P3,735,000. The following data were assembled in the course of
reconciling the bank balance:
* The bank erroneously credited Bougainvilla Company for P21,000 on June 22.
* During the month, the bank charged back NSF checks amounting to P23,000
of which P8,000 had been redeposited by June 25.
* Collection for June 30 totaling PI03,000 was deposited the following month.
* Checks outstanding on June 30 amounted to P302,000.
* Note collected by the bank for Bougainvilla Company was P80,000 and the
corresponding bank charge was P5,000.
What is the unadjusted cash in bank per ledger on June 30,2014?
A. 3,455,000 C. 3,557,000
B. 3,515,000 D. 3,497,000 P1 © 2014
Cash balance per bank statement

36. On March 31, 2014, Able Company received the bank statement. However, the
closing balance of the account was unreadable. Attempts to contact the bank after
hours did not secure the desired information. The following data are available in
preparing a bank reconciliation:
February 28 book balance 1,460,000
Note collected by bank 100,000
Interest earned on note 10,000
NSF check of customer 130,000
Bank service charge on NSF check 2,000

Other bank service charges 3,000

Deposit of February 28 placed in night depository 85,000
Check issued by Axle Company charged to Abie's account 20,000
What is the cash balance per bank statement?
A. 1,338,000 C. 1,532,000
B. 1,435,000 D. 1,557,000 FA © 2014
Deposit in transit
37. Kate Company shows a cash account balance per ledger of P1,652,000 at December
31. The bank statement, however, shows a balance of P2,090,000 at the same date.
The only reconciling items consist of a bank service charge of P2,000, a large number
of outstanding checks totaling P590,000 and a deposit in transit. What is the deposit in
transit in the December 31 bank reconciliation?
A. 150,000 C. 440,000
B. 154,000 D. 592,000 P1 © 2014
Outstanding checks
38. Grass Company provided the following information:
Balance per bank statement July 31 1,240,000
Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo - service charges 10,000
Credit memo - collection of note by bank for Grass 300,000
Outstanding checks ?
An analysis of the canceled checks returned with the bank statement reveals the
following:
* Check for purchase of supplies was drawn for P60,000 but was recorded as
P90,000.
* The manager wrote a check for traveling expenses of P100,000 while out of
town. The check was not recorded.
What is the amount of outstanding checks on July 31 ?
A. 270,000 C. 610,000
B. 550,000 D. 970,000 P1 © 2014

39. Bayside Company provided the following information for October and November 2014:
Checks and charges recorded by bank in November, including
a November service charge of P4,000 and NSF check of P20,000 550,000
Service charge made by bank in October and
recorded by depositor in November 2,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November
(no entry made by depositor in either October or November) 40,000
Outstanding checks on October 31, 2014 that cleared in November 230,000
What is the amount of outstanding checks on November 30,2014?
A. 282,000 C. 302,000
B. 300,000 D. 322,000 P1 © 2014
Journal entries
40. Margar Company kept all cash in a checking account. An examination of the accounting
records and bank statement for the month ended December 31,2014 revealed a bank
statement balance of P8,469,000 and a book balance of P8,524,000.
A deposit of P950,000 placed in the bank's night depository on December 29 does not
appear on the bank statement. Checks outstanding on December 31 amount to
P270,000.
The bank statement showed that on December 25 the bank collected a note for Margar
Company and credited the proceeds of P935,000 to the entity's account which included
P35,000 interest.
Margar Company discovered that a check written in December for P183,000 in payment
of an account had been recorded as PI 38,000.
Included with the December 31 bank statement was an NSF check for P250,000 that
Margar Company had received from a customer on December 20. The bank statement
showed a P15,000 service charge for December.
What is the journal entry to adjust the cash in bank on December 31 ? P1 © 2014
A. Debit to cash in bank of P935,000 C. Net debit to cash in bank of P625,000
B. Credit to cash in bank ofP310,000 D. Net credit to cash in bank of P625,000
Proof of Cash
41. Oro Company had the following bank reconciliation on March 31 of the current year:
Balance per bank statement, March 31 4,650,000
Add: Deposits in transit 1,000,000
Total 5,65,0,000
Less: Outstanding checks 1,250,000
Balance per book, March 31 4,400,000

Data per bank statement for the month of April follow:

Deposits 6,000,000
Disbursements 5,000,000
All reconciliation items on March 31 cleared through the bank in April. Outstanding checks on
April 30 totaled P750,000 and deposits in transit amounted to PI,500,000. What is the amount
of cash receipts per book in April?
A. 5,000,000 C. 6,500,000
B. 5,500,000 D. 7,500,000
Questions 42 & 43 are based on the following information. P1 © 2014

Lira Company prepared the following bank reconciliation dated June 30 of the current year.
Balance per bank 9,800,000
Deposits in transit 400,000
Outstanding checks (1,400,000)
There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank
statement. All reconciliation items on June 30 cleared the bank on July 31. Checks outstanding
amounted to P1,000,000 and deposits in transit totaled P1,200,000 on July 31.
42. What is the amount of cash disbursements per book in July?

A. 7,600,000 C. 8,600,000
B. 8,400,000 D. 9,400,000
43. What is the adjusted cash in bank on July 31?

A. 6,300,000 C. 7,300,000
B. 6,500,000 D. 7,500,000
Questions 44 thru 46 are based on the following information. P1 © 2014

Lazer Company had the following bank reconciliation on June 30, 2014:
Balance per bank statement, June 30 3,000,000
Total 3,400,000
Outstanding checks ( 900,000)
Balance per book, June 30 2,500,000
The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Lazer) 9,000,000
Disbursements (including P 140,000 NSF check and
P10,000 service charge) 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks totaled
P600,000 and the deposit in transit amounted to P1,000,000 on July31.
44. What is the cash balance per book on July 31?

A. 4,500,000 C. 5,400,000
B. 5,350,000 D. 5,550,000
45. What is the amount of cash receipts per book in July?

A. 8,600,000 C. 9,600,000
B. 9,400,000 D. 9,800,000
46. What is the amount of cash disbursements per book in July?

A. 6,550,000 C. 6,850,000
B. 6,700,000 D. 7,300,000
Questions 47 thru 49 are based on the following information. FA © 2014

Chris Company presented the following bank reconciliation for the month of November of the
current year:
Balance per bank statement, November 30 3,600,000
4,400,000
Less: Outstanding checks 1,200,000
Bank credit recorded in error 200,000 1,400,000
Balance per book, November 30 3,000,000
Data per bank statement for the month of December follow:
December deposits (including note collected of PI,000,000 for Chris) 5,500,000
December disbursements (including NSF, P350,000
and service charge, P50,000) 4,400,000
All items that were outstanding on November 30 cleared through the bank in December, including
the bank credit. In addition, checks amounting to P500,000 were outstanding and deposits of
P700,000 were in transit on December 31.
47. What is the cash balance per ledger on December 31 ?

A. 4,100,000 C. 4,700,000
B. 4,300,000 D. 4,900,000
48. What is the amount of cash receipts per book in December?

A. 4,400,000 C. 5,500,000
B. 5,400,000 D. 6,400,000

49. What is the amount of cash disbursements per book in December?

A. 3,100,000 C. 3,500,000
B. 3,300,000 D. 3,700,000
Questions 50 thru 52 are based on the following information. FA © 2014

Jam Company provided the following bank reconciliation on May 31:
Deposits outstanding 300,000
Checks outstanding ( 30,000)
Correct cash balance 2,370,000
Bank service charge (2,000)
Correct cash balance 2,370,000
June data are as follows:

Bank Book
Checks recorded 2,300,000 2,360,000
Deposits recorded 1,620,000 1,800,000
Collection by bank (P400,000 note plus interest) 420,000
NSF check returned with June 30 statement 10,000
Balances 1,830,000 1,810,000
50. What is the amount of checks outstanding on June 30?

A. 0 C. 60,000
B. 30,000 D. 90,000
51. What is the amount of deposits in transit on June 30?

A. 120,000 C. 480,000
B. 180,000 D. 680,000
52. What is the adjusted cash in bank on June 30?

A. 1,810,000 C. 2,240,000
B. 2,220,000 D. 2,780,000

ANSWER KEY
Theory Problems
1.B 21.A 41.D 1.A 21.A 41.C
2.B 22.D 42.C 2.C 22.D 42.C
3.C 23.C 43.B 3.B 23.B 43.D
4.D 24.C 44.D 4.B 24.B 44.C
5.D 25.B 45.C 5.A 25.C 45.B
6.B 26.D 46.B 6.D 26.B 46.A
7.C 27.D 47.D 7.D 27.B 47.B
8.D 28.A 48.D 8.B 28.C 48.A
9.B 29.D 9.C 29.C 49.A
10.A 30.D 10.C 30.C 50.D
11.B 31.D 11.D 31.D 51.C
12.C 32.D 12.D 32.C 52.B
13.D 33.D 13.C 33.C
14.D 34.C 14.C 34.B
15.D 35.D 15.D 35.A
16.B 36.A 16.B 36.C
17.B 37.B 17.C 37.A
18.D 38.A 18.A 38.B
19.B 39.C 19.B 39.D
20.B 40.A 20.C 40.C
Answer Key Page 37

ANSWER EXPLANATION
1. Answer is (A).
Coins and currency 3,300
Check drawn by the entity to the order of the petty cash custodian
2,700
6,000
The check drawn by the entity to the order of the petty cash custodian is actually a
replenishment check and therefore part of cash.
2. Answer is (C).
Currencies 20,000
Coins 2,000
Check drawn to the order of the petty cash custodian 15,000
37,000
The check drawn payable to the order of the petty cash custodian representing her salary is
actually an accommodation check. Thus, it is included as part of cash.
3. Answer is (B).
Undelivered check drawn on Thor's account 500,000
Adjusted cash balance 4,500,000
The undelivered check is restored to the cash balance by debiting cash and crediting
accounts payable. The cash in sinking is a noncurrent investment because it is set aside for
the payment of noncurrent liability.
4. Answer is (B).
Manager's check 100,000
Money order 150,000
Total cash 5,000,000
The certificate of deposit is a cash equivalent. The postdated customer check is reverted to
accounts receivable.
Answer Explanations & Solutions Page 38

5. Answer is (A).
Undeposited receipts (1,220,000-70,000) 1,150,000
Cash in Allied bank (2,245,000-40,000) 2,205,000
3,379,000
The postdated customer check of P70,000 should be reverted to accounts receivable. The
outstanding check of P40,000 is deducted from the Cash in Allied Bank because the cash
balance is per bank statement. The bond sinking fund is a noncurrent investment. The
vouchers paid should be recorded as expenses. The IOUs should be shown as advances to
employees.
6. Answer is (D).
Postdated customer check ( 200,000)
Undelivered check payable to supplier 400,000
Adjusted cash in bank 4,200,000
Petty cash:
Coins and currencies 5,000
Replenishment check 43,000 48,000
Total 4,248,000
The return value of the soft drink bottles is shown as refundable deposit as a current asset.
The NSF check is redeposited and cleared before December 31,2014. Thus, the same is not
deducted anymore from the checkbook balance.
7. Answer is (D).
Checking account at Second Bank 3,500,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account - unrestricted 2,000,000
Money order 180,000
Total unrestricted cash 6,900,000
8. Answer is (B).
Cash in bank (1,800,000 - 600,000) 1,200,000
Time deposit 250,000

Since the compensating balance is legally restricted, it is excluded from the amount shown
as cash. In this case, the compensating balance is shown as "cash held as compensating
balance" as a current asset because the related loan is short-term. The problem is silent on
the term of the time deposit. It is assumed that the term is three months or less, this being
the normal banking practice. Accordingly, the time deposit is a cash equivalent.
9. Answer is (C).
Cash in bank - payroll account 1,000,000
Cash on hand (500,000 - 200,000) 300,000
Time deposit 2,000,000
Total cash and cash equivalents 8,300,000
The cash in bank set aside for payroll is included in cash because it is for the payment of
current liability.
The cash on hand is reduced by the postdated check payable to Pygmalion. The postdated
check should be reverted to accounts receivable.
The time deposit is classified as cash equivalent because the term is three months. Under
PAS 7, treasury bills, money market placement and time deposit normally qualify as cash
equivalents only when they have a short maturity of three months or less from the date of
acquisition.
The cash in bank restricted for building construction is classified as a noncurrent investment
because it is set aside for the acquisition of a noncurrent asset and not for the payment of a
current liability.
10. Answer is (C).

Government treasury bills 2,000,000
Cash 3,400,000
Commercial papers 1,500,000
The share investments cannot qualify as cash equivalents because although very actively
traded the investments do not have a maturity. The commercial papers are actually money
market placements. Since the remaining term is three months from the date of acquisition,
the commercial papers are considered cash equivalents.

11. Answer is (D).

PCIB checking account 500,000
PCIB payroll fund 150,000
PCIB saving deposit 100,000
PCIB money market 2,000,000
The PNB overdraft is a current liability. The NSF check and the postdated check dated
January 15, 2015 should be reverted to accounts receivable. The restricted cash in foreign
bank is classified as noncurrent.
12. Answer is (D).

Petty cash fund (50,000 - 15,000) 35,000
Current account 4,000,000
Sinking fund 2,000,000
Cash on hand (500,000 - 100,000) 400,000
Treasury bills 1,000,000
The sinking fund is included in cash and cash equivalents because the bond payable is
already due within one year from the end of the reporting period. The classification of a cash
fund should parallel the classification of the related liability.
13. Answer is (C).

Petty cash fund (50,000 - 15,000 - 5,000) 30,000
Current account - First Bank (4,000,000 + 100,000) 4,100,000
Money market placement 1,000,000
In the absence of specific term, money market placement, time deposit and treasury bills are
short-term investment of three months or less and therefore qualify as cash equivalents. The
Fourth Bank time deposit is a noncurrent asset because it is set aside for the acquisition of a
noncurrent asset.
14. Answer is (C).

Cash on hand (500,000 - 100,000) 400,000
Security Bank current account (1,000,000 + 200,000) 1,200,000
PNB current account No. 1 400,000
PNB current account No. 2 ( 50,000)
BSP treasury bill - 60 days 3,000,000


The BPI time deposit is noncurrent because it is set aside for the acquisition of equipment.
15. Answer is (D).

Demand deposit (1,500,000 + 100,000 + 50,000 - 200,000) 1,450,000
Time deposit - 3 0 days 500,000
Saving deposit 50,000
* Total cash and cash equivalents 2,010,000
16. Answer is (B).

Cash on hand (200,000 - 30,000) 170,000
Philippine Bank current (5,000,000 + 25,000 + 45,000) 5,070,000
Manila Bank current 4,000,000
Asia Bank time deposit 2,000,000
17. Answer is (C).

A compensating balance is a minimum checking or demand deposit account balance that
must be maintained in connection with a borrowing arrangement with a bank. The
compensating balance is part of cash if it is not legally restricted as to withdrawal. Otherwise,
if it is legally restricted, the compensating balance is excluded from the amount shown as
"cash", and shown separately as current or noncurrent asset depending on the bank loan to
which it is related.
If the related bank loan is short-term, the restricted compensating balance is a current asset.
If the related bank loan is long-term, the restricted compensating balance is a noncurrent
asset.
18. Answer is (A).

BPI 3,155,000
Currency and coins 1,135,000
Petty cash fund (50,000 - 10,000) 40,000
Total 4,330,000
The outstanding check of P320,000 is not deducted from the BPI checking account because
the BPI account is believed to be the balance per book. The term "bank statement" appearing

on the problem simply signifies that the outstanding check was determined from the bank
statement. It does not mean that the checking account in BPI is the balance per bank
statement. The deposit in bank closed by BSP is a noncurrent asset.
19. Answer is (B).

Bank service charge ( 6,000)
Book error in recording check 9,000
Adj usted book balance 6,779,000
Deposit in transit 1,234,000
Outstanding checks (987,000)
Currency and coins 950,000
Petty cash fund (50,000 - 10,000) 40,000
20. Answer is (C).

Adjusted bank balance (3,600,000 - 1,200,000 + 400,000 + 50,000) 2,850,000
21. Answer is (A).

Collection by bank 94,000
NSF check ( 32,000)
Book error-customer's check (54,000-45,000) ( 9,000)
Book error - check written (97,000 - 79,000) 18,000
The deposit in transit of P230,000 is a bank reconciling item.
22. Answer is (D).

Total 2,130,000
The customer's check which is returned for insufficient fund and the bank service
charge are ignored because these are book reconciling items.

23. Answer is (B).

Per bank statement 3,800,000
Outstanding checks 675,000)
Bank error 40,000)
24. Answer is (B).

Per book 1,000,000
Bank charges (3,000)
Interest oh note 15,000
NSF (62,000)
Note charged to account ( 250,000)
25. Answer is (C).

Total 2,200,000
Outstanding checks (500,000-100,000) ( 400,000)
Erroneous bank credit (300,000)
The certified check of PI00,000 is no longer outstanding for reconciliation
purposes. Thus, the amount is deducted from the total outstanding checks.
26. Answer is (B).

Total 9,450,000
Book error (200,000-20,000) ( 180,000)
NSF check ( 250,000)
Service charge ( 20,000)

27. Answer is (B).

Balance per ledger 920,000
Unrecorded customer check 35,000
NSF check ( 40,000)
Adjusted book balance 900,000.
28. Answer is (C).

Outstanding check (100,000)
29. Answer is (C).

Overstatement of creditor check 270,000
Understatement of customer check 180,000
NSF check ( 50,000)
Bank debit memo for safety deposit box ( 5,000)
Unrecorded check ( 125,000)
Checks outstanding ( 650,000)
30. Answer is (C).

Add: Proceeds of bank loan 940,000
Note collected by bank 435,000 1,375,000
Total 4,075,000
Less: Service charge 10,000
Customer's check charged back 50,000 60,000


Incorrect deposit 90,000
Erroneous bank charge 150,000
Erroneous debit memo 200,000 915,000
Total 4,915,000
Less: Outstanding checks 600,000
Erroneous bank credit 300,000 900,000
31. Answer is (D).

Add: Overstatement of check number 765 20,000
Check number 555 stopped for payment 10,000 30,000
Total 1,330,000
Less: Service charge 5,000
NSF check 85,000 90,000

Add: Undeposited collections 275,000
Total 1,475,000
Less: Outstanding checks:
Number 761 55,000
762 40,000
763 25,000
764 65,000
765 50,000 235,000
32. Answer is (C).

Debit memo for printed checks ( 12,000)
Proceeds of bank loan 570,000
Proceeds of customer's note 810,000
NSF check ( 77,000)


Bank error in recording check ( 90,000)
Stolen check deducted by bank in error 80,000
33. Answer is (C).

Collection of note 2,500,000
Interest on note 150,000
Book error on Check No. 175 45,000
Water bills ( 205,000)
NSF check ( 220,000)
34. Answer is (B).

Deposits in transit 350,000
Balance per ledger (SQUEEZE) 2,520,000
Interest income 10,000
Book error (64,000-46,000) ( 18,000)
The cash balance per ledger is "squeezed" by working back from the adjusted balance.
35. Answer is (A).

Erroneous bank credit ( 21,000)

Balance per book (SQUEEZE) 3,455,000

NSF checks (23,000-8,000) ( 15,000)
36. Answer is (C).

February 2 8 book balance 1,460,000
Interest earned on note 10,000
NSF check (130,000)
Bank service charges (2,000 + 3,000) (5,000)
Balance per bank statement (SQUEEZE) 1,532,000
Bank error - erroneous charge 20,000
Outstanding checks (202,000)
The bank statement balance is "squeezed" by working back from the adjusted
balance.
37. Answer is (A).

Deposit in transit (SQUEEZE) 150,000
Total 2,240,000
The deposit in transit is "squeezed" by working back from the adjusted balance.
38. Answer is (B).

Balance per ledger 750,000
Service charges (10,000)
Collection of note 300,000
Book error (90,000-60,000) 30,000
Unrecorded check for traveling expenses ( 100,000)
Adjusted book balance 970,000


Total 1,520,000
Outstanding checks (SQUEEZE) ( 550,000)
Adjusted bank balance 970,000
The amount of outstanding checks is "squeezed" by working back from the adjusted bank
balance.
39. Answer is (D)

Checks and charges by bank in November 550,000
Service charge in November ( 4,000)
NSF check in November ( 20,000)
Checks paid by bank in November 526,000
Total credits to cash in all journals during November 620,000
Service charge in October recorded in November ( 2,000)
Checks issued by depositor in November 618,000
Outstanding checks - October 31 230,000
Total checks to be paid by bank 848,000
Checks paid by bank in November (526,000)
Outstanding checks - November 30 322,000
The customer NSF check in October and redeposited in November is ignored in the computation
because no entry was made by depositor in either October or November.
40. Answer is (C).

Note collected 935,000
Total 9,459,000
Book error (183,000-138,000) (45,000)
NSF check (250,000)
Debit to cash in bank 935,000
Credit to cash in bank 310,000
Net debit to cash in bank 625,000

41. Answer is (C).

Bank receipts for April 6,000,000
Deposits in transit - March 31 (1,000,000)
Deposits in transit - April 30 1,500,000
Book receipts for April 6,500,000
42. Answer is (C).

Bank disbursements for July 9,000,000
Outstanding checks - June 30 (1,400,000)
Outstanding checks - July 31 1,000,000
Book disbursements for July 8,600,000
43. Answer is (D).

Balance per bank - July 31 (9,800,000 + 6,500,000 - 9,000,000) 7,300,000
Deposits in transit - July 31 1,200,000
Outstanding checks - July 31 (1,000,000)
Adjusted cash in bank - July 31 7,500,000
44. Answer is (C).

Balance per bank - June 30 3,000,000
July bank deposits 9,000,000
July bank disbursements ( 7,000,000)
Balance per bank - July 31 5,000,000
July deposit in transit 1,000,000
July outstanding checks ( 600,000)
Balance per book - July 31 (SQUEEZE) 5,350,000

Note collected by bank in July 200,000
NSF check in July (140,000)
Service charge in July (10,000)
The balance per book on July 31 is "squeezed" by working back from the adjusted balance.
45. Answer is (B).

Deposits per bank statement for July 9,000,000
Note collected by bank in July (200,000)
Deposit in transit-June 30 ' (400,000)
Deposit in transit - July 31 1,000,000

Cash receipts per book for July 9,400,000
46. Answer is (A).

Disbursements per bank statement for July 7,000,000
NSF check in July ( 140,000)
Service charge in July (10,000)
Outstanding checks - June 30 (900,000)
Outstanding checks - July 31 600,000
Cash disbursements per book for July 6,550,000
Proof of the cash balance per book - July 31
Balance per book - June 30 2,500,000
Book receipts for July 9,400,000
Book disbursements for July (6,550,000)
Balance per book - July 31 5,350,000
47. Answer is (B).

Balance per bank - November 30 3,600,000
December deposits 5,500,000
Total 9,100,000
December disbursements (4,400,000)
Balance per bank - December 31 4,700,000
Deposit in transit - December 700,000
Outstanding checks - December (500,000)
Adjusted bank balance - December 31 4,900,000
Balance per book - December 31 (SQUEEZE) 4,300,000
Note collected by bank 1,000,000
NSF check (350,000)
Service charge (50,000)
48. Answer is (A).

December bank deposits 5,500,000
Note collected by bank in December (1,000,000)
Deposit in transit - November 30 ( 800,000)
Deposit in transit - December 31 700,000
December book receipts 4,400,000

49. Answer is (A).

December bank disbursements 4,400,000
NSF check in December (350,000)
Service charge in December ( 50,000)
Outstanding checks - November 30 (1,200,000)
Erroneous bank credit in November ( 200,000)
Outstanding checks - December 31 500,000
December book disbursements 3,100,000
Proof of cash balance per book - December 31

Balance per book - November 30 3,000,000
December book receipts 4,400,000
December book disbursements (3,100,000)
Balance per book - December 31 4,300,000
50. Answer is (D).

Checks outstanding - May 31 30,000
Checks recorded by book in June 2,360,000
Total 2,390,000
Checks recorded by bank in June (2,300,000)
Checks outstanding - June 30 90,000
51. Answer is (C).

Deposits in transit - May 31 300,000
Deposits recorded by book - June 1,800,000
Total 2,100,000
Deposits recorded by bank - June (1,620,000)
Deposits in transit-June 30 480,000
52. Answer is (B).

Balance per bank - June 30 1,830,000
Deposits in transit - June 30 480,000
Outstanding checks - June 30 (90,000)

NSF check ( 10,000)

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FINANCIAL ACCOUNTING

THEORY & PRACTICE

CASH AND CASH EQUIVALENTS

2. What is the meaning of "unrestricted cash"?

3. What is the meaning of "cash equivalents"?

Examples of cash equivalents are:

Essay Questions Page 1

4. Explain the valuation of cash in the statement of financial position.

7. Explain the treatment of foreign currency.

Essay Questions Page 2

9. Explain the treatment of a bank overdraft.

Essay Questions Page 3

11. Explain fully the treatment of compensating balance.

13. Explain window dressing, lapping and kiting.

Essay Questions Page 4

14. Explain the imprest system.

16. What is a bank reconciliation?

17. What are credit memos and debit memos?

Essay Questions Page 5

18. Explain deposits in transit.

Deposits in transit include:

19. Explain outstanding checks.

20. What are the three forms of bank reconciliation?

Essay Questions Page 6

21. What is a "proof of cash"?

A proof of cash is an expanded reconciliation in that it includes proof of receipts and

Essay Questions Page 7

Multiple Choice - Theory

3. All of the following may be included in "cash", except

4. Which of the following should not be considered "cash"?

5. Which of the following should not be included in "cash"?

MCQ – Theory Page 8

8. Which of the following is not considered as a cash equivalent?

Cash & cash equivalent

12. Which is false concerning measurement of cash and cash equivalents?

MCQ – Theory Page 9

Internal control over cash

14. Which of the following is not a characteristic of a system of cash control?

Petty cash fund

16. The internal control feature specific to petty cash is

17. What is the major purpose of an imprest petty cash fund?

MCQ – Theory Page 10

20. Which of the following statements in relation to petty cash is incorrect?

22. A Cash Over and Short account

MCQ – Theory Page 11

out of the general cash account.

Presentation & disclosure

29. What is a compensating balance?

30. Deposits held as compensating balance

MCQ – Theory Page 12

31. A compensating balance

MCQ – Theory Page 13

36. When preparing a bank reconciliation, bank credits are

MCQ – Theory Page 14

43. The adjusting entries for a bank reconciliation

45. Which of the following statements in relation to bank reconciliation is true?

46. Which of the following statements is false?

MCQ – Theory Page 15

48. A proof of cash would be useful for

MCQ – Theory Page 16

Multiple Choice Problems

MCQ – Problems Page 17

MCQ – Problems Page 18