Definition

CASH- It includes money and any other negotiable instrument that is payable in money and acceptable by
the bank for deposit and immediate credit.
CASH AND CASH EQUIVALENTS
- These are 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, par. 6)
- Only highly liquid investments that are acquired three months before maturity can qualify as
cash equivalents
Valuation
- In local currency= face value
- In foreign currency= current exchange rate
- If recoverable value < Face value= estimated realizable value
PART TWO- Problems

The “CASH” account of Don Corporation’s ledger on December 31, 2006 showed the following:

a. Petty cash fund (including P7,500 unreplenished

voucher of which P2,400 is dated January 3, 2007) 15,000

Operating expenses 5,100

Cash 5,100

Petty cash expenses are recorded upon replenishment.

b. Redemption Fund Account – PNB 500,000

Other Investments 500,000

Cash 500,000
Unrestricted/ Current use= Cash and cash equivalents
Restricted/ Noncurrent= Long term investment/ Other fund

c. Traveler’s check 100,000

d. Money order 10,000
e. Treasury bill, purchased December 1, 2006 (due on Feb. 1, 2007) 50,000
f. Time deposit due on March 31, 2007 50,000
g. 180-day Treasury bill, due March 15, 2007 120,000

Short-term investment 120,000

Cash 120,000
Less than or equal to 3 mos.= Cash and cash equivalents
More than 3 mos. To 1 year= Short term investments
More than 1 year= Long term investments

h. Note receivable in the possession of a collecting agency 20,000

Notes receivable 20,000
Cash 20,000

i. PNB – Checking Account #211-009-091 325,900

j. Cash on hand, including customer postdated check of P15,000 23,000

Accounts receivable 15,000

Cash 15,000

Receipts Disbursements
Unreleased check Cash -, A/R + Cash +, A/P -
Postdated check Cash -, A/R + Cash +, A/P -
Stale Check Cash -, A/R + Cash +, A/P -

k. Savings deposit, earmarked for acquisition of equipment 210,000

 Cash- Equipment fund 210,000
Cash 210,000

l. A check payable to San Ignacio Incorporated, dated January 5, 2007,

that was included in the December 31 PNB Checking Account #211-009-091 50,000
m. Bond Sinking Fund
(used to finance the maturing long-term obligation on March 31, 2007) 150,000

Bond sinking fund- current 150,000

Cash 150,000
Classification of cash fund as current or noncurrent should parallel the classification of related
liability

n. Overdraft in PNB Checking Account #211-099-085 (50,000)

Bank overdraft= current liability- (credit bank balance account)

IT CAN BE OFFSETTED= if immaterial, or when the entity maintains 2 accounts in the same
bank

o. Check #801 in payment to Accounts Payable,

dated Dec. 31, 2006 not mailed until January 5, 2007 20,000
p. Advances to Officers/Employees for Seminars (no liquidation is required) 80,000

Operating expenses 80,000

Cash 80,000

q. Money market placement (due June 30, 2007) 600,000

Short-term Investments 600,000

Cash 600,000

r. Listed stock held as temporary investment 100,000

Short-term Investments 100,000

Cash 100,000

s. Check #789 in payment to Suppliers,

dated January 5, 2007 and recorded December 31, 2006. 35,000
t. Customers’ certified checks 10,000
u. Pension Fund 150,000

Short-term Investments 150,000

Cash 150,000
TOTAL 2,568,900

Requirements:

1. Prepare the necessary adjusting entries.

2. DON CORPORATION’S cash and cash equivalents balance at December 31, 2006 is:
a. Overstated by P1,950,100 c. Overstated by P 1,845,100
b. Overstated by P 1,895,100 d. Overstated by P 1,795,100

3. DON CORPORATION’S adjusted cash and cash equivalents balance at December 31, 2006 is:
a. P 618,800 b. P 623,800 c. P 673,800 d. P 723,800