FINANCIAL ACCOUNTING AND REPORTING (FAR)

Cash and Cash Equivalents

THEORY

1. What is the basic requirement for cash and cash equivalent?

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

2. What criterion is excluded in the definition of cash equivalents under PFRS?

a. Short-term
b. Highly liquid investments
c. Investment in high-quality instruments
d. Readily convertible to known amounts of cash

3. Which of the following items should not be included in “Cash”?

a. Coins and currency in the cash register
b. Money market placement
c. Amounts on deposit in checking account at the bank
d. Checks from other parties presently in the cash register

4. Which of the following is considered “Cash” for financial reporting purposes?

a. Postdated checks
b. IOUs
c. NSF checks
d. Personal checks received from customers

5. Which of the following is not considered part of cash and cash equivalents?
a. Money market fund
b. Commercial paper
c. Treasury bill
d. Bank overdraft

6. All of the following can be classified as cash and cash equivalents, except
a. Bank drafts
b. Equity investments
c. Loan notes held due for repayment in 90 days
d. Treasury notes acquired and due in 60 days

7. Which of the following is considered part of cash and cash equivalents?

a. Treasury notes
b. Treasury bonds
c. Treasury bills
d. 1 year time deposit

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8. What is a compensating balance?
a. Savings account balances
b. Margin account held with brokers
c. Temporary investment serving as collateral for outstanding loan
d. Minimum deposit required to be maintained in connection with a borrowing arrangement

9. 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 legally restricted and related to short-term loan is classified separately as current
asset
d. Which is not legally restricted as to withdrawal is classified separately as current asset

10. Under which classification is “cash restricted for plant expansion” reported?
a. Current assets
b. Current liabilities
c. Noncurrent assets
d. Equity

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PROBLEM

1. Pinnacle Company provided the following information at year-end comprising the cash account:

Cash in bank – demand deposit 5,000,000

Cash on hand 400,000
Postage stamps unused 5,000
90-day certificate of time deposit 1,500,000
Money order 50,000
Manager’s check 100,000
Traveler’s check 1,000,000
Postdated customer check 500,000

What total amount should be reported as cash at year-end?

a. P8,050,000
b. P7,050,000
c. P6,550,000
d. P6,450,000

2. Pinnacle Company shows the following account balances in their financial records as of December
31:

Checking account at BDO 500,000

Payroll account at Security Bank 100,000
Postage stamps 22,000
Employees’ postdated checks 30,000
I.O.U. from company president 75,000
Traveler’s check 66,000
No sufficient funds (NSF) check 18,000
Cashier’s checks 36,000

What is the correct cash balance to be reported in the statement of financial position of Pinnacle on
December 31?
a. 582,000
b. 686,000
c. 702,000
d. 704,000

3. Mr. Accounting Company had the following account balances on December 31:

Petty cash fund 40,000

Cash on hand 500,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,000,000
60-day time deposit 2,000,000
Cash in bank – restricted account for plant addition,
expected to be disbursed in early 2026 500,000
Cash in sinking fund set aside for bond payable due
June 30, 2026 1,500,000

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 The cash on hand included a P100,000 check payable to the entity dated January 31, 2026.

What total amount should be reported as cash and cash equivalents on December 31, 2025?
a. P6,940,000
b. P8,940,000
c. P7,940,000
d. P7,440,000

4. Mastery Company had the following account balances on December 31:

Cash in bank P2,250,000

Cash on hand 125,000
Cash restricted for addition to plant for next year 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.

What total amount should be reported as cash on December 31?

a. P1,775,000
b. P2,250,000
c. P2,375,000
d. P3,975,000

5. Pinnacle Company’s checkbook balance on December 31, 2025 was P160,000. On the same date,
Pinnacle held the following items in its safe:

a. A P5,000 check payable to Pinnacle, dated January 2, 2026, was not included in the December
31 checkbook balance.

b. A P3,500 check payable to Pinnacle that was deposited December 19 and included in the
December 31 checkbook balance, was returned by the bank on December 30 marked NSF. The
check was re-deposited on January 2, 2026 and cleared on January 9.

c. A P25,000 check payable to a supplier and drawn on Pinnacle’s account was dated and recorded
on December 31, but was not mailed until January 19, 2026.
In its December 31, 2025 statement of financial position, how much should Pinnacle report as cash?
a. 156,600
b. 161,500
c. 181,500
d. 185,000

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6. ABC Company had a checkbook balance on December 31, 2025 of P8,000,000 and held the following
item in the safe:

Check payable to ABC Company, dated January 5, 2026,

included in December 31, checkbook balance P2,000,000

Check payable to ABC Company, deposited December 20,

and included in December 31 checkbook balance,
but returned by bank on December 30, stamped
“NSF”. The check was redeposited January 2, 2026,
and cleared January 3, 2026 500,000

Check drawn on ABC Company’s account and payable to a supplier,

dated and recorded December 31 but not mailed until
January 15, 2026 1,500,000

Cash on hand – undeposited collections 400,000

Petty cash fund 40,000
Time deposit for plant expansion 1,000,000
Treasury bill 2,500,000
Money market placement 3,000,000
Postage stamps unused 10,000

Question 1: What total amount should be reported as cash on December 31?

a. P7,400,000
b. P7,440,000
c. P8,440,000
d. P7,450,000

Question 2: What total amount should be reported as cash equivalents on December 31?
a. P6,500,000
b. P3,000,000
c. P5,500,000
d. P2,500,000

7. ABC Company reported the following information at the end of the current year.

a. Investment in equity 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.

b. 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.

c. Cash of P3,400,000 in the form of coin, currency, savings account and checking account.

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 d. Investment securities of P1,500,000. These securities are commercial papers or money market
placements. The term of the commercial papers is nine months, and the instruments were
purchased on December 31, at which time they had three months to go until they mature.

Question 1: What total amounts should be reported as cash at the end of the current year?
a. P3,400,000
b. P5,400,000
c. P4,900,000
d. P6,900,000

Question 2: What total amount should be reported as cash equivalents at the end of the current year?
a. P3,500,000
b. P4,500,000
c. P1,500,000
d. P2,500,000

8. ABC Company reported the following information in relation to cash on December 31, 2025:

a. Checkbook balance, P4,000,000.

b. Undeposited collections, P445,000.

c. A customer check amounting to P200,000 dated January 2, 2026 was included in the December
31, 2025 checkbook balance.

d. Another customer check for P500,000 deposited on December 22, 2025 was included in the
checkbook balance but returned by the bank for insufficiency of fund. This check was redeposited
on December 26, 2025 and cleared two days later.

e. A P400,000 check payable to supplier dated and recorded on December 31, 2025 was mailed on
January 16, 2026.

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

a. P4,600,000
b. P4,200,000
c. P4,400,000
d. P3,700,000

2. What total amount should be reported as cash on December 31?

a. P4,645,000
b. P4,845,000
c. P4,600,000
d. P4,650,000

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