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    Intermediate Accounting 1 Chapter 1 3

    Uploaded by

    Astrid Aboitiz

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    © All Rights Reserved
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    DEFINITION OF CASH ofa layman, cash simply meang From the point of view ‘money. oe Money refers to the currency and coins which are in Gieulation and legal tender. However, in the accounting P: special and brea ated in accounting, cash includes money and any Hable instrument that is payable in money and bank for deposit and immediate credit, arlance, the term cash has a or meaning and connotes more than money. As contempt other nego acceptable by the Accordingly, rate these are acceptable by the bank for deposit or immediate encashment. For example, when checks are received in full settlement of an ‘account receivable, cash is immediately debited. But postdated checks received cannot be considered as cash ‘yet because the postdated checks are unacceptable by the bank for deposit and immediate credit or outright encashment. Unrestricted cash There is no specific standard dealing with cash. . ‘The only guidance is found in PAS 1, paragraph 66. garardingy Jahberreportedasreod pranitent a he cash must be readily available in the payment of current obligations and P or otherwiaa 4 22" be subject to any restrictions, contractual 2 rE, q ouame Hey loot Wot o tatty date 3) oe Y SE cad equivaleaty Cash items included in cash a ‘GastronaanA include s Other cash items awaiting Posted cash collections and checks, cashier's or 2 bank drafts and money ote withde [a set aside for curr os Sot peel nd Aen red Cash equivalents (cqeyat ule} Ha dott dowd ol ejeue rates PAS 7, paragraph 6, defines ganlenaitentsiar shaven ‘80 near their maturity that they present, ak of changes in-valug becouse of changed in inteeefora, The standard further states ge “Examples of cash equivalents are: ‘a. Three-month BSP treasury bi b. Three-year BSP treasury bill purchased three months before date of maturity c. Three-month time deposit d. Three-month money market instrument or commercial paper | ference shares with specified redemption date aweter, Pr -edemption date can and acquired three months before qualify as cash equivalents. i ‘hich Note that what is important is the date of purchase w! should be three months or Jess before maturity. Thus, Scanned with CamScanner aa oe cash Investment ofexcess cash reper use ofensh isan important aepect of cach Tener tan Ea ree operations era th asoumulated in excess of that needed for curren a aah atl be vented even tmporerly in. SOme pe of crtenue earning investment. ~e at if cheep threes such instruments are dlassified as pashrequivalentsss tp . Fethe term is ; ths bub ith aac ae Ran » Navestmenitg and presented separately as current assots, ‘c. Tf the term is WisreMGnOn29ean) such investments ‘arg classified as aoncurrent or long-term nvestr@enitsy 2 3 However, fiom the end of the classified Measurement and presentation of cash Cash is measured at face value. Ifa bank or financial institution holding the funds of an enti 7 i eg ikruptey oF cae difficulty, cash should be writter, flown to estimated realizable value if the amount recoverable is estimated to-be lower than the face values nee a a hep current exchange rte ated © Philiing Stes reas ont Re gention ash ‘and cash equivalents should » ett ie a | Classification of cash fu, If the cash fur aside ena sce on A oan os mt aes Examples of this fund are petty ind for certain purpose On the other hand, ifthe cash fund i gt purpose or payment of noneurress it long-term or noncurrent investment, -Roncurrent investment side for, » it is shown as The classification of a cash fund a. ‘should parallel the classification of the, related aa §For example, a sinking fiind set aside for th bond payable shall be classified as current asset nes ge bond payable is already due within of reporting period. one year after the end However, a cash fund set aside for the acquisition of noncurrent asset should be classified as noncurton 3 of the year of disbursement. as Bank overdraft-cah in vor ius 0 cust twiaxe 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 depos: id should not be offset against other bank accounts with debit balances. For example, an entity maintains two bank accounts: a. Cash in bank - Firet'Bank, overdrawn by P100,000. b. Cash in bank — Second Bank, with a debit balance of 500,000. # > \Proper statement classification of the twb accounts: Current asset: 4 Cash in bank ~Second Bank + 500,000 Current liabi Cont Bankoverdraft—FirstBank Scanned with CamScanner e rule on overdraft {When an entity maintains two or Mor, scoounts in one bang ‘and one account results in-an over ; Exception to th jn order to show cash, net of other bank account. ‘Anoverdraft can also be offset against the other bank account if the amount is not materia’. atthe i ihecking or. demand. deposit.account:balance that must be Wraintained in connection with a borrowing arrangement with bank. For example, an entity borrows P5,000,000 from a bank and ‘agrees to maintain a 10% or P500,000 minimum compensating balance ina demand deposit account. In effect, this arrangement results in the reduction of the amount, borrowed because the compensating balance provides a source of fund to the’ bank as partial compensation for the loan extended.’ * Classification of compensating balance If the deposit is ‘as to withdrawal by the borrower because of an ompensating balance agreement, the compensating balance is ppattjoficashy If the deposit is WegallIvestrictedybecause of a. CORI? compensating bala: classified If the related ae ne rae loan is ‘he compensating ball | lost Ae eg cl 809d dcr Hebe te pate, THO | Cheeks () Undelivered or inteleased ch sc @ Postdated check delivered- chs iis, ny svn y : iH The’ "The reason is that there is Ean be presented to the bank for encashent ar dee @ Stale check or check long outstanding-ni wiih whine ‘nust the check remain outstanding. The Neg ns provides that where the gotiable Instruments Law instrument is payable on demand, presentment must be made within a reasonable time al eFiCleanly, the law doesnot sp checks must fo course, this fa matter of entity policy. 7 : ‘Thus, even after three months only, t stop payment ‘order to the bank for previously issued check. , nae tif thevamount of stale check is immaterial, it 1» em? ‘accounted for as miscellaneous incom? a However, if the amount is material end Tato ip expected owe enue, the cash is restored ‘and tt i he entity may issue & the cancelation of Scanned with CamScanner ortage which is less than, ¢ shows cash less than gg wert nl brag 1 9° SET balance , Cash short or over 3 Cash only a temporary Or susp, i unt is only e fcr a scrount ‘Accounting for cash sh x be adjusted. ? jstodian is held responsible ence ifthe echien or ash ustotion © spor for thy. dah chortage, the adjustment should be: Due from cashier é x “ Cash short or over a? ? cHomever, if reasonable efforts fail’ to disclose the cause of “the shortage, the adjustment is _ Loss from cash shortage x } Cash short or over I \Accounting for cash overage ig Where the cash count shows cash which is more than the balancd per book, a cash overage is to be recorded. Cash se Cash short orover - ash short or over accountilThe cash short or over as REG fear shol be ast Whom and Cash short or over Miscellaneous income Imprest system While internal control ide ‘ . ally eau be made by means of check, thisis ensayo PePmens should ; s impossible. sare carg xasions when the isuance of check peed oF things oeytmient uch a8 wen stall amacrine r things are hurriedly bough oe bere ierh ight or customers are Consequently, in such instances, nomcal and convenient to pay in cah rather thon ean em Petty cash fund ‘hore are WHORLhOGSIoC AIRE heey namely nantly A ‘=. Imprest fund system SS Te Accounting procedures a. A check is drawn to establish the fund. Petty cash fund =x Cashinbank =~ x b. Payment of expenies out of the fund. No formal journal entries are made. ‘The petty cashier generally requires a signed petty cash _ voucher for such payments and simply prepares memorandum entries in the petty cash journal. 9 Scanned with CamScanner ments. Replenishment of petty cash pay? ihe petty cash fund 1 the fund. heck is usvally equall 0 the pets uns low, @ check is drayy Whenever to replenish replenishment ¢! It is at this time that the petty & recorded. 5 ash disbursements arg spenses Cashin bank rt should be replenished only ements ‘The petty cash disbursemivi” Ti deposited collections, by means of check and not from un ‘At the end of the accounting period, it is necessary to adjust the unreplenished expenses in order to state thy correct petty cash balance. y ses ix Petty cash fund aa f or at “4 ‘The adjustment is to be reversed at the beginning of'the next accounting period. The reversal is made in order that the norma] replenishment procedures may be followed by simply debiting expenses and crediting cash in bank without distinguishing whether the expenses pertain to the current period or prior period. ‘An increase in the fund is recorded normally. Petty cash fund : Cashinbank Mow A decrease in the fund is recorded normally. Cashin bank : : Petty cash fund ox 10 ee Illustration 2022 s Nov. 10 The entity estabtishe dan imprest fund , Petty cash fund rae, i Cash in bank eee 10,000 29 Replenished the fund. The petty cash i the fellowing,° 24 Te petty cash items include Currency and coin z Supplies Stoo Teena 1B Postage ea: 29 The journal entry to record the replenishment is: Supplies oo Telephone in Postage ia » Cash in bank ad Dee. 81 The fund was not replenished. An adjustment is "necessary to record the unreplenished expenses. ‘The fund is composed of the following: currency and coin P7,000, supplies P1,500, postage P50, miscellaneous expense P1,000. Supplies 1.500 Postage a Miscellaneots expense 1.000 Petty cash fund 3,000 2028 Jan. 1 The adjustment made on December 3, 2022s reversed. 3.000 Petty cash fund see Supplies en Miscellaneous expense Jem, rv Scanned with CamScanner (ie 3 ‘a. Establishment of the fund: x Petty cash fund Cash in bank i b. Payment of expenses out of the petty cash fund: x ‘Expenses: Petty cash fund’ = Under cis system, the disbursements from the petty cash fund are immediately recorded in contradistinction with the imprest fund system where the disbursements are recorded upon the replenishment of the fund. c. Replenishment or increase of the fund: Petty cash fund x Cash in bank Rr ‘The replenishment check may or m not be th the petty cash disbursements. © a ae d. At the end of the rey necessary because th: outright, porting period, no adjustment is Petty cash expenses are recorded Decrease ofthe fund is reverted to the general cash, Cashin bank Petty cash fund 12 Illustration Nov. 10 The entit; P 10,000, > ***blished a petty cash fund of Pepa, 00 Nov, 11-28 Petty cash disbursements amounted to P8,000, Pry ch ed oo Aim Nov. 29 Issued a check for P10,000 to replenish the fund, » Petty cash fund 6 10,000 Cash in bank 10,000, At this point, the petty cash balance per book is - -P 12,000. Dec. 1-30 Petty cash expenses amounted to P9,000. 07 ixpensen 9,000 Petty cash fund 9,000 31 Issued a check for P15,000 to replenish the fund. Petty cash fund 15,000 Cash in bank 15,000 At this point, the petty cash balance is P18,000. Scanned with CamScanner ee QUESTIONS 1 Explain cash for aounting purposes. sh ‘equivalents. 2, Explain casl ana presentation of cash and eash 3. Explain measurement equivalents. tments of excess cash in in the classification of inves 1 5 als say market instruments and treasury bills, 6; Raplan the classification of cash fd for certain purpose, 6. Explain a bank overdraft. 7. Explain a compensating balance. 8 Explain undelivered check, postdated check delivered and stale check. 9, Explain the imprest system of interna] control. 10. Explain the imprest fund system and fluctuating fund , system of accounting for petty cash fund. 4 PROBLEMS Problem 1-1 (IAA) On December 31, 2022, Albania Company provided th ‘ded the following data: Cash in bank ny wat pet toe Saving deposit nt due on June 30,2023 pone guakine ng fund for bond payable due June 20, 2024 1, 0200 * ‘The cash in bank included custo ‘The cash in bank included eutomer check of 7200000 *, Check of P250,000 in payment of accounts payable was dated and recorded on December 31, 2022 but mailed to creditors on January 15, 2023. *, Check of P100,000 dated January 31, 2023 in payment of accounts payable was recorded and mailed December 31, 2022. ‘The reporting period ig the calendar year. ‘The cash receipts journal was held open until January 16, «2023 during which time an amount of P450,000 was collected from customers and recorded on December 31, 2022. “Required: 1. ‘Prepare adjusting entries on December 31, 2022. 2 Compute the total amount of cash and cash equivalents) that should be reported on December 31, 2022, . Explain the presentation ofthe items excluded froma cash and cash equivalents. 16 Scanned with CamScanner ‘CHAPTER 2 BANK RECONCILIAT ION TECHNICAL KNOWLEDGE ‘To understand the need for a bank reconciliation. ‘To know the reconciling items affecting the cash in bank per ledger. To know the reconciling items affecting the cash in bank per bank statement. To be able to prepare a bank reconciliation, To be able to prepare the necessar erbank statement,” “ser with thecash: bank - 84 y ry adjusting entries to” BANK DEPOSITS re) Demand deposit ‘The demand deposit is the current ; or commercial deposit where deposits are comet et slips and where funds are withdrawable on demand by dreeang checks against the bank. sawing ‘A demand deposit is usually noninterest bearing. However, some banks allow a demand deposit eee eating. posit account as Saving deposit In a baving deposit, the depositor is given a passbook upon the initial deposit. The passbook is required when making deposits and withdrawals. Withdrawals are made anytime but the bank sometimes may require notice of withdrawal. ‘A saving deposit is interest bearing. Time deposit. ‘The time deposit is similar to saving deposit in the sense that it is interest bearing. ‘ [A time deposit is evidenced, however, by a formal agreement embodied in an instrument called certificate of deposit. ‘Time deposit may be preterminated or withdrawn on demand or after a certain period of time agreed upon. * 36 Scanned with CamScanner ee sation? ; conciliation What is a bank recon! = eb ei Wn En "aloe er pening 8 Gem oe oe nk reco ay ofthe thee Kit eee king accow Inciden ory only fora demand deposit or is neces j 1 the bank, the person authoring Whe an get i ePsount wl be Zegued to sgn oer Tarnished by the bank, to show the specimen signatures to be used on the checks. ares wil be led by the bank 0 that any et Wr vith a depositor’s signature can comparing the depositor's ure on the check. ‘These specimen signat teller who may be unfar : test the authenticity of a check by signature on the card with the signat Ifthe depositor isa corporation, the bank will request that the directors pass 2 resolution authorizing certain officers of the corporation as signatories of checks and that a copy of this resolution be filed with the bank. Let us now illustrate some fundamental transactions affecting the depositor and the bank. Assume that Company X (the depositor) collected P100,000 from a customer in settlement of an account. The collection is deposited at the First Bank. ‘The journal entry to record the collection and the subsequent deposit is: Cash or cash in bank 1 Accounts receivable 90° ox,000 On the books of the bank, the journal entry is: 4 Cash ee —— 100,000 i 100,000 ‘The journal entry on the books of the bank showa the credit is Company X account. This i facilitate the ituseaton, 866, for our purpose, to bs 36 In practice, however, the accou it demand deposit account but the same a4 bY the bank i Jedger of Company X. ‘the same is posted tothe cuban ‘when the bank credits the account of X, it recognizes its liability tothe dene c° Peston, Company Positor, Legally, when a deposit is made, oe lationship between the bankand the nese ceborsreditor the debtor and the depositor ain Ben he bank being Hence, when the account of the depositor is is credited.’ Positor is increased the same Let us assume further that Company X subse issued check for P30,000 in payment of an account ait On the books of Company X, the journal entry is, i: ‘Accounts payable A Cash, Nees - The journal entry on the books of the bank is: Company X 30,000 Cash, 30,000 When a check is issued, the payee will present the same to the bank for payment. “The depositor is actually ordering the bank to pay the payee out of its deposit in the bank. ‘This is the reason the bank debits the account of the depositor thereby reducing its liability to the depositor. ‘Thus, when the depositor’s account is decreased, the same is debited. i it ces are extracted, the cash in bank ee cleat ‘book has a balance of P70,000, and the Company X aczounton the bok ofthe bank has also a balance of P70,000. 37 Scanned with CamScanner Explanation a lor the same balances Because the, vee ‘The two accounts have are reciprocal accounts. ‘This means that when one account is del is credited ar vice versa ‘The reason for thsi that the two acoounts cover OF Teflect the same items or transactions. cording, and the same : ted in Thus, if no errors are comm counts, the two should information has been recorded by both at have equal or the same balances. the depositor's by But very frequently, there are items on t a which do not appear on the bank records as of the same date, For example, checks issued by the depositor are not yet presented for payment to the bank or deposits may have been made after the bank records are sent out to the depositor. And less frequently, there are items on the bank records which do not appear on the depositor’s book. For example a. The bank may have charged the depositor’s account with Service charges which the depositor may not know about uuntil a report is received from the bank, Notes endorsed to 1 collected by the bank and credit % ql but notioe of collection i creed the depositor’s account the depositor. "te recived from the bank by i In the light of the , bank reconciliation ®t becomes necessary to prepare a 38 ited the other accoyn, > “b, The deposits. made he bank for collection have been, | Bank reconciliation on isa Statem: i sarcoma he cabal perc ana eee no per ban provides the depositor wit eet thy because the bank every month, statement at the end of Abdnk statementis a mont showing: Hy report ofthe bank tothe depositor a. The cash balance per bank a the beginning by the de the bank Positor and acknowledged by c. The checks drawn by the depositor and paid by the bank d. The daily cash balance per bank during the month Actiially, the bank statement is an exact copy ofthe depositor’s ledger in the records of the bank. When the bank statement is received, attached thereto are the depositor's canceled checks and any that have affected the depositor’s account. ‘The canceled checks are the checks issued by the depositor and paid by the bank during the month. ‘These are called canceled checks because they are literally paid. 3 Scanned with CamScanner items Reconcili arison between the a ery months OE tatement reocived fret sitar and the Or nciling items: ™ fev At the end 0 = a the fellow ¥0 cds ofthe de The bank wil il 1. Bk eons ites: 2) Credit memos ‘Debit memos ©) Errors 2, Bank reconltng items Credit memos Credit memos refer to items not representing deposits crediteg by the bank to the acount of the depositor but not yet recorded, by the depositor as cash reeeipts ‘Theeredit memos have the effect of increasing the bank balance, ‘Typical examples of credit memos are: ; a. Notes receivable ellected by bank in favor of the depos and credited tothe account of the depositor. b. Proceeds of bank loan ere dep dited to the account of deposits transfert runt of the depositor, ed by the bank to th 40 Debit memos ‘Debit memos refer to items not which are charged or debited by the pen eck Paid by bank depositor but not yet recorded by th to the account of the disbursements Th debit memos in gt Psitor a8 cash ‘bank balance, effect of decreasing the ‘Typical examples of debit memos are: a. NSFor no sufficient fund / returned bythe bank became apse eon bat other name for NSF is DAIF or "drawn, gu fund”. b. Technically defective checks are - etured by the bank because of echeeet atone absence of signature or countersignature, erasuses ree countersigned, mutilated checks, conflict between amount in words and amount in figures, “2 Bank service charges include bank charges for interest, collection, checkbook and penalty, = Reduction of loan pertains to amount deducted from the current account of the depositor in payment for loan which the depositor owes to the bank and which has already * matured. _. 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 jank statement. those still in the hands of the depositor. In effect, fre cash on hand awaiting delivery to the bank for deposit. an Scanned with CamScanner ks ding chee sd by the depgg: Outsta” = avoess to eed on hei Outstanding ere ats but i sh disburse . Statement Outstanding checks include: “: drawn and already given to for payment 5: here th «A certified check is one where the ba, Carte ee =the word “acented” or *cerinat es tng sufcency of fond. -certifesa cheek, the account of the depoeita. mah eth he payment ofthe check. Certified checks shouldbe deducted from the total outstanding ‘hocks if included therein because the certified checks are nj Ionger outstanding or bank reconciliation purposes. ayeCS DUE not .. Checks ® resented Forms of bank reconciliation ‘The following formats may be used in reconciling the book balance and the bank balance: a. Adjusted balance method ~ Under this method, the book balance and the bank balance are brought to a correct cash st appear on the statement of financial balance th position, Book to bank method - Under this me iethod, the book b: is reconciled with the bank balance or the book pela adjusted to equal the bank balance. Bunko eo tele ‘rider this method, the bank balance ‘adjusted to equal the book vse er ee ‘The ; first method is preferrea over the other tw 0. 42 proforma reconciliation Adjusted balance method Book balance ‘Add: Credit memos ‘Total Less: Debit memos Adjusted book balance Bank balance ‘Add: Deposits in transit ‘Total Less: Outstanding checks ‘Adjusted bank balance ke kes kok b ba Ih ‘The reconciling items of the bock are simply termed as credit merhos' and debit memos, No details are shown to simplify the illustration. In actual formal reconciliation, details will have to be shown. |." Moreover, errors are excluded because no definite rule can be made whether these are to be added or deducted. Errors will have to be analyzed for'proper treatment. However, errors are reconciling items of the party which committed them. Under the adjusted balance method, the credit memos are always added to the book balance and the debit memos are always deducted from the book balance. Deposits in transit are always added to the bank balance and the outstanding cbocks are alvays dedused fom the bnk balan, 43 Scanned with CamScanner foregoing procedures that the book balan hod means ce Toe ait bla aoe ie correc cash bata nk balano®| ‘ the dj increased the bank rie but have edit memos aeady because the credit memos arg Ng ect on the book bala 2g corded by the depos! : ye ay, the bork balance understated in relation é aly, fone cash balance. added tothe book balance. Hence, credit memos are Debit memos already deere ‘effect on the book balance be recorded by the depositor. Consequently, the book balance is overstated in relation to the correct cash balance. sare deducted from the book balance, sed the bank balance but have cause the debit memos are not ye, Hence, debit m Deposits in transit already inereased the book balance but haye no effect on the bank balance because the deposits are not yet recorded by the bank. Consequently, the bank balance is understated in relation tp the correct cash balance. Hence, deposits in transit are added to the bank balance, ks already decreased the book balance but Jot pag te the ban blance because the checks are not Consequently, the bank bal ‘ance is overstated in relation to the ‘anding checks are deducted from the bank tie 4 Book to bank method rs Credit memos Outstanding checks a = ‘Total EE xx, Less: Debit memos al Deposits in transit xx axe Bank balance 2x ‘Thus, since the deposit in transit i : tow deducted from the book balan and sara Ce 8 hg deduced from the bank blane, its naw added othe . Explanation of reversal rule ‘The book to bank method means that the book balance is adjusted to equal the bank balance, Deposits in transit already increased the book balance but have no effect on the bank balance because the deposits are not yet: recorded by the bank. Consequently, the book balance is overstated in relation to the bank balance. Hence, deposits in transit are deducted from the book balance following the book to bank method. On the other hand, outstanding checks already decreased the ‘book balance but have no effect on the bank balance because. the checks are not yet paid by the bank. Consequently, the book balance is understated in relation to the bank balance. Hence, outstanding checks are added to the book balance .° following the book to bank method. 45 Scanned with CamScanner Illustration ‘Tho cash records of Company Xi - of January. any X how the folowing forthe month CASH RECEIPTS CASH DISBURSEMENTS gen. 6 Seow 2 8 CheckNo.721 5000 43 20,000 7 Check No.722 19.000 5 30,000 10 Check No.723 18,000 3 40,000 Mi Check No.124 2.000, 160, 28 Check No. 725 37,000 31 Check No.726 28,000 100,000 ‘The general ledger of the company shows the cash i account for January as follows: soni to & Me & Bockbalans sion starts withthe bank balance ang g and eng, | bank reconciling item, the bok blancs the) oe treated in oe adjugt treated in the sary pat in transit is added and outsta, Gas deluded -) vith respect tothe book reconciling items, y,, aoeni is simply “reversed”. are added to the book balance and are thy, heed ‘tom the ‘bank balance. i k balance and ¢ memos are deducted from the boo nie Tose ron ese on i Cash in bank — First Bank Jan.31 CR 180,000 ‘The balance of the cash in bank on the depositor's bock is P50,000. Explanation of reversal rule ‘The bank to book method means that the bank balanee iy adjusted to equal the book balance. Debit memos already decreased the bank balance but have ng effect onthe book balance because the debit memos are not yet recorded by the depositor. in relation tothe’ Hence, debit memes are added tothe bank balance, nthe other hand, cedit memos already incre balance but have nc effect onthe beokneg ereased the bank sc eee tak lace Because the credit took Eadane: "bth balance is overstated in relation to the Hence, credit memos are deducted fom nee 4a \ 46 \ ¢ _,,.....____ Scanned with CamScanner , rarer it ratement ual i . Bank st agatement for JaNUaTY meeeived fy General procedures in ‘i ne jathe bask Preparing the reconciliation i ole ee . a, Determine the balance per bok and the Dalance per bank, he No.175 FIRSTBANK jentioned earli Inacountth Manila, Philipines Ae net oe da tet: the cash in b . rae h in bank sccount near bool 1e depositor has a debit balance of P50,000. ’ ‘The bank balance is sh Fearon Pen pa SO¥ton the bank statement as the i ‘Trace the cash receipts tothe a b bank statement to ascertai x yhother there are deposits tine eee 0 & w Posits not yet acknowledged by thi i. 18 on. am bank. oss u f 2,000 45,009 i Boag ‘nie si ‘The cash receipt of P40,000 on January 31 does nota 5 ppear : woe gi) in the bank statement. The amount represents deposit fe souoxt 85.0 eee 1,0008% 84, is : (aM te Heselomsceees AES eco Trace the checks issued to the bank statement to ascertain “aw aan SC-Servicecharge whether there are checks not yet presented for payment, es RT-Returned cheet : DM-Debit me 7 Check Nos. izes fe B57. 000 and 726 for P28,000 do not ‘The following data are gathered in connection with the () appear in the bank statement. The said checks are 1g floing at ae eter in oan M + outstanding checks. |. The bank statement should be lined to determi: 2. The CM of P15 000 on January 26 representa proceeds of ‘whether there are hank credits or bani debits not yet not collected by the bank in favor of the company, recorded by the depositor. b. The RT of P5,000 repr resents check of customer deposited * vs ‘There is CM or credit memo of P16,000 and DM or debit are " putretumned by the bank because of “no sufficient memo for returned check of P5,000 and service charge of . : ~ P1,000, . Watch out for errors: Again, errors are reconciling items of the party which committed them. In the illustrative problem, there are no errors committed. ‘At this point, a formal reconciliation may be prepared because .oll the reconciling items have already been determined. 49 Scanned with CamScanner a hod Adjusted balance Me soy | book pak 18g Jance pe bs BalaneNote calected ot Teal espeastoner oo +1000 __60g9 SS Service charge Sar 7 naan 2e ‘ 84 lance perbank a8 Bas oni a ‘otal es Tess: Qutstandingehe amt SNe 281000 a ‘Adjusted bank balance . =58.000 Preparation of adjusting entries sms require adjuating entriog is but understandable, Only the book recone’ ‘on the book of depositor. ecessary to bring the cash in bank balance for statement presentation Cashin bank 16,000 Notesrecevable ~ 15,000 b. To record the NSF customer check: Accounta receivable 5,000 ‘Cashin bank 5,000 © ¢. To record the bank service charge: Bank service charge Cash in bank ed 1,000 In the preparation of adjustments, an item e dash prepara an item added to the book = i debited ae and 2n item deducted from the 50 ae {2 2 Book to bank method CoMPaNy x BankReconciliation January 31 Balance per book ‘Add: Note collected Outstanding checks No.725 37099 No.726 28.009 ‘Total Less: NSF check Service charge Depositin transit, Balance per bank Bank to book method COMPANY x Bank Reconciliation January 1 Balance per bank ‘Add: Depositin transit NSF check Service charge * ‘Total Less: Outstanding checks: No.725 37,000 No. 726 28,000 ‘Note collected by bank Balance pér book “1 0,000 15,000 85.000 0.000 130,000 5,000 1.000 40,000 _ 46.000 mee 4,000 40,000 5,000 2,000 _46,000 130,000 65,000 16,000 _80,000 50,000 Scanned with CamScanner castamer which is depog, pct FO pe book only a Poo 9,000 coshinbask 8.009 nt rctaeent eect ra by ._ ayment of account payab} in payin the ook as P2000, ° civable depositor. b. Under For example, amounting t F20\ sderstatemé cash disbursement ‘There is an UP rement of book balance in the amount of conse rors deducted from the ‘book balance, a 3000 Cashinbank ae Deposit of another entity is credited by the bank to the acount ofthe depositor. ; ‘The error isa deduction from the bank balance because erroneously increased the aosount balance of the deposit inthe bank. No adjustment is necessary on the book of the depositor nother entity charged to the account ‘The error is an addition to th The bank balance because inthe bong teased the account balance of the depos No adjusiment ia neces "ary on the book of the deposit itor. 82 - QUESTIONS 1, Explain the three kinds of bank deposits, 2, Explain a bank reconciliation, 3. What is a bank statement? 4, Explain credit memos, 5. Explain debit memos, 6, Explain deposits in transit. 7, Explain outstanding’checks. (8. Define a certified check, _ 9. Explain the treatment of certified check for bank reconciliation purposes. 10. Explain the three forms of bank reconciliation. 58 Scanned with CamScanner CHAPTER 3 PROOF OF CASH TECHNICAL KNOWLEDGE To beable to prepare a two-date bank recone To know the computation of deposits in transit and outstanding checks. To know the reconciliation of cash receipts per ledger with | cash receipts per bank statement. Tohnow the reconciliation of cash disbursements per ledger with cash disbursements per bank statement. To understand the nature of proof of cash.» To beable to preparea reconciliation showing proof of cast. 2 NT Two-date bank Feconciliation ‘The bank reconciliation is go, Iiterally involves two dates, “Med “two-date" because ' ‘the procedures followed fo game for a twodate recone ine Sate reconciliation are the ‘A two-date reconciliation becomes facts or data are omitted, hence the nee oY when certain neces ng But if all the facto are avaiable, then ae will simply be prepared as ofthe two dats nouaen Statements ‘Among others, the omitted i i Smbination of the fllowing: 72" mey be any one ora a. Book balance ~ beginning and end b, Bank balance ~ beginning aa gaa e. Deposits in transit ~ beginning and ending 4. Outstanding checks ~ beginning and ending Computation of book balance ‘Balance per book beginning of month = Add: Book debits during the month xX ‘Total od xx ‘Less: Book credits during the month Xx Balance per book end of month Ik Book debits refer to cash receipts or all items debited to the cash in bank account. Book credits refer to cash disbursements or all items credited to the cash in bank account. Ina T-account form, the cash in bank per ledger may appear in the following form: Cash in bank Scanned with CamScanner lance ; sd computation of van Bala alustration orth i f ek -bepaing Sy Cash in bank per ledge, Balance pr its during & Add: Bar xy Balance, January 3. ith Book debits for Feby Toa anes during te om & for note collected of 50.00 = endofmonth Re ‘Book eredits for Feb; Balance per bank~ credited to the accoy, of P5,000 and service char 200,000 tp all items eredited to the accouny to all item cits acknowledged by 180,000 ir which include dep bank Bank statement for February trary, bank a « statement to the con cr Balance, January 31 é Inthe absense oy poate acknowledged by bank, » “T*tity Bans for Fecuaryncating cpg dams Sees allitems debited to the account of, te colletdofP20 Gt and Jest Bank debits refer 2 pecs paid by bank and debit mony depesitin transit of 40,000 depositor which in >to th contr. ban an Bank debit for February neiding NSP cago ‘170000 of any statement , ebity 10,000 and January outstan c Ie teed to be checks paid by bank. ; oecheckotPESo00 1009 ; i nk reconciliation f form, the depositor’s account in the records, The bat n for the month of J ‘ Ina T-aocownpany X, may appear in the following form: °% be prepared because all the neces Le a cm sly Company X Balance per book; January 31 Banks Balance— beginning Note collected by antcin January ie pean Bankeredits. is Tat . = : : NSF check for January = Computation of deposits in transit Service charge for January fp Depositsin transit beginning ofmonth Adjusted book balance ais ‘Add: Cash receipts deposited during the month ee ani ff — ce per bank, January 31 ‘ono ‘Total: deposits to be acknowledged ‘by bank Deposit in transit for January 40, ‘Leas: Deposits acknowledged by bank during month “Total 124000 ‘Deposits in transit—end of month ‘Outstanding check for January (65,000) 4 : = Computation of outstanding checks painted bank bolanee, S000 Outstanding checks ~ beginning of month: ‘Add: Checks drawn by depositor during ‘the month ‘otal checks tobe paid by bank Less: Checks paid by ‘bank during the ‘month Outstanding checks ~end of month in transit and outstanding checks. 4 ‘The bank reconciliation for the month of February requires computation of balance per book, balance per bank, deposits Scanned with CamScanner ance and bank balan, r pook ba Computation of ’ a c 09, sonst ay ee Bae dare" ane Hes pork eos ura? ‘Balance per book =! mae \, January . aaoper at een me Bank debits’ during: February Balance per bank February 28 Computation of deposits in transit transit January 31 sonod Deposin rs ed during FEBPUREY: Booklet yCMfornotecolected — _15,000 185,009, 225,000 = Deposits acknowledged by bankin February: Bankcredits 170,000 pane reiaary CMfornotecolleted —_ 20,000 160,000, Deposits in transit - February 28 FoF ‘The January CM of P15,000 is deducted from the book debits of P200,000 becau: is item is a cash receipt not representing deposit for the month of February. All items debited to the cash in bank account which do deducted from the book debi deposited. In the absence of any statement to th it are asumed tobe cach regis depsieds ee en The February CM of P20,000 for note coll is \ te ‘fom the bank credits because this 1s not a « depute : All items credited to the depositor’ a represent deposits sh *positor’s account which do not the ans nt acne 76 {otal to arrive at the cash Computation of outstanding thecks Outstanding checks—January 31 id: Checks drawn by depositor dur Id ocak credits during February: Sm Less: January DM ‘soa Tor checks paid by bank a : Checks pai luring February: tes Bank debits adi Less: February NSP ae ing ‘Outstanding checks ~ February 28 a ae Fas ‘The January DMs of P6,000 are deducted from the ‘ book credits; because they are cash disb oe ae, isbursements not ‘All items not representing checks credited to the cash in bank ‘account should be deducted from the book credits otal to arrive ‘at the checks drawn by the depositor. But as a rule, all book credits in the absence of any statement to the contrary are assumed to be checks issued. ‘The February DM for NSF of P10,000 is deducted from the - bank debits because this is not a bank disbursement representing a check paid. - Alll items debited to the account of the depositor not representing checks paid should be deducted from the bank debits total to arrive at the checks paid by bank. But as a rule, all bank debits in the absence of any statement to the contrary are assumed to be checks paid by bank. 1 Scanned with CamScanner > x comiation Bante spruary 28 Be poe Bary bankin Febr’ 2 E: Faber Feb? 80,009 “Adjusted book balano® SS 12409) Balance perbank | uary 75,009 Depositsintransitfor Fe ea To ding checks for Feb L19.000) ‘Adjusted bank balance =82.000 Proof of eash is an expanded reconciliation in that i A proof of casl L A pret lot of receipts and disbursements, jes in handling ca wve boen recorded but have not been deposited. ‘There are three forms of proof of cash, namely: a. Adjusted balance method b. Book to bank méthod ©. Bank to book method Inall the three although under worksheet may ur-column worksheet is necessary, d balance method, an 8-column , For our illustrat two-date recon t us summarize the data used in the tion, © Adjusted book balancs 59, TD Summary Jaa Blancs per book, Tee February 28 28 } 7, Baer 1000 ete Book credits 700,000 Ban rit rang 18 Bepositsin transit 170.00 Outstanding checks aes 75,000 NSF check aa 119,000 Service charge ‘1000 10.000 Rote collected by bank ie

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