Cash and Cash Equivalents

Compiled by: Reien Pilar G. Pagaduan

Theories
1. Cash or Cash on Hand and In Banks on the balance sheet may include the following items
I. Currency or cash items on hand
II. Deposits in foreign countries which are subject to foreign exchange restrictions
III. Short-term placements of excess cash which can be pre-terminated
IV. Postdated checks
V. Cash set aside for the acquisition or construction of noncurrent assets
a. 1, 2 and 3 only
b. 2, 3 and 5 only
c. 1 and 3 only
d. Not given

2. Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash
b. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months
c. Short-term and highly liquid investments that are readily convertible into cash and
acquired three months before maturity
d. Short-term and highly liquid marketable equity securities

3. 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. Redeemable preference shares acquired and due in 60 days

Problems
1. The composition of Legaspi Company's "cash account" as of December 31, 2021 is as
follows:

Demand deposit account P2,000,000

Time deposit - 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2022) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
 Customer's check dated January 1, 2022 50,000
Customer's check outstanding for 18 months 40,000
Total P7,760,000

Additional information follows:

● Check of P200,000 in payment of accounts payable was recorded on December 31,
2021 but mailed to suppliers on January 5, 2022.
● Check of P100,000 dated January 15, 2022 in payment of accounts payable was
recorded and mailed on December 31, 2021.
● The company uses the calendar year. The cash receipts journal was held open until
January 15, 2022, during which time P400,000 was collected and recorded on
December 31, 2021.

The cash and cash equivalents to be shown on the December 31, 2021 balance sheet is:
a. P3,310,000
b. P1,910,000
c. P2,910,000
d. P4,410,000

2. Cabangon Company reported the checkbook balance on December 31, 2021 at P8,000,000.
In addition, the entity held the following items in the safe on that date:

Check payable to the entity, dated January 2, 2022 in payment

of a sale, not included in December 31 check book balance 1,000,000

Check payable to the entity, deposited December 15 and included

in December 31 checkbook balance, but returned by bank on
December 30 stamped "NSF". The check was redeposited on
January 2, 2022 and cleared on January 5, 2022 3,000,000

Check drawn on the entity's account, dated and recorded on

December 31, 2021 but not mailed until January 15, 2022 2,500,000

Coins and currencies on hand 800,000

Three-month money market instruments 1,500,000

What is the correct amount of Cash on December 31, 2021?

a. P7,500,000
b. P8,300,000
 c. P9,300,000
d. P9,000,000

Petty Cash
Theories:
1. Entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
a. Imprest petty cash system
b. Fluctuating petty cash system
c. Internal control
d. Administrative control

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

a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the employees
d. To effectively control cash disbursements

15. A cash over or short account

a. Is not generally accepted
b. Is debited when the petty cash fund proves out over
c. Is debited when the petty cash fund proves out short
d. Is a contra account to cash

Problem:
1. Purugganan Company established a petty cash fund for P6,000. The petty cash fund
included the following details:

Coins and currency P2,000

Paid vouchers
Transportation P1,600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 4,000

Employee's check returned by bank marked "NSF" 1,000

Check drawn to the order of petty cash custodian 4,000

What amount of petty cash should be reported?

a. P2,000
 b. P7,000
c. P6,000
d. P9,000

Bank Reconciliation
Theories
1. A bank reconciliation is prepared monthly in order for the enterprise to
a. Arrive at the correct cash balance
b. Correct bank errors
c. Correct book errors
d. Unearth any undetected cash fraud

2. Bank reconciliation
a. Is the process of transferring money in or out of a bank account
b. Requires that every transaction which will result in a cash payment be verified, approved
and recorded before a bank check is prepared
c. Is an analysis that reflects the bank transactions made by a depositor
d. Explains the difference between the bank balance and the balance shown in the
depositor's records

3. A bank statement provides information about all of the following, except

a. Bank charges for the period
b. Check cleared during the period
c. Errors made by the company
d. NSF checks

Problem:
1. Shown below is the bank reconciliation for Cueto Company for November 2021:

Balance per bank, Nov. 30, 2021 P150,000

Add: Deposit in transit 24,000
Total P174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2021 P136,000

The bank statement for December 2021 contains the following data:

Total deposits P110,000

Total charges, including NSF check of P8,000
and a service charge of P400 96,000
All outstanding checks on November 30, 2021, including the bank credit, were cleared in the
bank in December 2021. There were outstanding checks of P30,000 and deposits in transit of
P38,000 on December 31, 2021.

Question 1: How much is the cash balance per bank on December 31, 2021?
a. P154,000
b. P150,000
c. P164,000
d. P172,400

Question 2: How much is the December receipts per book?

a. P124,000
b. P 96,000
c. P110,000
d. P148,000

Question 3: How much is the December disbursements per books?

a. P96,000
b. P79,600
c. P89,600
d. P98,000

Question 4: How much is the cash balance per books on December 31, 2021?
a. P150,000
b. P170,400
c. P180,400
d. P162,000

Question 5: The adjusted cash in bank balance as of December 31, 2021 is:
a. P141,600
b. P170,400
c. P180,400
d. P162,000

Proof of Cash
Theory:
1. A proof of cash
a. Is a physical count of currencies on hand at the end of reporting period
b. Is a formal statement showing the total cash receipts during the year
c. 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 disbursement of the bank and the depositor during the current month
 d. Is a summary of cash receipts and cash payments

Problem:

1. Nova Company had the following bank reconciliation at March 31, 2023:

Balance per bank statement, 03/31 P490,000

Add: Deposit in transit P100,000
Debit memo 10,000 110,000
Total P600,000
Less: Outstanding checks P125,000
Credit memo 60,000 185,000
Balance per book, 03/31 P415,000

All reconciliation items at March 31, 2023 cleared through the bank in April. Outstanding checks
at April 30, 2023, totaled P75,000; deposits in transit amounted to P150,000; Credit memo for
April-P80,000; Debit memo for April P15,000, Bank receipts for April- P600,000 including
erroneous bank credit of P100,000 corrected by the bank in April and Bank disbursements for
April -P500,000 including erroneous bank charge of P50,000 corrected by the bank in May.

1. How much is the adjusted cash receipts in April?

2. How much is the adjusted cash disbursements in April?
3. How much is the adjusted cash balance on April 30, 2023?