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CASH AND CASH EQUIVALENTS

Cash and Cash Equivalents

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Page 1: Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS

Page 2: Cash and Cash Equivalents

IMPREST SYSTEM

System of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check

Page 3: Cash and Cash Equivalents

PRESENTATION AND MEASUREMENT OF CASH IN THE BALANCE SHEET

A. CASH ITEMS

1. PETTY CASH FUND

2. CASH IN BANK

3. POSTAL MONEY ORDER

4. MANAGER’S CHECK AND TRAVELLER’S CHECK

5. UNDELIVERED OR UNRELEASED CHECKS

6. COMPANY’S POSTDATED CHECK AND STALE CHECK

7. COMPENSATING BALANCES ( UNRESTRICTED )

8. CASH SET ASIDE FOR CURRENT OPERATIONS

9. FOREIGN CURRENCY- cash in foreign currency should be

translated to Philippine currency using the exchange rate at the

balance sheet date ( closing rate )

B. CASH EQUIVALENT- short term investment purchased 3 MONTHS OR LESS BEFORE MATURITY

Page 4: Cash and Cash Equivalents

CASH IN CLOSED BANKS/BANKS HAVING A FINANCIAL DIFFICULTY

- classified as receivable and write down to its recoverable value

CUSTOMERS POSTDATED CHECKS AND NSF CHECK

- classified as receivables including the IOUs

- it is described also as DAUD AND DAIF

EXPENSE ADVANCES- classified as prepaid expense such as travel expenses and postage stamps

BANK OVERDRAFT- occurs when a depositor has written checks for a sum greater than that in the depositor’s bank account

-classified as current liability

-right of offset exists- cash in bank net of bank overdraft

Page 5: Cash and Cash Equivalents

PETTY CASH FUND

Small amount of cash in a fund to pay MINOR EXPENSES

Page 6: Cash and Cash Equivalents

ESTABLISHMENT OF FUND

Journal Entry:

PETTY CASH FUND XX

CASH IN BANK XX

Page 7: Cash and Cash Equivalents

PAYMENT OF EXPENSES

NO ENTRY

Page 8: Cash and Cash Equivalents

REPLENISHMENT OF FUND

Journal entry:

EXPENSES ( VARIOUS ) XX

CASH IN BANK XX

NOTE:

Reimbursement should equal to the amount/ sum of petty cash vouchers submitted

Page 9: Cash and Cash Equivalents

YEAR-END ADJUSTMENT

Journal entry:

EXPENSES XX

PETTY CASH FUND XX

NOTE:1. Bring PCF general ledger account to equal to the actual cash

items in the PCF as of the balance sheet date

2. To avoid understatement of expenses

3. To avoid overstatement of assets

Page 10: Cash and Cash Equivalents

TO INCREASE OR DECREASE PETTY CASH FUND

Journal entry:

PETTY CASH FUND XX

CASH IN BANK XX

( To increase PCF )

CASH IN BANK XX

PETTY CASH FUND XX

( To decrease PCF )

Page 11: Cash and Cash Equivalents

CASH SHORT/OVER ( CSO )

- Nominal account that is debited for shortages and credited for overages in the Petty Cash Fund

- Error in making change fund or failure to obtain receipts for very small amounts

- Incorrect recording of amounts and theft/loss

- Cash shortage is debited to miscellaneous expense at the end of the period

- Cash overage is credited to miscellaneous income and deposited to general cash account at the of the period and the journal entry is

Cash in Bank xx

Miscellaneous Income xx

Page 12: Cash and Cash Equivalents

BANK RECONCILIATION

Page 13: Cash and Cash Equivalents

Bank Reconciliation- report that explains the difference between the book ( company ) balance of cash and the cash balance reported in the bank statement

Bank Statement- monthly report provided by the bank to the depositor which shows the following

Beginning-of-month cash balance

Total deposits made by the depositor and other bank credits

Checks paid by the bank and other charges

End-of-month cash balance

Page 14: Cash and Cash Equivalents
Page 15: Cash and Cash Equivalents

BANK RECONCILING ITEMS

DEPOSITS IN TRANSIT/ UNDEPOSITED COLLECTIONS

OUTSTANDING CHECKS

ERRORS

Page 16: Cash and Cash Equivalents

BOOK RECONCILING ITEMS

DEBIT MEMOS

CREDIT MEMOS

ERRORS

Page 17: Cash and Cash Equivalents

DEPOSITS IN TRANSIT/UNDEPOSITED COLLECTIONS

Deposit made near the end of the month and recorded on the depositor’s books but is not received by the bank in time to be reflected on the bank statement ( DIT )

Collections still in the hands of the depositor awaiting delivery to the bank for deposit ( UC )

Comparing the receipts in the accounting records and deposits in the bank statement

Understate the bank balance

Added to the bank balance

Page 18: Cash and Cash Equivalents

OUTSTANDING CHECKS

Checks written by the company and issued to payees but have not been cleared or presented to the bank for payment

Comparing written checks during the month as reflected in the company’s check voucher or cash disbursements book with the canceled checks included in the bank statement

Overstate the bank balance

Deducted from the bank balance

Canceled checks- checks that the bank has paid and deducted from the depositor’s account

Page 19: Cash and Cash Equivalents

DEBIT MEMOS

Charges to the company’s or depositor’s account made directly by the bank such as returned checks ( NSF and technically defective checks ), bank service charge, charge for the cost of check booklets and payment of bank loans

Overstate the book balance

Deducted from the cash balance per book

Page 20: Cash and Cash Equivalents

CREDIT MEMOS

Deposits or credits made directly by the bank to the depositor’s account such as notes collected by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor’s account and matured time deposits transferred to current account

Understate the book balance

Added to the cash balance per book

Page 21: Cash and Cash Equivalents

FORMS OF BANK RECONCILIATION

ADJUSTED BALANCE METHOD

BOOK TO BANK BALANCE METHOD

BANK TO BOOK BALANCE METHOD

Page 22: Cash and Cash Equivalents

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

PROFORMA RECONCILIATION

Book balance xx Bank balance xx

Add: Credit memos xx Add: Deposits in transit xx

Total xx Total xx

Less: Debit memos xx Less: Outstanding checks xx

Adjusted book balance xx Adjusted bank balance xx

Page 23: Cash and Cash Equivalents

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

PROFORMA RECONCILIATION

Book balance xx

Add: Credit memos xx

Outstanding checks xx xx

Total xx

Less: Debit memos xx

Deposits in transit xx xx

Bank balance xx

Page 24: Cash and Cash Equivalents

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

PROFORMA RECONCILIATION

Bank balance xx

Add: Deposits in transit xx

Debit memos xx xx

Total xx

Less: Outstanding checks xx

Credit memos xx xx

Book balance xx

Page 25: Cash and Cash Equivalents

DEPOSITS IN TRANSIT

Deposit in transit, beginning of the month XX

Add: Cash receipts reflected in the company’s record during

the month* XX

Total XX

Less: Deposits during the month as reflected in the

bank statement ** XX

Deposit in transit, end of the month XX

*The amount does not necessarily represent debits ( charges ) in the company’s records. If the total of charges to the cash account is given, any credit memo in PREVIOUS month should be excluded

**The amount does not necessarily represent credits in the bank statement. If the total of the credits in the bank statement is given, any credit memo for the CURRENT month should be excluded

Page 26: Cash and Cash Equivalents

OUTSTANDING CHECKS

To compute the outstanding checks:

Outstanding checks, beginning of the month XX

Add: Checks drawn by the company during the month* XX

Total XX

Less: Checks paid by the bank during the month** XX

Outstanding checks, end of the month XX

*The amount does not necessarily represent credits in the company’s records. If the total of the credits to the cash account is given, any debit memo in PREVIOUS month should bee excluded

**The amount does not necessarily represent debits ( charges ) in the bank statement. If the total of charges in the bank statement is given, any debit memo for the CURRENT month should be excluded

Page 27: Cash and Cash Equivalents

PROOF OF CASH

Reconciles the beginning and ending balances of cash for the month, as well as the recorded receipts and disbursements made by the bank and by the depositor company

Page 28: Cash and Cash Equivalents

CASH IN BANK

Jan 31 beginning balance 50,000 Feb 28 Book credits

( including NSF of P 5,000

Feb 28 Book debits and SC of P 1,000 for Jan) 180,000

( including Jan CM of 15,000 ) 200,000

COMPANY X

Feb 28 Bank debits Jan 31 Beg bal 84,000

( including NSF check ofP10,000) 130,000 Feb 28 Bank credits

( including CM for note

collected of P 20,000) 170,000