cash and cash equivalents
DESCRIPTION
For ACCT 1A&B.TRANSCRIPT
CASH AND CASH CASH AND CASH EQUIVALENTSEQUIVALENTS
IMPREST SYSTEMIMPREST SYSTEM System of control of cash which requires System of control of cash which requires
that all cash receipts should be deposited that all cash receipts should be deposited intact and all cash disbursements should be intact and all cash disbursements should be made by means of checkmade by means of check
PRESENTATION AND MEASUREMENT OF PRESENTATION AND MEASUREMENT OF CASH IN THE BALANCE SHEETCASH IN THE BALANCE SHEET
A.A. CASH ITEMSCASH ITEMS
1.1. PETTY CASH FUNDPETTY CASH FUND
2.2. CASH IN BANKCASH IN BANK
3.3. POSTAL MONEY ORDERPOSTAL MONEY ORDER
4.4. MANAGER’S CHECK AND TRAVELLER’S CHECKMANAGER’S CHECK AND TRAVELLER’S CHECK
5.5. UNDELIVERED OR UNRELEASED CHECKSUNDELIVERED OR UNRELEASED CHECKS
6.6. COMPANY’S POSTDATED CHECK AND STALE CHECKCOMPANY’S POSTDATED CHECK AND STALE CHECK
7.7. COMPENSATING BALANCES ( UNRESTRICTED )COMPENSATING BALANCES ( UNRESTRICTED )
8.8. CASH SET ASIDE FOR CASH SET ASIDE FOR CURRENTCURRENT OPERATIONS OPERATIONS
9.9. FOREIGN CURRENCY- cash in foreign currency should be FOREIGN CURRENCY- cash in foreign currency should be translated to Philippine currency using the exchange rate at translated to Philippine currency using the exchange rate at the balance sheet date ( closing rate )the balance sheet date ( closing rate )
B. CASH EQUIVALENT- short term investment purchased 3 B. CASH EQUIVALENT- short term investment purchased 3 MONTHS OR LESS BEFORE MATURITYMONTHS OR LESS BEFORE MATURITY
CASH IN CLOSED BANKS/BANKS HAVING A CASH IN CLOSED BANKS/BANKS HAVING A FINANCIAL DIFFICULTYFINANCIAL DIFFICULTY
- classified as receivable and write down to its - classified as receivable and write down to its recoverable valuerecoverable value
CUSTOMERS POSTDATED CHECKS AND NSF CHECKCUSTOMERS POSTDATED CHECKS AND NSF CHECK
- classified as receivables including the IOUs - classified as receivables including the IOUs
- it is described also as DAUD AND DAIF- it is described also as DAUD AND DAIF EXPENSE ADVANCES- classified as prepaid expense EXPENSE ADVANCES- classified as prepaid expense
such as travel expenses and postage stampssuch as travel expenses and postage stamps BANK OVERDRAFT- occurs when a depositor has BANK OVERDRAFT- occurs when a depositor has
written checks for a sum greater than that in the written checks for a sum greater than that in the depositor’s bank accountdepositor’s bank account
-classified as current liability-classified as current liability
-right of offset exists- cash in bank net of bank -right of offset exists- cash in bank net of bank overdraftoverdraft
PETTY CASH FUNDPETTY CASH FUND
Small amount of cash in a fund Small amount of cash in a fund to pay MINOR EXPENSESto pay MINOR EXPENSES
ESTABLISHMENT OF FUNDESTABLISHMENT OF FUND
Journal Entry:Journal Entry:
PETTY CASH FUND PETTY CASH FUND XXXX
CASH IN BANKCASH IN BANK XXXX
PAYMENT OF EXPENSESPAYMENT OF EXPENSES
NO ENTRYNO ENTRY
REPLENISHMENT OF FUNDREPLENISHMENT OF FUND
Journal entry:Journal entry:
EXPENSES ( VARIOUS ) EXPENSES ( VARIOUS ) XXXX
CASH IN BANK CASH IN BANK XXXX
NOTE:NOTE:
Reimbursement should equal to the amount/ sum Reimbursement should equal to the amount/ sum of petty cash vouchers submittedof petty cash vouchers submitted
YEAR-END ADJUSTMENTYEAR-END ADJUSTMENT
Journal entry:Journal entry:
EXPENSESEXPENSES XXXXPETTY CASH FUNDPETTY CASH FUND XXXX
NOTE:NOTE:1.1. To avoid understatement of expensesTo avoid understatement of expenses2.2. To avoid overstatement of assetsTo avoid overstatement of assets
TO INCREASE OR DECREASE PETTY CASH TO INCREASE OR DECREASE PETTY CASH FUNDFUND
Journal entry:Journal entry:
PETTY CASH FUNDPETTY CASH FUND XXXXCASH IN BANKCASH IN BANK XXXX( To increase PCF )( To increase PCF )
CASH IN BANKCASH IN BANK XXXXPETTY CASH FUNDPETTY CASH FUND XXXX( To decrease PCF )( To decrease PCF )
CASH SHORT/OVER ( CSO )CASH SHORT/OVER ( CSO )
- Nominal account Nominal account that is that is debited for shortages debited for shortages and and credited for overagescredited for overages in the Petty Cash Fund in the Petty Cash Fund
- Error in making change fund or failure to obtain Error in making change fund or failure to obtain receipts for very small amountsreceipts for very small amounts
- Incorrect recording of amounts and theft/lossIncorrect recording of amounts and theft/loss- Cash shortage is debited to miscellaneous Cash shortage is debited to miscellaneous
expense at the end of the periodexpense at the end of the period- Cash overage is credited to miscellaneous income Cash overage is credited to miscellaneous income
and deposited to general cash account at the of and deposited to general cash account at the of the period and the journal entry isthe period and the journal entry is
Cash in BankCash in Bank xxxxMiscellaneous Income Miscellaneous Income xxxx
BANK RECONCILIATIONBANK RECONCILIATION
Bank Reconciliation- report that explains the Bank Reconciliation- report that explains the difference between the book ( company ) difference between the book ( company ) balance of cash and the cash balance balance of cash and the cash balance reported in the bank statementreported in the bank statement
Bank Statement- monthly report provided by the Bank Statement- monthly report provided by the bank to the depositor which shows the followingbank to the depositor which shows the following
Beginning-of-month cash balanceBeginning-of-month cash balance Total deposits made by the depositor and other Total deposits made by the depositor and other
bank creditsbank credits Checks paid by the bank and other chargesChecks paid by the bank and other charges End-of-month cash balanceEnd-of-month cash balance
BANK RECONCILING ITEMSBANK RECONCILING ITEMS
DEPOSITS IN TRANSIT/ UNDEPOSITED DEPOSITS IN TRANSIT/ UNDEPOSITED COLLECTIONSCOLLECTIONS
OUTSTANDING CHECKSOUTSTANDING CHECKSERRORSERRORS
BOOK RECONCILING ITEMSBOOK RECONCILING ITEMS
DEBIT MEMOSDEBIT MEMOSCREDIT MEMOSCREDIT MEMOSERRORSERRORS
DEPOSITS IN DEPOSITS IN TRANSIT/UNDEPOSITED TRANSIT/UNDEPOSITED
COLLECTIONSCOLLECTIONS Deposit made near the end of the month and Deposit made near the end of the month and
recorded on the depositor’s books but is not recorded on the depositor’s books but is not received by the bank in time to be reflected on received by the bank in time to be reflected on the bank statement ( DIT )the bank statement ( DIT )
Collections still in the hands of the depositor Collections still in the hands of the depositor awaiting delivery to the bank for deposit ( UC )awaiting delivery to the bank for deposit ( UC )
Comparing the receipts in the accounting records Comparing the receipts in the accounting records and deposits in the bank statementand deposits in the bank statement
Understate the bank balanceUnderstate the bank balance Added to the bank balanceAdded to the bank balance
OUTSTANDING CHECKSOUTSTANDING CHECKS
Checks written by the company and issued to Checks written by the company and issued to payees but have not been cleared or presented to payees but have not been cleared or presented to the bank for paymentthe bank for payment
Comparing written checks during the month as Comparing written checks during the month as reflected in the company’s check voucher or cash reflected in the company’s check voucher or cash disbursements book with the canceled checks disbursements book with the canceled checks included in the bank statementincluded in the bank statement
Overstate the bank balanceOverstate the bank balance Deducted from the bank balanceDeducted from the bank balance
Canceled checks- checks that the bank has paid Canceled checks- checks that the bank has paid and deducted from the depositor’s accountand deducted from the depositor’s account
DEBIT MEMOSDEBIT MEMOS
Charges to the company’s or depositor’s account Charges to the company’s or depositor’s account made directly by the bank such as returned made directly by the bank such as returned checks ( NSF and technically defective checks ), checks ( NSF and technically defective checks ), bank service charge, charge for the cost of check bank service charge, charge for the cost of check booklets and payment of bank loansbooklets and payment of bank loans
Overstate the book balanceOverstate the book balance Deducted from the cash balance per bookDeducted from the cash balance per book
CREDIT MEMOSCREDIT MEMOS
Deposits or credits made directly by the bank to Deposits or credits made directly by the bank to the depositor’s account such as notes collected the depositor’s account such as notes collected by bank in favor of the depositor, proceeds of by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor’s bank loan and interest earned on the depositor’s account and matured time deposits transferred to account and matured time deposits transferred to current accountcurrent account
Understate the book balance Understate the book balance Added to the cash balance per bookAdded to the cash balance per book
FORMS OF BANK FORMS OF BANK RECONCILIATIONRECONCILIATION
ADJUSTED BALANCE METHODADJUSTED BALANCE METHOD
BOOK TO BANK BALANCE METHODBOOK TO BANK BALANCE METHOD
BANK TO BOOK BALANCE METHODBANK TO BOOK BALANCE METHOD
ADJUSTED BALANCE METHODADJUSTED BALANCE METHOD Under this method, the book balance and the bank balance Under this method, the book balance and the bank balance
are brought to a correct cash balance that must appear on the are brought to a correct cash balance that must appear on the balance sheetbalance sheet
PROFORMA RECONCILIATIONPROFORMA RECONCILIATION
Book balanceBook balance xx xx Bank balanceBank balance xx xx
Add: Credit memosAdd: Credit memos xxxx Add: Deposits in transitAdd: Deposits in transit xxxx
TotalTotal xx xx TotalTotal xx xx
Less: Debit memosLess: Debit memos xxxx Less: Outstanding checks Less: Outstanding checks xxxx
Adjusted book balance xxAdjusted book balance xx Adjusted bank balance Adjusted bank balance xx xx
BOOK TO BANK METHODBOOK TO BANK METHOD
Under this method, the book balance is reconciled with the Under this method, the book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance or the book balance is adjusted to equal the bank balancebank balance
PROFORMA RECONCILIATIONPROFORMA RECONCILIATION
Book balanceBook balance xxxx
Add: Credit memosAdd: Credit memos xxxx
Outstanding checksOutstanding checks xxxx xxxx
TotalTotal xxxx
Less: Debit memosLess: Debit memos xxxx
Deposits in transitDeposits in transit xxxx xxxx
Bank balance Bank balance xxxx
BANK TO BOOK METHODBANK TO BOOK METHOD Under this method, the bank balance is reconciled with the Under this method, the bank balance is reconciled with the
book balance or the bank balance is adjusted to equal the book balance or the bank balance is adjusted to equal the book balancebook balance
PROFORMA RECONCILIATIONPROFORMA RECONCILIATION
Bank balanceBank balance xxxx
Add: Deposits in transitAdd: Deposits in transit xxxx
Debit memosDebit memos xxxx xxxx
TotalTotal xxxx
Less: Outstanding checksLess: Outstanding checks xxxx
Credit memosCredit memos xxxx xxxx
Book balanceBook balance xxxx
DEPOSITS IN TRANSITDEPOSITS IN TRANSIT
Deposit in transit, beginning of the monthDeposit in transit, beginning of the month XXXXAdd: Cash receipts reflected in the company’s record during Add: Cash receipts reflected in the company’s record during
the month*the month* XXXXTotalTotal XXXXLess: Deposits during the month as reflected in the Less: Deposits during the month as reflected in the
bank statement **bank statement ** XXXXDeposit in transit, end of the monthDeposit in transit, end of the month XXXX
*The amount does not necessarily represent debits ( charges ) in *The amount does not necessarily represent debits ( charges ) in the company’s records. If the total of charges to the cash the company’s records. If the total of charges to the cash account is given, any credit memo in PREVIOUS month should be account is given, any credit memo in PREVIOUS month should be excludedexcluded
**The amount does not necessarily represent credits in the bank **The amount does not necessarily represent credits in the bank statement. If the total of the credits in the bank statement is statement. If the total of the credits in the bank statement is given, any credit memo for the CURRENT month should be given, any credit memo for the CURRENT month should be excludedexcluded
OUTSTANDING CHECKSOUTSTANDING CHECKS
To compute the outstanding checks:To compute the outstanding checks:
Outstanding checks, beginning of the monthOutstanding checks, beginning of the monthXXXX
Add: Checks drawn by the company during the month* Add: Checks drawn by the company during the month* XXXX
TotalTotal XXXX
Less: Checks paid by the bank during the month**Less: Checks paid by the bank during the month** XXXX
Outstanding checks, end of the monthOutstanding checks, end of the month XXXX
*The amount does not necessarily represent credits in the company’s *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 records. If the total of the credits to the cash account is given, any debit memo in PREVIOUS month should bee excludeddebit memo in PREVIOUS month should bee excluded
**The amount does not necessarily represent debits ( charges ) in the **The amount does not necessarily represent debits ( charges ) in the bank statement. If the total of charges in the bank statement is bank statement. If the total of charges in the bank statement is given, any debit memo for the CURRENT month should be excluded given, any debit memo for the CURRENT month should be excluded
PROOF OF CASHPROOF OF CASH
Reconciles the beginning and ending Reconciles the beginning and ending balances of cash for the month, as balances of cash for the month, as well as the recorded receipts and well as the recorded receipts and disbursements made by the bank disbursements made by the bank and by the depositor company and by the depositor company
CASH IN BANKCASH IN BANK
Jan 31 beginning balance 50,000Jan 31 beginning balance 50,000 Feb 28 Book creditsFeb 28 Book credits
( including NSF of P 5,000 ( including NSF of P 5,000
Feb 28 Book debitsFeb 28 Book debits and SC of P 1,000 for Jan) and SC of P 1,000 for Jan) 180,000180,000
( including Jan CM of 15,000 ) 200,000( including Jan CM of 15,000 ) 200,000
COMPANY XCOMPANY X
Feb 28 Bank debits Feb 28 Bank debits Jan 31 Beg bal 84,000Jan 31 Beg bal 84,000
( including NSF check ofP10,000) 130,000( including NSF check ofP10,000) 130,000 Feb 28 Bank creditsFeb 28 Bank credits
( including CM for note ( including CM for note
collected of P 20,000) collected of P 20,000) 170,000170,000