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

PRESENTATION AND MEASUREMENT OF CASH IN THE BALANCE SHEET

A. 1. 2. 3. 4. 5. 6. 7. 8. 9.

CASH ITEMS PETTY CASH FUND CASH IN BANK POSTAL MONEY ORDER MANAGERS CHECK AND TRAVELLERS CHECK UNDELIVERED OR UNRELEASED CHECKS COMPANYS POSTDATED CHECK AND STALE CHECK COMPENSATING BALANCES ( UNRESTRICTED ) CASH SET ASIDE FOR CURRENT OPERATIONS 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

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 depositors bank account -classified as current liability -right of offset exists- cash in bank net of bank overdraft

PETTY CASH FUND

Small amount of cash in a fund to pay MINOR EXPENSES

ESTABLISHMENT OF FUND
Journal Entry:

PETTY CASH FUND CASH IN BANK

XX XX

PAYMENT OF EXPENSES

NO ENTRY

REPLENISHMENT OF FUND
Journal entry: EXPENSES ( VARIOUS ) CASH IN BANK NOTE:

XX XX

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

YEAR-END ADJUSTMENT Journal entry: EXPENSES XX PETTY CASH FUND

XX

NOTE:
1. 2. 3.

Bring PCF general ledger account to equal to the actual cash items in the PCF as of the balance sheet date To avoid understatement of expenses To avoid overstatement of assets

TO INCREASE OR DECREASE PETTY CASH FUND Journal entry: PETTY CASH FUND CASH IN BANK ( To increase PCF ) CASH IN BANK XX PETTY CASH FUND ( To decrease PCF ) XX XX

XX

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
-

BANK RECONCILIATION

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

BANK RECONCILING ITEMS

DEPOSITS IN TRANSIT/ UNDEPOSITED COLLECTIONS OUTSTANDING CHECKS ERRORS

BOOK RECONCILING ITEMS

DEBIT MEMOS CREDIT MEMOS ERRORS

DEPOSITS IN TRANSIT/UNDEPOSITED COLLECTIONS

Deposit made near the end of the month and recorded on the depositors 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

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 companys 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 depositors account

DEBIT MEMOS
Charges to the companys or depositors 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

CREDIT MEMOS
Deposits or credits made directly by the bank to the depositors account such as notes collected by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositors account and matured time deposits transferred to current account Understate the book balance Added to the cash balance per book

FORMS OF BANK RECONCILIATION

ADJUSTED BALANCE METHOD BOOK TO BANK BALANCE METHOD BANK TO BOOK BALANCE METHOD

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 Add: Credit memos Total Less: Debit memos Adjusted book balance

xx xx xx xx xx

Bank balance xx Add: Deposits in transit xx Total xx Less: Outstanding checks xx Adjusted bank balance xx

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 Add: Credit memos Outstanding checks Total Less: Debit memos Deposits in transit Bank balance xx xx xx xx xx xx xx xx xx

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 Add: Deposits in transit Debit memos Total Less: Outstanding checks xx Credit memos Book balance xx

xx xx

xx xx xx xx

xx

DEPOSITS IN TRANSIT
Deposit in transit, beginning of the month Add: Cash receipts reflected in the companys record during the month* Total Less: Deposits during the month as reflected in the bank statement ** Deposit in transit, end of the month XX XX XX XX XX

*The amount does not necessarily represent debits ( charges ) in the companys 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

OUTSTANDING CHECKS
To compute the outstanding checks: Outstanding checks, beginning of the month Add: Checks drawn by the company during the month* Total Less: Checks paid by the bank during the month** Outstanding checks, end of the month XX XX XX XX XX

*The amount does not necessarily represent credits in the companys 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

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

CASH IN BANK
Jan 31 beginning balance 50,000 Feb 28 Book credits ( including NSF of P 5,000 and SC of P 1,000 for Jan) 180,000

Feb 28 Book debits ( including Jan CM of 15,000 ) 200,000

COMPANY X Feb 28 Bank debits ( including NSF check ofP10,000) 130,000 Jan 31 Beg bal 84,000 Feb 28 Bank credits ( including CM for note collected of P 20,000) 170,000