2.1D Diy-Exercises (Answer Key)

Far Eastern University
Institute of Accounts. Business and Finance

Department of Accountancy and Internal Auditing
INTERMEDIATE ACCOUNTING 1
DO-IT-YOURSELF EXERCISES
TABLE OF CONTENTS
• Exercise 2.1-1 Composition of Cash
• Exercise 2.1-2 Cash Related Adjusting Journal Entries at Reporting Date

A. Pro-forma Adjusting Journal Entries Related to Cash
B. Related Multiple Choice Questions (Theory)
• Exercise 2.1-3 Cash Composition and Adjusting Journal Entries
• Exercise 2.1-4 Cash Equivalents

A. Computation of Cash Equivalents balance
• Exercise 2.1-5 Computation of Correct Cash Balance
• Exercise 2.1-6 Computation of Correct Cash and Cash Equivalents Balance

A. Complete composition of cash balance is given with adjustments
B. Unadjusted cash balance is given with some information included in the balance
C. Unadjusted cash balance is given with some information excluded in the balance
D. Related Multiple Choice Questions (Theory)
• Exercise 2.1-7 Computation of Correct Cash and Cash Equivalents Balance

A. With inclusion of other cash and non-cash items)
• Exercise 2.1-8 Compensating Balances

A. Compensating balance is legally restricted as to withdrawal
B. Compensating balance is not legally restricted as to withdrawal
C. Related Multiple Choice Questions (Theory)
• Exercise 2.1-9 Petty Cash Fund

A. Recording Petty Cash Fund Transactions - Imprest Fund System
• Exercise 2.1-10 Bank Reconciliation -Three Methods

A. Adjusted Balance Method
B. Book to Bank Method
C. Bank to Book Method
D. Related Multiple Choice Questions (Theory)
• Exercise 2.1-11 Proof of Cash -Three Methods

A. Analysis of Effect of Cash Receipts and Cash Disbursements in Cash Ending Balance)
B. Adjusted Balance Method
C. Book to Bank Method
D. Bank to Book Method
E. Related Multiple Choice Questions (Theory)
• Exercise 2.1-12 Computation of Deposit in Transit and Outstanding Checks at Month-end
1|Page
EXERCISE 2.1-1
Composition of Cash
INSTRUCTIONS: For each individual situation, determine the required amount.
Case 1:
Reported as
Items Amount “Cash”
Checking account balance P 950,000 P 950,000

Certificate of deposit – Term is 6 months 1,400,000 0
Cash advance to subsidiary 980,000 0
Utility deposit paid to gas company 1,800 0
Total P 950,000
Case 2:
Reported as
Reported as “Non-Current
Items Amount “Cash” Assets”
Checking account balance P 600,000 P 600,000 P

A special checking account overdraft at the
same bank as normal checking account (10,000) (10,000)
Cash held in bond sinking fund 200,000 200,000
Petty Cash Fund 3,000 3,000
Coins and currency on hand 1,350 1,350
Total P 594,350 P 200,000
Case 3:
Reported as
Reported as “Accounts
Items Amount “Cash” Receivable”

Post-dated check from customer 11,000 11,000
Cash restricted due to maintaining
compensating balance requirement 100,000
Certified check from customer 9,8000 9,800
Total P 609,800 P 11,00
Case 4:
Reported as
Reported as “Accounts
Items Amount “Cash” Receivable”
Checking account balance at bank P 35,000 P 35,000 P

NSF Check received from customer 8,000 8,000
Un-deposited receipts 50,000 50,000
Petty Cash Fund (with expense receipts of
P 2,000 of various dates) 5,000 3,000
Total P 88,000 P 8,000
Case 5:
Reported as Reported as
“Cash and Cash “Non-current
Items Amount Equivalents” assets”

Cash restricted for future plant expansion 500,000 500,000
Cash in bank – Sinking Fund 500,000 500,000
Short-term treasury bills – 60 days 180,000 180,000
Cash advance to company executive
payable on demand 7,000
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Refundable deposit paid

to Philippine
government to guarantee performance on
construction project 2,500,000 2,500,000
Balance in closed foreign bank (in Pesos) 89,000 89,000
Total P 980,000 P 3,589,000
Case 6:
Reported as
Items Amount “Cash and Cash Reported as
Equivalents” “Prepayments”
Balance in general checking account, PNB P 60,000 P 60,000 P

An overdraft in checking account BPI (20) (20)
IOU held from company president, received six
weeks ago because of a cash loan 40,000
Deposit in transit 6,000 6,000
Cash held by salespersons as advances on
expense accounts 800 800
Postage stamps on hand received from mail
order customers 200
Postage stamps on hand 500 500
Total P 65,980 P 1,300
Case 7:
Reported as Reported as
Items Amount “Cash and Cash “Accounts
Equivalents” Receivable”
Reconciled balance in BDO checking account P 180,000 P 180,000 P

Balance in BDO Savings Account 50,000 50,000
Un-deposited sales receipts 10,400 10,400
Petty Cash Fund, net of expense receipts of
P 3,000 supported by Petty Cash Vouchers 2,000 2,000
Postage Stamps 500
Employee IOUs 1,250
Traveler’s Checks 6,000 6,000
Postal Money Order 5,000 5,000
Undelivered Check to suppliers 10,000 10,000
Customer’s Post-dated Check 2,500 2,500
Customer’s NSF Check 3,000 3,000
Total P 263,400 P 5,500
3|Page
EXERCISE 2.1-2
Cash Related Adjusting Journal Entries at Reporting Date
Exercise 2.1-2A - Pro-forma Adjusting Journal Entries Related to Cash

Prepare the pro-forma adjusting journal entry for the following (Use xxx as amount):
Nature of Journal Entry Adjusting Journal Entry

No. transaction Based on Original Transactions at the end of the accounting period
Account Names Dr. Cr. Account Names Dr. Cr.
1 No Sufficient Fund Cash xxx Accounts Receivable xxx
Check (NSF Accounts Receivable xxx Cash xxx
Check) Collection of A/R
2 Undelivered Check Accounts Payable xxx Cash xxx

Cash xxx Accounts Payable xxx
Payment of A/P
3 Customer’s post- Cash xxx Accounts Receivable xxx

dated check Accounts Receivable xxx Cash xxx
Collection of A/R
4 Post-dated check Accounts Payable xxx Cash xxx

payable to supplier Cash xxx Accounts Payable xxx
Payment of A/P
5 Customer’s Stale Cash xxx Accounts Receivable xxx

Check Accounts Receivable xxx Cash xxx
6 Stale check Accounts Payable xxx Cash xxx

7 Post-dated check Accounts Payable xxx Cash xxx

Exercise 2.1-2A Related Multiple-Choice Questions (Theory)

In relation to the above, answer the following multiple-choice questions. Write your answer on the space provided
before each number. Use only CAPITAL LETTERS.
C 1. Which of the following is not classified as accounts receivable at the end of the accounting
period?
A. Customer’s post-dated check
B. No sufficient fund checks
C. Undelivered check
D. Customer’s stale check
C 2. Which of the following is not classified as accounts payable at the end of the accounting period?
A. Undelivered check
B. Post-dated check to suppliers
C. Customer’s post-dated check
D. Stale check payable to supplier
A 3. Undelivered check is also called

A. Unreleased check
B. Post-dated check
C. Ante-dated check
D. NSF Check
A 4. Which means that the check has been merely drawn and recorded but not given to the payee on
the statement of financial position date?
B. Post-dated check delivered
C. Stale check
D. All of the above
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Which means that the checks are drawn, recorded and already given to the payees but they
B 5. bear a date subsequent to the date of the statement of financial position?
A. Customer’s post-dated check
B. Post-dated check delivered
C. Undelivered check
D. Stale check delivered
D 6. Which means checks that are long outstanding?

B. Customer’s post-dated check
C. Post-dated check delivered
D. Stale checks
B 7. If the amount of long-outstanding check issued to supplier is immaterial, it simply accounted as

A. Accounts Payable
B. Miscellaneous Revenue
C. Other Expenses
D. Accounts Receivable
C 8. A check that was not honored by the bank of the entity issuing the check, on the grounds that
the entity's bank account does not contain sufficient funds.
A. Stale check
B. Ante-dated check
C. NSF check
D. Cancelled check
C 9. The accounting treatment for NSF check.

A. Other Expenses
B. Cash
C. Accounts Receivable
D. Owner’s Capital
A 10. The accounting treatment for Unreleased check.

A. Accounts Payable
B. Other Revenue
C. Owner’s Capital
D. Cash
B 11. If NSF check is not adjusted to appropriate accounts at the end of the accounting period, what is
the effect to Cash and Accounts Receivable, respectively?
A. Understated and overstated, respectively
B. Overstated and understated, respectively
C. Both accounts are overstated
D. Both accounts are understated
D 12. If undelivered check is not adjusted to appropriate accounts at the end of the accounting period,
what is the effect to Cash and Accounts Payable, respectively?
B 13. If customer’s post-dated check is not adjusted to appropriate accounts at the end of the
accounting period, what is the effect to Cash and Accounts Receivable, respectively?
D 14. If post-dated check delivered is not adjusted to appropriate accounts at the end of the
accounting period, what is the effect to Cash and Accounts Payable, respectively?
D 15. If stale check issued to creditor is not adjusted to appropriate accounts at the end of the
accounting period, what is the effect to Cash and Accounts Payable, respectively?
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EXERCISE 2.1-3
Cash Composition and Adjusting Journal Entries
The following information pertains to “Cash” GL account of AIR Corporation as at December 31, 2020:
Cash on Hand, which consists of the following: P 50,000

Undeposited receipts P 45,000
Petty cash fund 5,000
Upon counting the petty cash box, you found out that it
consists of currencies and coins of P 3,900 and
unreplenished petty cash vouchers of P 1,000. Included
inside the petty cash box is the file of replenished petty cash
vouchers with total amount of P 4,500.
Cash in Bank. 350,000

Check no. 4445 dated December 29, 2020 was already recorded
in accounting books on the same date but still on the hand of the
entity at year end, P 3,500
Required: Compute the correct balance of the following at December 31, 2020:
1. Cash on Hand
2. Cash in Bank
3. Petty Cash Fund shortage (overage), if any
4. Total Cash to reported in the Statement of Financial Position
5. Adjusting journal entries at December 31, 2020
SOLUTION:
1. Cash on Hand
Undeposited receipts P 45,000
Petty Cash Fund (currencies and coins) 3,900
Correct Cash on hand, 12/31/2020 P 52,900
2. Cash in Bank
Cash in bank, unadjusted P 350,000
Undelivered check No, 4445 AJE 1 3,500
Correct Cash in bank, 12/31/2020 P 353,500
3. Petty Cash Fund shortage (overage), if any

PER BOOK, accountability P 5,000
PER COUNT, as accounted for
Currencies and coins P 3,900
Unreplenished PCV AJE 2 1,000 (4,900)
PCF shortage AJE 3 P 100
4. Total Cash balance to be reported in the Statement of Financial Position

Correct Cash on Hand (See No. 1) P 52,900
Correct Cash in Bank (See No. 2) 353,500
Total Cash, 12/31/2020 P 406,400
5. AJE at 12/31/2020
No. Account Names Debit Credit
1 Cash – Cash in Bank 3,500

Accounts Payable 3,500
Undelivered check.
2 Expenses 1,000
Cash – Cash on Hand – Petty Cash Fund 1,000
Unreplenished PCV at year end.
3 Cash Shortage 100

Cash – Cash on Hand – Petty Cash Fund 100
Petty Cash Fund Shortage
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EXERCISE 2.1-4
Cash Equivalents
Exercise 2.1-4A – Computation of Cash Equivalents balance

From the following accounting information provided by DELTA Corporation at December 31, 2020, compute the
amount of cash equivalents to be reported in its statement of financial position.
Securities Date Acquired Maturity Date Amount

120-day Certificate of Time Deposit 12/01/2020 03/30/2021 1,000,000
BSP – Treasury Bills No. 01298 11/01/2020 02/29/2021 6,000,000
BSP – Treasury Bills No. 52312 11/30/2020 02/25/2021 4,000,000
150 days Commercial Paper 12/15/2020 05/01/2021 2,000,000
Money Market Funds 11/20/2020 02/15/2021 1,000,000
Required:
What amount is to be reported in the statement of financial position at December 31, 2020 as cash equivalents?
SOLUTION:
Cash
Securities Date Acquired Maturity Date Amount Equivalents
120-day Certificate of Time Deposit 12/01/2020 03/30/2021 1,000,000 -
BSP – Treasury Bills No. 01298 11/01/2020 02/29/2021 6,000,000 -
BSP – Treasury Bills No. 52312 11/30/2020 02/25/2021 4,000,000 4,000,000
150 days Commercial Paper 12/15/2020 05/01/2021 2,000,000 -
Money Market Funds 11/20/2020 02/15/2021 1,000,000 1,000,000
CASH EQUIVALENTS AT 12/32/2020 Statement of Financial Position 5,000,000
NOTES:
Securities Date Acquired Maturity Date Classification
120-day Certificate of Time Deposit 12/01/2020 03/30/2021 Short-Term Investment
BSP – Treasury Bills No. 01298 11/01/2020 02/29/2021 Short-Term Investment
150 days Commercial Paper 12/15/2020 05/01/2021 Short-Term Investment
Exercise 2.1-4B – Related Multiple-Choice Questions (Theory)

B 1. 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 investment that are readily convertible into cash and acquired
three months or less before maturity.
D. Short-term and highly liquid marketable equity securities.
A 2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be
A. Unrestricted in use for current operations
B. Available for the purchase of property, plant and equipment
C. Set aside for the liquidation of long-term debt
D. Deposited in the bank
D 3. Which is false concerning measurement of cash and cash equivalents?

A. Cash is measured at face value
B. Cash in foreign currency is measured at the current exchange rate
C. If a bank or financial institution holding the funds of the company is in bankruptcy or
financial difficulty, cash should be written down to estimated realizable valued.
D. Cash equivalents should be measured at maturity value, meaning face value plus
interest.
B 4. Which is not considered as a cash equivalent?

A. A three-year treasury-note maturing on May 30 of the current year purchased by the entity
on April15 of the current year.
B. A three-year treasury-note maturing on May 30 of the current year purchased by the entity
on January 15 of the current year.
C. A 90-day T-bill.
D. A 6-day money market placement
7|Page
EXERCISE 2.1-5
Computation of Correct Cash Balance
On December 31, 2020, the cash account of Tonette Corporation has a debit balance of P 3,440,000. Ana
analysis of the cash account shows the following details:
Undeposited collections P 50,000

Cash in Bank - BDO 500,000
Cash in Bank – PNB (overdraft) (50,000)
Petty Cash Fund (unreplenished expenses, P 200) 10,000
Undeposited NSF Check received from customer, dated December 15, 2020 15,000
Undeposited check from a customer dated January 15, 2021 25,000
Cash in Bank – BDO (Payroll fund) 150,000
Cash in Bank – BDO (Savings Deposit) 100,000
Cash in Bank – BDO (money market instruments, 120 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking Fund Cash 450,000
Listed stocks held as temporary 60,000
TOTAL P 3,440,000
Required:
What is the correct cash balance to be shown as current asset in the statement of financial position as of
December 31, 2020?
SOLUTION:
Undeposited collections P 50,000
Cash in Bank - BDO 500,000
Petty Cash Fund (unreplenished expenses, P 200) (10,000 – 200) 9,800
Cash in Bank – BDO (Payroll fund) 150,000
Cash in Bank – BDO (Savings Deposit) 100,000
Correct cash balance as current asset in the Statement of Financial Position P 809,800
NOTES:
Accounting Treatment
Cash in Bank – PNB (overdraft) Current liability
Undeposited NSF Check received from customer, dated Accounts Receivable
December 15, 2020
Undeposited check from a customer dated January 15, 2021 Accounts Receivable (Customer’s PDC)
Cash in Bank – BDO (money market instruments, 120 days) Cash Equivalent
Cash in foreign bank (restricted) Non-current Asset (Other Assets)
IOUs from officers Advances to Employees
Sinking Fund Cash Non-current Asset (Investment)
Listed stocks held as temporary Temporary Investment_
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EXERCISE 2.1-6
Computation of Correct Cash and Cash Equivalents Balance
Exercise 2.1-6A (Complete composition of cash balance is given with adjustments)

Standard Corporation’s Cash account at December 31, 2020 consists of the following:
Undeposited Receipts P 50,000

Petty Cash Fund (net of unreplenished vouchers of P 2,200) 2,800
Postal Money Order 1,000
Cash in Foreign Bank – unrestricted (in Pesos) 500,000
Unused Credit Line 1,000,000
Cash in Closed Bank 700,000
BDO Checking Account (net of bank overdraft of P 10,000) 360,000
PNB Checking Account (Sinking Fund No. 1) 5,000,000
Investment in Callable Preference Shares 3,000,000
Treasury Warrants 1,000,000
Additional information:
A. The Cash in Closed Bank is covered by PDIC. The excess of P 500,000 covered by insurance is estimated to be
recovered at P 0.60 for every P 1.00 deposit.
B. PNB Checking Account is Sinking Fund No. 1 which is restricted for the payment of bonds issued seven years ago
and will be paid in 2024.
C. PNB Checking Account is Sinking Fund No. 2 which is restricted for the payment of bonds issued two years ago
and will be paid on June 30, 2022.
Required:
1. Compute the correct amount of Cash and Cash Equivalents to be reported in the statement of financial position at
December 31, 2020.
2. What amount is to be reported as Cash in Closed Bank at December 31, 2020?
SOLUTION:
Items Amount Cash & CE Remarks
Undeposited Receipts 50,000 50,000
Petty Cash Fund (net of unreplenished vouchers of P 2,200) 2,800 2,800
Postal Money Order 1,000 1,000
Cash in Foreign Bank – unrestricted (in Pesos) 500,000 500,000
Unused Credit Line 1,000,000 - Disclosure only
Cash in Closed Bank 700,000 - Non-current Asset
BDO Checking Account (net of bank overdraft of P 10,000) 360,000 370,000 P 10K – C. Liab.
PNB Checking Account (Sinking Fund No. 1) 5,000,000 - NCA - Investment
PNB Checking Account (Sinking Fund No. 2) 1,000,000 1,000,000 Due Currently
Investment in Callable Preference Shares 3,000,000 - NCA - Investment
Treasury Warrants 1,000,000 1,000,000
Cash and Cash Equivalents, 12/31/2020 2,923,800
Exercise 2.1-6B (Unadjusted Cash balance is given with some information included in the balance)
The same information in Exercise 2.1-6A except that the unadjusted cash account balance of Thinker Corporation as
of December 31, 2020 is P 20,500,000 and includes the same given information.
Required:
Compute the correct amount of Cash and Cash Equivalents to be reported in the statement of financial position at
December 31, 2020.
SOLUTION:
Cash balance, unadjusted, 12/31/2020 P 20,500,000
Adjustments:
Unused Credit Line P 1,000,000
Cash in Closed Bank 700,000
Bank overdraft in BDO Checking Account (add back) 10,000
Investment in Callable Preference Shares 3,000,000 (9,710,000)
Cash and Cash Equivalents, 12/31/2020 P 10,790,000
9|Page
Exercise 2.1-6C (Unadjusted cash balance is given with some information excluded in the balance)
The same information in Exercise 2.1-6A except that the unadjusted cash account balance of Thinker Corporation as
of December 31, 2020 is P 20,500,000 in which the given information is excluded in this unadjusted cash balance.
Required:
Compute the correct amount of Cash and Cash Equivalents to be reported in the statement of financial position at
December 31, 2020.
SOLUTION:
Cash balance, unadjusted, 12/31/2020 P 20,500,000
Adjustments:
Undeposited Receipts P 50,000
Petty Cash Fund (net of unreplenished vouchers of P 2,200) 2,800
Postal Money Order 1,000
Cash in Foreign Bank – unrestricted (in Pesos) 500,000
BDO Checking Account (P 360,000 + P 10,000 overdraft) 370,000
Treasury Warrants 1,000,000 2,923,800
Cash and Cash Equivalents, 12/31/2020 P 23,423,800
Exercise 2.1-6D (Related MCQs)

D 1. As contemplated in accounting, cash includes

A. Money only
B. Money and any negotiable instrument
C. Any negotiable instrument
D. Money and any negotiable instrument that is payable in money and acceptable
by the bank for deposit and immediate credit.
B 2. If material, deposits in foreign bank which are subject to foreign exchange restriction should be
classified
A. Separately as current asset, with appropriate disclosure
B. Separately as a non-current asset with appropriate disclosure
C. Be written off as an extraordinary loss
D. As part of cash and cash equivalents
C 3. Bank overdraft
A. is a debit balance in a cash in bank account.
B. is offset against demand deposit account in another bank.
C. which cannot be offset is classified as a current liability.
D. which cannot be offset is classified as non-current liability.
C 4. Which of the following is usually considered cash?

A. Certificates of deposit
B. Checking accounts
C. Money market savings certificates
D. Post-dated check
D 5. Which of the following is not usually considered cash?

A. Undeposited collections
B. Postal Money Order
C. Treasury Warrants
D. Certificates of Deposit
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EXERCISE 2.1-7
Computation of Correct Cash and Cash Equivalents Balance
Exercise 2.1-7A (With inclusion of other cash and non-cash items)

In connection with your audit of Caloocan Corporation for the year ended December 31, 2020, you gathered the
following:
Current account at Metrobank P 2,000,000

Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s post-dated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 3/31/2021 (purchased 12/31/2020) 200,000
Treasury bills, due 1/31/2021 (purchased 1/1/2020) 300,000
Required:
Based on the above information and the result of your audit, compute for the cash and cash equivalent that would be
reported on the December 31, 2019 statement of financial position.
SOLUTION:
Current account at Metrobank P 2,000,000
Current account at BPI (Bank overdraft – current liability) -
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) (NCA) -
Postage stamps (Supplies) -
Employee’s post-dated check (Advances to Employees) -
IOU from controller’s sister (Advances to Officers) -
Credit memo from a vendor for a purchase return -
Traveler’s check 50,000
Not-sufficient-funds check (Accounts Receivable) -
Money order 30,000
Petty cash fund (10,000 – 6,000 expense receipts) 4,000
Treasury bills, due 3/31/2021 (purchased 12/31/20) (Cash Equivalent) 200,000
Treasury bills, due 1/31/2021 (purchased 1/1/2020) (Temporary investment) -
Cash and Cash Equivalents at 12/31/2020 P 2,784,000
Exercise 2.1-7B (Related MCQs)

D 1. Which of the following is not classified as cash?

A. Postal Money Order
B. Traveler’s Check
C. Payroll account
D. Treasury Bills
D 2. Which of the following is usually classified as cash?

A. Postage stamps
B. Expense receipts disbursed from petty cash fund
C. Treasury bills
D. Payroll account
B 3. Which of the following may be classified as cash equivalents?

A. Traveler’s check
B. Treasury bills
C. A three-year treasury-note maturing on May 15 of the current year purchased by the entity
on January 15 of the current year.
D. A 120-day treasury bill
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EXERCISE 2.1-8
Compensating Balances
Exercise 2.1-8A (Compensating Balance is legally restricted as to withdrawal)

On December 31, 2020, Gemini Company had the following cash balances:
Cash in Bank – BDO checking account P 6,000,000

Petty Cash fund (all funds are reimbursed at year-end) 50,000
Time Deposit – three months, due January 15, 2021 2,500,000
Savings Deposit 1,000,000
Cash in bank included P 400,000 of compensating balance against short-term borrowing arrangement. The
compensating balance is legally restricted as to withdrawal.
Required:
Compute the amount of cash and cash equivalents that should be reported in the statement of financial position as at
December 31, 2020.
SOLUTION:
Cash in Bank – BDO checking account:
Total balance 6,000,000
Compensating balance which is restricted as to withdrawal (400,000) 5,600,000
Cash and Cash Equivalents, December 31, 2020 9,150,000
Exercise 2.1-8B (Compensating Balance is not legally restricted as to withdrawal)

Using the same information in Exercise 2.1-7A except that the compensating balance is not legally restricted.
Required:
Compute the amount of cash and cash equivalents that should be reported in the statement of financial position as at
December 31, 2020.
SOLUTION:
Cash in Bank – BDO checking account 6,000,000
Cash and Cash Equivalents, December 31, 2020 9,550,000
Exercise 2.1-8C (Related MCQs)

Select the best answer among the given choices. Write only the letter that corresponds to your answer. Use only
CAPITAL LETTER.
C 1. A compensating balance
A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as a current
asset.
C. Which is legally restricted and related to a short-term loan is classified separately as a
current asset.
D. Which is not legally restricted as to withdrawal is classified separately as current
asset.
C 2. Which of the following statements is not correct?

A. If the deposit is not legally restricted as to withdrawal because of an informal compensating
balance agreement, the compensating balance is part of cash.
B. If the deposit is legally restricted as to withdrawal because of a formal compensating
balance agreement, the compensating balance is classified as “cash held as compensating
balance” under current assets if the related loan is a short-term.
C. If the deposit is legally restricted as to withdrawal because of a formal compensating
balance agreement, the compensating balance is classified as “cash held as compensating
balance” under current assets regardless of the term of the loan.
D. If the deposit is legally restricted as to withdrawal because of a formal compensating
balance agreement, the compensating balance is classified as “non-current investment” if
the related loan is a long-term.
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EXERCISE 2.1-9
Petty Cash Fund
Exercise 2.1-9A (Recording Petty Cash Fund Transactions – Imprest Fund System)
On December 1, 2020, Harlem Corporation established an imprest petty cash fund. The operations of the fund for the
last month of 2020 and the first month of 2021 are summarized as follows:
2020
Dec. 1 - The petty cash fund was established by cashing a company check for P 20,000 and
delivering the proceeds to the fund cashier.
2 - A request for replenishment of the petty cash fund was received by the accounts payable
1 department, supported by appropriate signed vouchers, summarized as follows:
Selling expenses 3,204

Administrative expenses 5,130
Special equipment 1,760
Telephone, telegraph and postage 480
Miscellaneous expenses 2,600
Total 13,210
A check for P 13,560 was drawn payable to the petty cashier.
3 - The company’s independent certified public accountant counted the fund in connection
1 with the year-end audit work and found the following:
Cash in petty cash fund 10,660

Employees’ checks with January dates (post-dated) 850
Expense vouchers properly approved as follows:
- Selling expenses 1,460
- Administrative expenses 5,120
- Office supplies 280
- Telephone, telegraph and postage 480
- Miscellaneous expenses 1,000 8,340
Total 19,850
The petty cash fund was not replenished at December 31, 2020.
2021
Jan. 1 - The employees’ check held in the petty cash fund at December 31 were cashed and the
5 proceeds retained in the fund.
3 - A request for replenishment was made and a check was drawn to restore the fund to its
1 original balance of P 20,000. The support vouchers for January expenditures are
summarized below:
Selling expenses 850

Administrative expenses 4,060
Telephone, telegraph and postage 350
Miscellaneous expenses 2,200
Total 7,460
Instructions: Record the transactions in general journal form.
SOLUTION:
Date Account Names Debit Credit
2020
Dec 1 Petty Cash Fund 20,000
,
Cash in Bank 20,000
Establishment of petty cash fund.
2 Selling Expense 3,204

1
Administrative Expense 5,130
Special Equipment 1,760
13 | P a g e
Telephone, Telegraph and Postage 480
Miscellaneous Expenses 2,600

Cash Shortage 350
Cash in Bank 13,560
Replenishment of petty cash fund
3 Advances to Employees 850

1
Selling Expense 1,460
Administrative Expense 5,120
Office Supplies 280
Cash Shortage 150
Petty Cash Fund 9,340
Recognition of Expenses from PCF
2021
Jan. 1 Petty Cash Fund 850
5
Advances to Employees 850
Encashment of employees’ checks for PCF
3 Selling Expense 850

1
Administrative Expenses 4,060
Petty Cash Fund (P 9,340 – P 850) 8,490
Cash in Bank 15,950
Replenishment of petty cash fund.
Exercise 2.1-9B (Related MCQs)

Select the best answer among the given choices. Write only the letter that corresponds to your answer. Use only
CAPITAL LETTER.
B 1. Petty cash fund is

A. Separately classified as current asset.
B. Money kept on hand for making minor disbursements of coin and currency rather than by
writing checks.
C. Set aside for the payment pf payroll.
D. Restricted cash
C 2. The Petty Cash Fund account under the imprest fund system is debited
A. Only when the fund is created.
B. When the fund is created and everytime it is replenished.
C. When the fund is created and when the size of the fund is increased.
D. When the fund is created and then the fund is decreased.
D 3. The internal control feature that is specific to petty cash fund is

A. Separation of duties
B. Assignment of responsibilities
C. Proper authorization
D. Imprest system
D 4. What is the major purpose of an imprest petty cash func?

A. To effectively plan cash inflows and outflows.
B. To ease the payment of cash to vendors
C. To determine the honesty of the petty cashier
D. To effectively control cash disbursements
A 5. What happens when the petty cash is un use?

A. Expenses paid with petty cash are recorded when the fund is replenished.
B. Most small amounts are paid from cash receipts before they are deposited.
C. Petty cash is debited when the fund is replenished.
D. Petty cash is credited when the fund is replenished.
14 | P a g e
When petty cash fund is used, which of the following is true?

C 6. A. The balances of the petty cash fund should be reported on the balance sheet as a long-term
investment
B. The petty cashier’s summary of petty cash payments serves as a journal entry that is
posted to the appropriate general ledger account
C. The reimbursement of the petty cash fund should be credited to the cash account.
D. Entries that include a credit to the cash account should be recorded at the time the
payments from the petty cash fund are made.
D 7. In reimbursing the petty cash fund, which of the following is true?

A. Cash is debited
B. Petty cash is debited
C. Petty cash is credited
D. Expense accounts are debited
C 8. A cash short or over 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.
D 9. The following statements pertain to accounting for petty cash fund. Which statement is false?
A. Each disbursement from petty cash should be supported by a petty cash voucher.
B. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of
the general cash account.
C. At any time, the sum of the cash in the petty cash fund and the total petty cash vouchers
should equal the amount for which the imprest petty cash fund was established.
D. With the establishment of an imprest petty cash fund, one person is given the authority and
responsibility for issuing checks to cover minor disbursements.
B 10. It is used to pay small expenses which cannot be paid conveniently by means of check.
A. Payroll fund
B. Petty Cash Fund
C. Travel Fund
D. Sinking Fund
B 11. Petty cash fund is included among

A. Cash in bank
B. Cash on hand
C. Cash equivalents
D. Undeposited receipts
D 12. Which of the followings statements is false about petty cash fund replenishment?
A. Replenishment of petty cash fund is authorized when its fund runs low.
B. During replenishment, a replenishment check is issued to the petty cashier with amount
equal to the petty cash disbursements.
C. Replenishment is the time that the petty cash disbursements are recorded.
D. Upon replenishment, the Petty Cash Fund account is credited.
B 13. At reporting date, petty cash fund disbursements are recorded in the accounting books with
corresponding credit entry to
A. Cash in Bank
B. Petty Cash Fund
C. Cash short or over
D. Equity account
D 14. The accounting records of the Petty Cash fund being kept by the Petty Cashier is called
A. General Journal
B. General Ledger
C. Petty Cash ledger
D. Petty Cash Book
B 15. Disbursements from petty cash fund must be supported by expense receipts attached to
A. Check Voucher
B. Petty Cash Voucher
C. Cash Voucher
D. Official Receipts
15 | P a g e
EXERCISE 2.1-10
Bank Reconciliation – Three Methods
Exercise 2.1-8A (Analysis of Cash Receipts and Cash Disbursements in Cash Ending Balance)
Cash balance at the end of the month (E) is computed by adding the cash balance at the beginning of the month (B)
and the cash receipts for the month (R), then deducting the cash disbursements (D) for the month.
Cash balance, Cash Receipts for Cash disbursements Cash balance,

beginning + the month - for the month = ending
B + R - D = E
Analyze the effect of the following in the cash ending balances if INCREASE, DECREASE or NO EFFECT. Write
your answer on the space provided using the table below:
Cash balance, Cash Receipts Cash disbursements Cash balance,

No. beginning + for the month - for the month = ending
1 Increase Increase
2 Decrease Decrease
3 Increase Decrease
4 Decrease Increase
Exercise 2.1-8B (Adjusted Balance Method)

The following ledger account is a copy of the bank account in the ledger of the 24/7 Grocery Store.
CASH IN BANK – BPI Checking Account No. 101

Date Receipts Debit Date Disbursements Credit
2020 2020
Dec. 1 Balance 10,100 Dec. 1 Check No. 771 2,010
6 Deposit 3,000 4 Check No. 772 560
12 Deposit 3,350 6 Check No. 773 3,100
24 Deposit 5,150 10 Check No. 774 1,170
31 Deposit 3,200 14 Check No. 775 1,500
18 Check No. 776 2,410
24 Check No. 777 4,010
The following bank statement was received from the Bank of the Philippine Islands by the 24/7 Grocery Store:
Checking Account – 24/7 Grocery Store

Date Transactions Withdrawal Deposits Balances
s
2020
Dec. 1 Balance 11,480
1 Check No. 768 1,120 10,360
1 Check No. 771 2,010 8,350
4 Check No. 772 560 7,790
6 Check No. 773 3,100 3,000 7,690
12 Check No. 774 1,170 3,350 9,870
12 Check No. 776 2,140 7,730
24 Check No. 1042 860 5,150 12,020
28 NSF Check 230 2,480 14,270
28 Service Charge 50 14,220
16 | P a g e
Additional information:
1) The 24/7 Grocery Store reconciled its bank balance on November 30 with two check outstanding: Check No. 768
for P 1,120 and Check No. 770 for P 260.
2) Check No.1042 was drawn by 24/7 Garage; the bank charged it in error to the account of 24/7 Grocery Store.
3) Check No. 776 was correctly drawn for P 2,140; the amount P 2,410 was entered in the books of original entry.
4) The credit on December 28 represents the proceeds of a P 2,500 note, less collection fee of P 20, collected by
the bank and credited to the account.
5) The NSF check was received from a customer, in payment of account.
REQUIRED:
1. Compare book receipts column and bank receipts (deposits) column.
a) What deposit amount is recorded under the book receipt column that is not recorded under the bank deposit
column? What do your call this amount? Which accounting book will make an adjustment for this account?
b) What amount is recorded in the bank deposit column that is not recorded in the book receipt column? What
do you call this amount? Which accounting book will make an adjustment for this account?
2. Compare book disbursement column and bank disbursement column (withdrawals):

a) What check numbers, including amounts, are recorded under the book disbursement column that are not
recorded under the bank disbursement column? What do your call these checks? Which accounting book
will make an adjustment for this account?
b) What check numbers, including amounts, are recorded in the bank disbursements column that are not
recorded in the book disbursements column? What do your call these checks? Which accounting book will
make an adjustment for this account?
c) What other items other than those mentioned in number (2b), including amounts, are recorded in the bank
disbursements column that are not recorded in the book disbursements column? What do your call these
items? Which accounting book will make an adjustment for this account?
3. Prepare a bank reconciliation statement as of December 31, 2020 using the adjusted balance method.
4. Prepare entries in general journal form to adjust the books of 24/7 Grocery Store.
SOLUTION:
1. Comparing book receipts column and bank receipts (deposits) column.
CASH IN BANK CHECKING ACCOUNT

(BPI Checking Acct. No. 101) (24/7 Grocery store)
Date Receipts Debit Date Deposits Credit
2020 2020
Dec. 1 Balance 10,100 Dec. 4 Deposit 3,000
6 Deposit 3,000 6 Deposit 3,350
12 Deposit 3,350 12 Deposit 5,150
24 Deposit 5,150 (1b) 24 Proceeds of notes 2,480
(1a) 31 Deposit 3,200
a) What deposit amount is recorded in the book receipt column that is not recorded in the bank deposit
column?
Answer: P 3,200
What do your call this amount? This is Deposit in transit at December 31, 2020. This refers to cash and
check collections already recorded in the company’s book as receipts but not yet received by the bank
during the same month of receipt.
Which accounting book will make an adjustment for this account? Bank record will make the adjustment by
adding P 3,200 to its unadjusted ending balance.
b) What amount other than deposit is recorded in the bank deposit column that is not recorded in the book
receipt column? P 2,480
What do you call this amount? This is the proceeds of notes receivable directly deposited by customer to
company’s bank account. Refer to additional information number 4. This is supported by bank document
called credit memorandum. The principal amount actually collected is P 2,500 but due to bank charges of P
20, the net cash credited to company’s bank account is only P 2,480.
Which accounting book will make an adjustment for this account? Book record will make the adjustment by
17 | P a g e
adding the principal amount of P 5,000 and deducting the P 20 service charge. This
is recorded by an adjusting entry Debit to Cash for P 2,480; Debit to Bank Service Charges for P 20; Credit
to Notes Receivable for P 2,500 (face amount of notes)
2. Comparing book disbursement column and bank disbursement column (withdrawals):
CASH IN BANK CHECKING ACCOUNT

(BPI Checking Acct. No. 101) (24/7 Grocery store)
Date Disbursements Credit Date Withdrawals Debit
2020 2020
Dec. 1 Check No. 771 2,010 Dec. 1
4 Check No. 772 560 (2b) 1 Check No. 768 1,120
6 Check No. 773 3,100 1 Check No. 771 2,010
10 Check No. 774 1,170 4 Check No. 772 560
(2a) 14 Check No. 775 1,500 6 Check No. 773 3,100
(2c) 18 Check No. 776 2,410 1 Check No. 774 1,170
2
(2a) 24 Check No. 777 4,010 (2c.1) 1 Check No. 776 2,140
2
(2c.2) 2 Check No. 1042 860
4
(2c.3) 2 NSF Check 230
8
(2c.4) 2 Service Charge 50
8
a) What check numbers, including amounts, are recorded in the book disbursement column that are not
recorded in the bank disbursement column? Check No. 775 for P 1,500; Check No. 777 for P 4,010. Take
note that Check No. 776 for P 2,410 is the additional information number 3. See explanation in (2c).
What do your call these checks? These are outstanding checks at December 31, 2020. These are checks
already recorded as issued by the book but not yet paid by the bank during the month of issuance.
Which accounting book will make an adjustment for this account? Bank record will make the adjustment by
deducting the total outstanding checks of P 5,770 (P 1,500 + P 4,010 + P 260)) from its unadjusted ending
balance.
b) What check numbers, including amounts, are recorded in the bank disbursements column that are not
recorded in the book disbursements column? Check No. 768 for P 1,120.
What do your call these checks? This is Deposit in Transit at November 30, 2020 or at December 1, 2020.
This check is recorded as company’s book disbursement last month of November but only paid by the bank
this month of December.
Which accounting book will make an adjustment for this account? This is not included in the single date
bank reconciliation of December, 2020 but included as bank adjustment in two-dates bank reconciliation
called Proof of Cash.
c) What other items other than those mentioned in number (2b), including amounts, are recorded in the bank
disbursements column that are not recorded in the book disbursements column? What do your call these
items? Which accounting book will make an adjustment for this account?
1) Check No. 776 for P 2,140. This is the additional information number 3. This refers to BOOK ERROR
because it is the company book that commits the mistake. The correct disbursement is P 2,140 instead
of P 2,410. Therefore, the book disbursement is overstated by 270 (P 2,410 – P 2,140). In effect, the
cash in bank balance is understated by the same amount. The book will be adjusted by adding P 270 to
its unadjusted ending balance.
2) Check No. 1042 for P 860. This is the additional information number 2. This refers to BANK ERROR
18 | P a g e
because it is the bank that commits the mistake. This is the check of another
company but charged (or deducted or debited) to 24/7 Grocery Store. Therefore, the total disbursement
of the company is overstated in total. In effect, the bank ending balance is understated. The bank will
adjust this by adding P 860 to unadjusted ending bank balance. The correction is supported by a BANK
CREDIT MEMO because the bank will make a credit entry to increase the bank ending balance of the
checking account (which is a liability)
3) NSF Check. This is the additional information number 5. This is supported by BANK DEBIT MEMO
because the bank debit your account to reverse the original entry they made during their receipt of this
check as deposit. The book of the company will be adjusted to reflect the non-collection of this check
which, on the other hand, it originally recorded as debit to Cash upon collection from customer. The
adjustment by the book is to decrease its unadjusted book balance of cash.
4) The service charge of P 50 is supported by a BANK DEBIT MEMO because the bank charged or
debited your account to collect the service charges. This is a book adjustment because this amount
should be deducted from the unadjusted book ending balance to reflect the bank deduction in the
company’s accounting records.
3. Prepare a bank reconciliation statement as of December 31, 2020 using the adjusted balance method.
24/7 GROCERY STORE
Bank Reconciliation
For the month of December, 2020
Book Bank
Unadjusted balances, December 31, 2020 10,040 14,220
Bank Reconciling items:
Outstanding checks
No. 770 (260)
No. 775 (1,500)
No. 777 (4,010)
Deposit in transit 3,200
Bank error – erroneous charging 860
Book Reconciling items:
Credit memo – proceeds of note (net) AJE 1 2,480
Debit Memo – NSF Check AJE 2 (230)
Debit Memo – Service Charge AJE 3 (50)
Book error – erroneous charging AJE 4 270
Adjusted balances, December 31, 2020 12,510 12,510
4. Prepare entries in general journal form to adjust the books of 24/7 Grocery Store.
No. Account Names Debit Credit
1 Cash 2,480
Bank Service Charge 20
Notes Receivable
Collection of notes receivable.
2 Accounts Receivable 230

Cash 230
Customer’s NSF check.
3 Bank Service Charge 50

Cash 50
Bank service charge for the month.
4 Cash 270
Accounts Payable 270
Correcting erroneous charging.
Exercise 2.1-8C (Book to bank method)

Using you bank reconciliation in Exercise 2.1-8A, prepare the bank reconciliation of 24/7 grocery Store using the
Book to Bank Method.
24/7 GROCERY STORE
Bank Reconciliation
19 | P a g e
Unadjusted book balance, December 31, 2020 10,040

Credit memo – proceeds of note (net) AJE 1 2,480
Debit Memo – NSF Check AJE 2 (230)
Debit Memo – Service Charge AJE 3 (50)

Outstanding checks
No. 770 260
No. 775 1,500
No. 777 4,010
Deposit in transit (3,200)
Bank error – erroneous charging (860)
Unadjusted bank balance, December 31, 2020 14,220
Exercise 2.1-8D (Bank to book method)

Using you bank reconciliation in Exercise 2.1-8A, prepare the bank reconciliation of 24/7 grocery Store using the
Bank to Book Method.
24/7 GROCERY STORE

Bank Reconciliation
Unadjusted bank balance, December 31, 2020 14220

Outstanding checks
No. 770 (260)
No. 775 (1,500)
No. 777 (4,010)
Deposit in transit 3,200
Bank error – erroneous charging 860

Credit memo – proceeds of note (net) AJE 1 (2,480)
Debit Memo – NSF Check AJE 2 230
Debit Memo – Service Charge AJE 3 (50
Unadjusted book balance, December 31, 2020 10,040
Exercise 2.1-8E (Related MCQs)

D 1. A bank reconciliation is
A. A formal financial statement that lists all of the bank account balances of an enterprise
B. A merger of two banks that previously where competitors
C. A statement sent by the bank to depositor on a monthly basis
D. A schedule that accounts for the differences between an enterprise’s cash balance as
shown on its bank statement and the cash balance shown in its general ledger
A 2. Which of the following items must be added to the cash balance per ledger in
preparing a bank reconciliation which ends with the adjusted cash balance?
A. Note receivable collected by bank in favor of the depositor and credited to the
account of the depositor
B. NSF customer check
C. Service charge
D. Erroneous bank debit
B 3. Which of the following must be deducted from the bank statement balance in
preparing a bank reconciliation which ends with adjusted cash balance?
A. Deposit in transit
B. Outstanding check
C. Reduction of loan charged to the account of the depositor
20 | P a g e
D. Certified check
C 4. In preparing monthly bank reconciliation, which of the following items would be added to the
balance per bank statement to arrive at the correct cash balance?
A. Outstanding checks
B. Bank service charges
C. Deposits in transit
D. A customer’s note collected by the bank on behalf of the depositor
D 5. If the balance shown on a company’s bank statement is less than the correct cash balance and
neither the company nor the bank has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the company
B. Outstanding checks
C. Deposits in transit
D. Bank charges not yet recorded by the company
D 6. In preparing bank reconciliation, bank charges are

A. Added to the bank balance
B. Deducted from the bank balance
C. Added to the book balance
D. Deducted from the book balance
C 7. Which will not require an adjusting entry on the depositor’s books?

A. NSF check from customer
B. Check in payment of account payable amounting to P50,000is recorded by the depositor as
P5,000
C. Deposit of another entity credited to the account of the depositor
D. Bank service charge
A 8. Which statement is true?

A. Bank service charge will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal
B. Outstanding checks will cause the cash balance per ledger to be greater than the balance
reported by the bank, all other things being equal
C. An error made by the bank by charging an amount to the depositor’s account requires a
correcting entry in the depositor’s own records
D. The cash amount shown in the balance sheet must be the balance reported in the
bank statement
C 9. Which of the following statement is false?

A. A certified check is a liability of the bank certifying it
B. A certified check will be accepted by many persons who would not otherwise
accept a personal check
C. A certified check is one drawn by a bank upon itself
D. A certified check should not be included in the outstanding checks
A 10. A bank reconciliation statement is prepared for which of the following?

A. Checking account
B. Savings Deposit account
C. Time Deposit account
D. All of the above
D 11. Which of the following is an example of bank transaction supported by a credit memorandum?
A. Cost of checks charged to depositor’s account
B. Interest expense on loan payable directly deducted by bank from depositor’s account
C. Direct debit to depositor’s account in payment of bank loan
D. Collection of customer’s notes receivable by bank
C 12. Which of the following is an example of bank transaction supported by a debit memorandum?
A. Proceeds of bank borrowings
B. Interest on bank deposits
C. Bank service charges
D. Collection of notes receivable by bank
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EXERCISE 2.1-11
Proof of Cash – Three Methods
Exercise 2.1-11A (Adjusted Balance Method)

The following information is related to Uptown Company:
August September
Bank statement balance – at month end 241,200 248,200
Cash account balance – at month end 197,500 229,600
Debit Memorandum for NSF check returned 3,800 8,000
Outstanding checks – at month end 60,000 86,500
Deposit in transit – at month end 30,000 47,000
Debit Memorandum - Bank Service Charges 2,500 2,900
Credit Memorandum – Drafts collected by bank 20,000 15,000
Total credits to cash account 148,530 179,790
Total deposits on bank statement ? 180,080
Check No. 411 was erroneously recorded in the company checkbook and journal as P 28,600. The correct amount
is P 23,600. This check is not outstanding on September 30.
All disbursements were made by check.
Instructions:
1. Prepare a four-column bank reconciliation for the month of September 2020 using the adjusted balance
method.
2. Prepare the necessary adjusting journal entries at September 30, 2020.
SOLUTION:
Requirement 1 – Four-column bank reconciliation for September 2020
UPTOWN COMPANY
Four-column Bank Reconciliation
For the month of September, 2020
September
August 31 Receipts Disbursement September 30
s
Book balances, unadjusted 197,500 1,830,000 1,797,900 229,600

DM – No Sufficient Fund Check returned
August (3,800) (3,800)
September 8,000 1 (8,000)
DM – Bank Service Charges
August (2,500) (2,500)
September 2,900 2 (2,900)
CM – Drafts collected by bank
August 20,000 (20,000)
September 15,000 3 15,000
Book Disbursement/Credit Error –
September
Overstated check amount
(P 28,600 error – P 23,600 correct) (5,000) 4 5,000
Book balances, adjusted 211,200 1,825,000 1,797,500 238,700
Bank balance, unadjusted 241,200 1,808,000 1,771,000 278,200
22 | P a g e
Outstanding checks:
August 31 (60,000) (60,000)
September 30 86,500 (86,500)
Deposit in transit:
August 31 30,000 (30,000)
September 30 47,000 47,000
Bank balances, adjusted 211,200 1,825,000 1,797,500 238,700
Notes:
1. Compute the book receipts for September 2020 by applying workback procedure. P 229,600 + P 179,790 – P
197,500 = P 211,890.
2. Compute the bank disbursements for September 2020. P 241,200 + P 180,080 – P 248,200 = P 173,080.
3. NSF Check:
a) The NSF check of P 3,800 is for August. This means, this check was returned and recorded as
disbursement by bank last August but not recorded by the book in August. Therefore, the book
disbursement during August is understated while the book ending balance is overstated. To adjust, the book
balance as of August 31 will be reduced by P 3,800. This NSF check was only recorded by the book during
September as its disbursement. In effect, September book disbursement is overstated by P 3,800. To
adjust, the book disbursement for September will be reduced by the same amount.
b) The NSF check of P 8,000 is for September. This means, this check was returned and recorded as
disbursement by bank this September but not recorded by the book in September because the company
was only informed in October upon receipt of bank statement for the month of September. Therefore, the
book disbursement during September is understated while the book ending balance is overstated. To adjust,
the book disbursement balance for September will be increased by P 8,000. In effect, the book ending
balance will decrease by the same amount.
4. Outstanding checks:
a) Outstanding check at August 31
Requirement 2 – Adjusting Journal Entry at September 30, 2020
Date Account Names Debit Credit

2020 (AJE 1)
Sep 30 Accounts Receivable 8,000
.
Cash 8,000
NSF check for September 2020.
(AJE 2)
30 Miscellaneous Expenses 2,900
Cash 2,9000
Bank service charges for September 2020.
(AJE 3)
30 Cash
Notes Receivable 15,000
Drafts collected by bank in September. 15,000
(AJE 4)
30 Cash 5,000
Accounts Payable 5,000
Correcting overstated disbursement amount
for check no. 411
23 | P a g e
Exercise 2.1-11B (Book to Bank Method)

Using the same information in Exercise 2.1-11A, prepare a four-column bank reconciliation for the month of
September 2020 using the book to bank method.
UPTOWN COMPANY
September
s

August (3,800) (3,800)
September 8,000 1 (8,000)
August (2,500) (2,500)
September 2,900 2 (2,900)
August 20,000 (20,000)
September 15,000 3 15,000
September
(P 28,600 error – P 23,600 correct) (5,000) 4 5,000
Outstanding checks:
August 31 60,000 60,000
September 30 (86,500) 86,500
Deposit in transit:
August 31 (30,000) 30,000
September 30 (47,000) (47,000)
NOTES: The mathematical operation signs of book reconciling items remain the same while the
mathematical operation signs of bank reconciling items are reversed.
Exercise 2.1-11C (Bank to Book Method)

Using the same information in Exercise 2.1-11A, prepare a four-column bank reconciliation for the month of
September 2020 using the bank to book method.
UPTOWN COMPANY
September
s

Outstanding checks:
August 31 (60,000) (60,000)
September 30 86,500 (86,500)
Deposit in transit:
24 | P a g e
August 31 30,000 (30,000)
September 30 47,000 47,000

August 3,800 3,800
September (8,000) 1 8,000
August 2,500 2,500
September (2,900) 2 2,900
August (20,000) 20,000
September (15,000) 3 (15,000)
September
(P 28,600 error – P 23,600 correct) 5,000 4 (5,000)
NOTES: The mathematical operation signs of bank reconciling items remain the same while the mathematical
operation signs of book reconciling items are reversed.
Exercise 2.1-11D (Related MCQs)

C 1. A proof of cash
A. is a physical count of currencies on hand on statement of financial position date.
B. is a formal statement showing the total cash receipts during the year.
C. is a four-column bank reconciliation showing reconciliation of cash balance per book and
per bank at the beginning and end of the current month and reconciliation of cash receipts
and cash disbursements.
D. is a summary of cash receipts and cash payments.
D 2. A proof of cash would be useful for

A. discovering cash receipts that have not been recorded in the journal.
B. Discovering time lag in making deposits.
C. Discovering cash receipts that have been recorded but not been deposited.
D. Discovering an inadequate separation of incompatible duties of employees.
A 3. Book debits in the proof of cash refers to

A. Book receipts
B. Book disbursements
C. Bank deposits
D. Bank withdrawals
D 4. Bank debits in the proof of cash refers to

A. Book receipts
C. Bank deposits
D. Bank withdrawals
B 5. Book credits in the proof of cash refers to

A. Book receipts
C. Bank deposits
D. Bank withdrawals
C 6. Bank credits in the proof of cash refers to

A. Book receipts
C. Bank deposits
D. Bank withdrawals
A 7. If total bank credits are not given in the proof of cash, which of the following equation will
determine this amount?
A. Bank ending balance + bank debits – bank beginning balance
B. Bank ending balance – bank debits + beginning balance
25 | P a g e
C. Bank ending balance + bank debits + beginning balance

D. Bank ending balance – bank debits – beginning balance
B 8. If total bank debits are not given in the proof of cash, which of the following equation will
A. Bank beginning balance – bank credits – bank ending balance
B. Bank beginning balance + bank credits – bank ending balance
C. Bank beginning balance + bank credits + bank ending balance
D. Bank beginning balance – bank credits + bank ending balance
B 9. If total book credits are not given in the proof of cash, which of the following equation will
A. Book beginning balance – book debits – book ending balance
B. Book beginning balance + book debits – book ending balance
C. Book beginning balance + book debits + book ending balance
D. Book beginning balance – book debits + book ending balance
D 10. If total book debits are not given in the proof of cash, which of the following equation will
A. Book ending balance - book credits + book beginning balance
B. Book ending balance - book credits – book beginning balance
C. Book ending balance + book credits + book beginning balance
D. Book ending balance + book credits – book beginning balance
D 11. Which of the following reconciling items in the proof of cash is not deducted from the cash
balance beginning and the disbursement balance of the current month?
A. Outstanding checks at the end of last month
B. NSF Check of last month
C. Bank service charges of last month
D. Deposit in transit of last month
D 12. Which of the following reconciling items in the proof of cash is not added to the cash beginning
balance and deducted from the receipts balance?
A. Deposit in transit last month
B. Proceeds of bank loan last month
C. Collection of customer’s note receivable by bank last month
D. Bank service charges of the current month.
C 13. Which of the following reconciling items have the same treatment in the proof of cash?
I. Deposit in transit during the current month
II. Proceeds of bank loan of last month
III. Collection of notes receivable by bank during the current month
A. I, II and III
B. I and II
C. I and III
D. I only
D 14. Which of the following reconciling items have the same treatment in the proof of cash?
I. Outstanding checks during the current month
II. NSF check of customers during the current month
III. Payment of bank loan directly charged from bank account last month
A. I, II and III
B. II and III
C. I only
D. I and II
C 15. Which of the following entries in the proof of cash is not correct?
A. Cash balance beginning (+), Receipts during the month (-)
B. Disbursements during the month (-), Cash ending balance (+)
C. Cash balance beginning (-), Disbursements during the month (+)
D. Receipts during the month (+), Cash ending balance (+)
26 | P a g e
EXERCISE 2.1-12
Computation of Deposit in Transit and Outstanding Checks at Month-end
Exercise 2.1-11A
Benson Plastics Company deposits all receipts and makes all payments by check. The following information is
available from the cash records:
March 31 Bank Reconciliation
Balance per bank 26,746

Add: Deposit in transit 2,100
Total 28,846
Less Outstanding checks (3,800)
:
Balance per books 25,046
Month of April Results

Per Bank Per Books
Balance April 30 27,995 28,855
April deposits 10,784 13,889
April checks 11,600 10,080
April note collected (not included in April deposits) 3,000 0
April bank service charge 35 0
April NSF check of a customer returned by the bank 900 0
(recorded by bank as a charge)
Instructions
1. Calculate the amount of the April 30:
a. Deposits in transit
b. Outstanding checks
2. What is the April 30 adjusted cash balance? Show all work.
SOLUTION:
Requirement 1a – Computation of deposit in transit of April 30
Deposit in transit, March 31 2,100

Add: Book deposits during April 13,889
Total deposits to be acknowledged by bank 15,989
Less: Bank deposits during April 10,784
Deposit in transit, April 30 5,205
Requirement 1b – Computation of Outstanding checks of April 30
27 | P a g e
Outstanding checks, March 31 3,800

Add: Book checks during April (issued by book) 10,080
Total checks to be paid by bank 13,880
Less: Bank checks during April (paid by bank) 11,600
Outstanding checks, April 30 2,280
Requirement 1c – Adjusted cash balance of April 30
Per Bank Per Books

Balance April 30, unadjusted 27,995 28,855
Deposit in transit, April 30 (Requirement 1a) 5,205
Outstanding checks, April 30 (Requirement 1b) (2,280)
CM – Note receivable collected by bank in April 3,000
DM – Bank service charge in April (35)
DM – NSF check returned by bank in April (900)
Balance April 30, adjusted 30,920 30,920
28 | P a g e

2.1D Diy-Exercises (Answer Key)

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Far Eastern University

Institute of Accounts. Business and Finance

• Exercise 2.1-2 Cash Related Adjusting Journal Entries at Reporting Date

• Exercise 2.1-3 Cash Composition and Adjusting Journal Entries

• Exercise 2.1-4 Cash Equivalents

• Exercise 2.1-5 Computation of Correct Cash Balance

• Exercise 2.1-6 Computation of Correct Cash and Cash Equivalents Balance

• Exercise 2.1-7 Computation of Correct Cash and Cash Equivalents Balance

• Exercise 2.1-8 Compensating Balances

• Exercise 2.1-9 Petty Cash Fund

• Exercise 2.1-10 Bank Reconciliation -Three Methods

• Exercise 2.1-11 Proof of Cash -Three Methods

• Exercise 2.1-12 Computation of Deposit in Transit and Outstanding Checks at Month-end

INSTRUCTIONS: For each individual situation, determine the required amount.

Checking account balance P 950,000 P 950,000

Checking account balance P 600,000 P 600,000 P

Checking account balance P 600,000 P 600,000 P

Checking account balance at bank P 35,000 P 35,000 P

Checking account balance P 800,000 P 800,000 P

Refundable deposit paid

Balance in general checking account, PNB P 60,000 P 60,000 P

Reconciled balance in BDO checking account P 180,000 P 180,000 P

Exercise 2.1-2A - Pro-forma Adjusting Journal Entries Related to Cash

Nature of Journal Entry Adjusting Journal Entry

2 Undelivered Check Accounts Payable xxx Cash xxx

3 Customer’s post- Cash xxx Accounts Receivable xxx

4 Post-dated check Accounts Payable xxx Cash xxx

5 Customer’s Stale Cash xxx Accounts Receivable xxx

6 Stale check Accounts Payable xxx Cash xxx

7 Post-dated check Accounts Payable xxx Cash xxx

Exercise 2.1-2A Related Multiple-Choice Questions (Theory)

A 3. Undelivered check is also called

D 6. Which means checks that are long outstanding?

B 7. If the amount of long-outstanding check issued to supplier is immaterial, it simply accounted as

C 9. The accounting treatment for NSF check.

A 10. The accounting treatment for Unreleased check.

Cash on Hand, which consists of the following: P 50,000

Cash in Bank. 350,000

3. Petty Cash Fund shortage (overage), if any

4. Total Cash balance to be reported in the Statement of Financial Position

1 Cash – Cash in Bank 3,500

3 Cash Shortage 100

Exercise 2.1-4A – Computation of Cash Equivalents balance

Securities Date Acquired Maturity Date Amount

Exercise 2.1-4B – Related Multiple-Choice Questions (Theory)

B 1. Cash equivalents are

D 3. Which is false concerning measurement of cash and cash equivalents?

B 4. Which is not considered as a cash equivalent?

Undeposited collections P 50,000

Exercise 2.1-6A (Complete composition of cash balance is given with adjustments)

Undeposited Receipts P 50,000

Exercise 2.1-6D (Related MCQs)

D 1. As contemplated in accounting, cash includes

C 4. Which of the following is usually considered cash?

D 5. Which of the following is not usually considered cash?

Exercise 2.1-7A (With inclusion of other cash and non-cash items)

Current account at Metrobank P 2,000,000

Exercise 2.1-7B (Related MCQs)

D 1. Which of the following is not classified as cash?