Cash Controls, Bank Reconciliation, Petty Cash Fund

Which of the following statements is incorrect?

the responsibility for receiving merchandise and paying it should usually be given to one person
Which of the following is not a basic characteristic of a system of cash control?
combined responsibility for handling and recording cash
An accountant performing cashiering function violates the principle of
both answers are correct
The internal control feature that is specific to petty cash is
Imprest system
The use of a bank account addresses which objective of internal control?
safeguard assets
Which of the following must be deducted from the bank statement balance in preparing a bank reconciliation
which ends with adjusted cash balance?
outstanding checks
Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's
records and to identify bank errors. Adjustments on the part of the depositor should be recorded for
all items except bank errors, outstanding checks and deposits in transit
Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation
which ends with adjusted cash balance?
note receivable collected by bank in favor of the depositor and credited to the account of the depositor
If the balance shown on an entity's bank statement is less than the correct cash balance and neither the entity nor
the bank has made any errors, there must be
deposits in transit
Which will not require an adjusting entry on the depositor's books?
deposit of another entity is credited to the account of the depositor
In preparing a monthly bank reconciliation, which of the following items would be added to the balance per
bank statement to arrive at the correct cash balance?
deposit in transit
A bank reconciliation is
a schedule that accounts for the differences between an entity's cash balance as shown on its bank statement and
the cash balance shown in its general ledger
If the cash balance shown on entity's accounting records is less than the correct cash balance and neither the
entity nor the bank has made any errors, there must be
deposits credited by the bank but not yet recorded by the entity
In preparing a bank reconciliation, interest paid by the bank on the account is
added to the book balance
Bank statements provide information about all of the following, except
errors made by the depositor
When a petty cash fund is used, which of the following is true?
The reimbursement of the petty cash fund should be credited to the cash account.
A Cash Over and Short account
Is debited when the petty cash fund proves out short
What happens when a petty cash is in use?
Expenses paid with petty cash are recorded when the fund is replenished
The petty cash fund account under the imprest fund system is debited
When the fund is created and when the size of the fund is increased
Which of the following statements in relation to the cash short or over is true?
The entry to account for daily cash sales for which a small amount of cash shortage existed would include a
debit to cash short or over account
Petty cash fund is
Money kept on hand for making minor disbursements of coin and currency rather than by writing checks

Estimating Doubtful Accounts, Promissory Notes

When the allowance method of recognizing uncollectible accounts is used, the entry to record the writeoff of a
specific account would
decrease both accounts receivable and the allowance for uncollectible accounts
Estimation of uncollectible accounts receivable based on a percentage of sales
emphasizes measurement of bad debt expense
The method of accounting for uncollectible accounts that is in conformity with the accrual basis of accounting
is the
Allowance method
What happens if an accounts receivable is confirmed to be worthless?
It must be written off
Claims against the customers for goods sold or services rendered are
Accounts receivable
When the direct write off method of recognizing bad debt expense is used, the entry to write off a specific
customer account would
decrease the accounts receivable balance and decrease net income
When an entity uses the allowance method for recognizing uncollectible accounts, the entry to record the
writeoff of a specific uncollectible account
do not affect net income
When the allowance method of recognizing bad debt expense is used, the allowance for doubtful accounts
would decrease when
specific uncollectible account is written off
An entity uses the allowance method to recognize uncollectible accounts expense. What is the effect at the time
of the collection of an account previously written off on allowance for doubtful accounts (AFDA) and doubtful
accounts expense (DAE)?
AFDA, increase; DAE, no effect
When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an
account previously written off would
have no effect on net income
Without any qualification, the interest rate is understood to be expressed as
annual interest rate
This is the party promising to pay
Maker
This is the amount loaned out by the payee and borrowed by the maker of the note.
Principal
This is the maturity date of the note which can be specified or determined from the date and term of the note
expressed in number of days, months or years.
due date
This is the percentage rate of interest specified by the note
interest rate
What happens if the maker dishonored the note at maturity?
The maturity value will have to be reverted back to accounts receivable
This is the total amount that the debtor shall pay to its creditor on due date.
Maturity Value
What is the journal entry to record the receipt from a customer of a P20,000, 90-day, 6% note in settlement of
an account?
debit to Notes Receivable
This is the party to whom the promise to pay is made
Creditor
The maturity value of a P100,000, 4-month, 9% note is:
103,000
What is the total interest that must be paid by the maker if the term of credit is 5% of Php 20,000 due 3 months
from the time the amount was borrowed?
250
How much is the maturity value that must be paid to the creditor if the credit term is 5% of Php 20,000 due 3
months from the time the amount was borrowed?
20,250

PROBLEM SOLVING
Cash Controls, Bank Reconciliation, Petty Cash Fund

On March 31, 20XX, Able Company received its bank statement. However, the closing balance of the
account was unreadable. Attempts to contact the bank after hours did not secure the desired information.
The following data are available in preparing a bank reconciliation:
Balance per ledger, P1,460,000
Note collected by bank, P100,000
Interest earned on note, P10,000
NSF check of customer, P130,000
Bank service charge on NSF check, P2,000
Other bank service charges, P3,000
Outstanding checks, P202,000
Deposit placed in night depository, P85,000
Check issued by Axle Company charged to Able's account, P20,000

What is the balance per bank statement?

1,532,000
In an audit of Mindanao Company on December 31, 20XX, the following data are gathered:
Balance per book, P1,000,000
Bank charges, P3,000
Outstanding checks, P235,000
Deposit in transit, P300,000
Customer note collected by bank, P375,000
Interest on customer note, P15,000
Customer check returned, NSF, P62,000
Depositor's note charged to account, P250,000

What is the adjusted cash in bank on December 31, 20XX?

1,075,000
Aries Company keeps all its cash in a checking account. An examination of the company's accounting
records and bank statement for the month ended June 30, 20XX revealed the following information:
- The cash balance per book on June 30 is P8,500,000.
- A deposit of P1,000,000 that was placed in the bank's night depository on June 30 does not appear on the bank
statement.
- The bank statement shows on June 30, the bank collected note for Aries and credited the proceeds of P950,000
to the company's account.
- Checks outstanding on June 30 amount to P300,000.
- Aries discovered that a check written in June for P200,000 in payment of an accounts payable, had been
recorded in the company's records as P20,000.
- Included with the June bank statement was NSF check for P250,000 that Aries had received from a customer
on June 26.
- The bank statement shows a P20,000 service charge for June.

What is the cash in bank to be reported in the statement of financial position on June 30, 20XX?
9,000,000
Letty Company's bank statement for the month of April included the following information:
- bank service charge for April, P15,000
- check deposited by Letty during April was not collectible and has been marked "NSF" by the bank and
returned, P40,000
In comparing the bank statement to its own records, Letty found the following:
- deposits made but not yet recorded by bank, P130,000
- checks written and mailed but not yet recorded by bank, P100,000
All deposits in transit and outstanding checks have been properly recorded in Letty's books.
Letty Company found a check for P35,000, payable to Letty Company that had not yet been deposited and had
not been recorded in Letty's books. Letty's books show a cash in bank account balance of P920,000.

What is the adjusted cash in bank on April 30?

900,000
Stellar Company's bank statement for the month of December included the following information:
Ending balance, December 31, P2,800,000
Bank service charge for December, P12,000
Interest paid by bank to Stellar Company for December, P10,000
In comparing the bank statement to its cash records, Stellar Company found the following:
Deposits made but not yet recorded by the bank, P350,000
Checks written and mailed but not yet recorded by the bank, P650,000
In addition, Stellar Company discovered that it had drawn and erroneously recorded a check for P46,000 that
should have been recorded for P64,000.

What is the cash balance per ledger on December 31?

2,520,000
Account of the petty cash fund of Timex Company showed showed its composition as follows:
Coins and currency, P3,300
Paid vouchers:
- transportation, P600
- gasoline, P400
- office supplies, P500
- postage stamps, P300
- due from employees, P1,200
Manager's check returned by bank marked "NSF", P1,000
Check drawn by the entity to the order of petty cash custodian, P2,700

What is the correct amount of petty cash fund for statement presentation purposes?
6,000
The petty cash fund of Liwanag Company on December 31, 20XX is composed of the following:
Currencies, P20,000
Coins, P2,000
Petty cash vouchers:
- gasoline payments for delivery equipment, P3,000
- medical supplies for employees, P1,000
- repairs of office equipment, P1,500
- loans to employees, P3,500
A check drawn by the entity payable to the order of Grace dela Cruz, petty cash custodian, representing her
salary, P15,000
An employee's check returned by the bank for insufficiency of funds, P3,000
A sheet of paper with names of several employees together with contribution for a birthday gift of a co-
employee. Attached to the sheet of paper is a currency of P5,000.

The petty cash general ledger account has an imprest balance of P50,000. What is the amount of petty cash fund
that should be reported in the statement of financial position on December 31, 20XX?
37,000
 Estimating Doubtful Accounts, Promissory Notes
All of Serrano Company's sales are on credit basis. The following information is available for the current
year:
Allowance for doubtful accounts,
180,000
Jan. 1
Sales 9,500,000
Sales returns and allowances 800,000
Sales discounts 200,000
Accounts written off as uncollectible 200,000
Serrano provides for doubtful accounts expense at the rate of 3% of net sales. What is the allowance for
doubtful accounts at year-end?
235,000
During 2019, Company A had net credit sales of Php 600,000. Its Accounts Receivable and Allowance for
Doubtful Accounts as of December 31, 2019 before adjustment are Php 100,000 and Php 2,000,
respectively.
The age of the receivables are as follow: Php 40,000: 0-60 days old; Php 60,000: over 60 days old.
If the company uses Aging of Receivables, what should be the amount of Doubtful Accounts Expense to
recognize if an allowance of 2% is granted to 0-60 days old receivables and 10% to over 60 days old
receivables?
4,800
Sales (all on credit), P600,000
Accounts receivable, P100,000
Allowance for uncollectible accounts, P3,000

Assume uncollectible accounts expense is equal to one percent of credit sales, the adjusted balance of allowance
for uncollectible accounts is:
9,000
During 2019, Company A had net credit sales of Php 600,000. Its Accounts Receivable and Allowance for
Doubtful Accounts as of December 31, 2019 before adjustment are Php 100,000 and Php 2,000,
respectively.
The age of the receivables are as follow: Php 40,000: 0-60 days old; Php 60,000: over 60 days old.
If the company uses Percentage of Sales, and based on past experience, 1% of net credit sales is deemed
uncollectible, what should be the amount of Doubtful Accounts Expense to recognize?
6,000
Capetown Company began operations on January 1, 2019. Capetown has found that its estimated bad
debt expense has been consistently higher than actual bad debts. Management proposes lowering the
percentage from 3% of credit sales to 2%.
If 2% had been used since 2019, the balance in allowance for bad debts at the beginning of 2020 would have
been P320,000 rather than P690,000. Credit sales for 2020 totaled P5,000,000 and accounts written off as
uncollectible during 2020 totaled P550,000.
What is the bad debt expense for 2020?
100,000
Serrano Company uses the statement of financial position approach in estimating uncollectible accounts
expense. The entity prepares an adjusting entry to recognize this expense at the end of the year. During
the year, the entity wrote off a P100,000 receivable and made no recovery of previous writeoff. After the
adjusting entry for the year, the credit balance in the allowance for doubtful accounts was P250,000
larger than it was on January 1. What amount of uncollectible account expense was recorded for the
year?
350,000
Orr Company prepared an aging of accounts receivable on December 31, 20XX and determined that the
net realizable value of the accounts receivable was P2,500,000. Additional information is available as
follows:
Allowance for doubtful accounts on January 1 - 280,000
Accounts written off as uncollectible - 230,000
Accounts receivable on December 31 - 2,700,000
Uncollectible accounts recovery - 50,000
For the year ended December 31, 20XX, what amount should be recognized as doubtful accounts expense?
100,000
Oriental Company follows the procedure of debiting bad debt expense for 2% of all new sales. Sales for
three consecutive years and year-end allowance account balances were as follows:
Allowance for Bad
Sales
Debts
2018 3,000,000 40,000
2019 2,800,000 60,000
2020 3,500,000 80,000
What is the amount of accounts written off in 2020?
50,000
Effective with the year ended December 31, 20XX, Hall Company adopted a new accounting method of
estimating the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts
receivable. The following data are available:
Allowance for doubtful accounts,
250,000
Jan. 1
Provision for doubtful accounts
during 20XX (2% of credit sales of 200,000
P10,000,000)
Accounts written off 205,000
Estimated uncollectible accounts per
220,000
aging on December 31
After the year-end adjustment, what is the doubtful accounts expense for 20XX?
175,000
Miller Company's allowance for doubtful accounts was P1,000,000 at the end 20XX and P900,000 at the
end of 20XX-1. For the year ended December 31, 20XX, Mill reported doubtful accounts expense of
P160,000 in its income statement. What amount did Mill debit to the appropriate account in 20XX to
write off uncollectible accounts?
60,000