Transcript
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. CASH ITEMS
1. PETTY CASH FUND
2. CASH IN BANK
3. POSTAL MONEY ORDER
4. MANAGER’S CHECK AND TRAVELLER’S CHECK
5. UNDELIVERED OR UNRELEASED CHECKS
6. COMPANY’S POSTDATED CHECK AND STALE CHECK
7. COMPENSATING BALANCES ( UNRESTRICTED )
8. CASH SET ASIDE FOR CURRENT OPERATIONS
9. FOREIGN CURRENCY- cash in foreign currency should be
translated to Philippine currency using the exchange rate at the
balance sheet date ( closing rate )
B. CASH EQUIVALENT- short term investment purchased 3 MONTHS OR LESS BEFORE MATURITY
CASH IN CLOSED BANKS/BANKS HAVING A FINANCIAL DIFFICULTY
- classified as receivable and write down to its recoverable value
CUSTOMERS POSTDATED CHECKS AND NSF CHECK
- classified as receivables including the IOUs
- it is described also as DAUD AND DAIF
EXPENSE ADVANCES- classified as prepaid expense such as travel expenses and postage stamps
BANK OVERDRAFT- occurs when a depositor has written checks for a sum greater than that in the depositor’s bank account
-classified as current liability
-right of offset exists- cash in bank net of bank overdraft
PETTY CASH FUND
Small amount of cash in a fund to pay MINOR EXPENSES
ESTABLISHMENT OF FUND
Journal Entry:
PETTY CASH FUND XX
CASH IN BANK XX
PAYMENT OF EXPENSES
NO ENTRY
REPLENISHMENT OF FUND
Journal entry:
EXPENSES ( VARIOUS ) XX
CASH IN BANK XX
NOTE:
Reimbursement should equal to the amount/ sum of petty cash vouchers submitted
YEAR-END ADJUSTMENT
Journal entry:
EXPENSES XX
PETTY CASH FUND XX
NOTE:1. Bring PCF general ledger account to equal to the actual cash
items in the PCF as of the balance sheet date
2. To avoid understatement of expenses
3. To avoid overstatement of assets
TO INCREASE OR DECREASE PETTY CASH FUND
Journal entry:
PETTY CASH FUND XX
CASH IN BANK XX
( To increase PCF )
CASH IN BANK XX
PETTY CASH FUND XX
( To decrease PCF )
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 depositor’s books but is not received by the bank in time to be reflected on the bank statement ( DIT )
Collections still in the hands of the depositor awaiting delivery to the bank for deposit ( UC )
Comparing the receipts in the accounting records and deposits in the bank statement
Understate the bank balance
Added to the bank balance
OUTSTANDING CHECKS
Checks written by the company and issued to payees but have not been cleared or presented to the bank for payment
Comparing written checks during the month as reflected in the company’s check voucher or cash disbursements book with the canceled checks included in the bank statement
Overstate the bank balance
Deducted from the bank balance
Canceled checks- checks that the bank has paid and deducted from the depositor’s account
DEBIT MEMOS
Charges to the company’s or depositor’s account made directly by the bank such as returned checks ( NSF and technically defective checks ), bank service charge, charge for the cost of check booklets and payment of bank loans
Overstate the book balance
Deducted from the cash balance per book
CREDIT MEMOS
Deposits or credits made directly by the bank to the depositor’s account such as notes collected by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor’s account and matured time deposits transferred to current account
Understate the book balance
Added to the cash balance per book
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 xx Bank balance xx
Add: Credit memos xx Add: Deposits in transit xx
Total xx Total xx
Less: Debit memos xx Less: Outstanding checks xx
Adjusted book balance xx Adjusted bank balance xx
BOOK TO BANK METHOD
Under this method, the book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance
PROFORMA RECONCILIATION
Book balance xx
Add: Credit memos xx
Outstanding checks xx xx
Total xx
Less: Debit memos xx
Deposits in transit xx xx
Bank balance xx
BANK TO BOOK METHOD Under this method, the bank balance is reconciled with the book
balance or the bank balance is adjusted to equal the book balance
PROFORMA RECONCILIATION
Bank balance xx
Add: Deposits in transit xx
Debit memos xx xx
Total xx
Less: Outstanding checks xx
Credit memos xx xx
Book balance xx
DEPOSITS IN TRANSIT
Deposit in transit, beginning of the month XX
Add: Cash receipts reflected in the company’s record during
the month* XX
Total XX
Less: Deposits during the month as reflected in the
bank statement ** XX
Deposit in transit, end of the month XX
*The amount does not necessarily represent debits ( charges ) in the company’s records. If the total of charges to the cash account is given, any credit memo in PREVIOUS month should be excluded
**The amount does not necessarily represent credits in the bank statement. If the total of the credits in the bank statement is given, any credit memo for the CURRENT month should be excluded
OUTSTANDING CHECKS
To compute the outstanding checks:
Outstanding checks, beginning of the month XX
Add: Checks drawn by the company during the month* XX
Total XX
Less: Checks paid by the bank during the month** XX
Outstanding checks, end of the month XX
*The amount does not necessarily represent credits in the company’s records. If the total of the credits to the cash account is given, any debit memo in PREVIOUS month should bee excluded
**The amount does not necessarily represent debits ( charges ) in the bank statement. If the total of charges in the bank statement is given, any debit memo for the CURRENT month should be excluded
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
Feb 28 Book debits and SC of P 1,000 for Jan) 180,000
( including Jan CM of 15,000 ) 200,000
COMPANY X
Feb 28 Bank debits Jan 31 Beg bal 84,000
( including NSF check ofP10,000) 130,000 Feb 28 Bank credits
( including CM for note
collected of P 20,000) 170,000
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