ACCOUNTING 102

CASH AND CASH EQUIVALENTS, BANK RECONCILIATION, PROOF OF CASH

SUMMARY QUIZ

INSTRUCTIONS:
 The exam is thirteen 13 pages long with twenty 20 items for Test I Theories and 28 items for Test II
Problems.
 The exam is good for two (2) hours only so budget your time wisely.
 Write your answers and solutions in one or two pieces of yellow paper (or any color so long as the
same dimensions).
 Indicate your complete name, class schedule, block number and date of exam on the first page of your
answer sheet.
 The first page of your answer sheet should contain a summary of all letter answers for both Test I
Theories and Test II Problems.
 Show your solutions for each problem question. The solutions may or may not be in good form so
long as the amounts and the mathematical operations performed can be easily read and understood.
Extra credit shall be given to solutions that are neat and organized.
 Observe honesty. You got this. GOD BLESS!

I. Theories. Each correct answer is one point.

1. 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 bank

2. All of the following can be classified as cash and cash equivalents, except?
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft

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 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 value.
d. Cash equivalents should be measured at maturity value, meaning face value plus interest.

4. If material, deposits in foreign bank which are subject to foreign exchange restriction shall be
classified
1. Separately as current asset, with appropriate disclosure.
2. Separately as noncurrent asset with appropriate disclosure.
3. Be written off as an extraordinary loss.
4. As part of cash and cash equivalents.

5. A compensating balance
a. Must be included in cash and cash equivalent.
b. Which is legally restricted and related to long-term loan is classified as current asset.
c. Which is legally restricted and related to a short-term loan is classified separately as current asset.
d. Which is not legally restricted as to withdrawal is classified separately as current asset.

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6. Which of the following is usually considered as “cash”?
a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated check

7. 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 every time 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 when the fund is decreased.

8. What is the major purpose of an imprest petty cash fund?

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

9. When a petty cash fund is used, which of the following is true?

a. The balance of petty cash fund should be reported in the statement of financial position 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.

10. A “Cash over and short” 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.

11. Which of the following statements in relation to cash short or over account is true?
a. It would be impossible to have cash shortage or overage if employees were paid in cash rather
than by check.
b. 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.
c. If the cash short or over account has a debit balance at the end of the period it must be debited to
an expense account.
d. A credit balance in a cash short or over account should be considered a liability because the short
changed customer will demand return of this amount.

12. Which of the following 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
April 15 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 60-day money market placement

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13. Which item should be excluded from cash and cash equivalents in the current year-end statement of
financial position?
a. The minimum cash balance of the entity’s current account which is maintained to avoid service
charges.
b. A check issued by the entity on December 27 of the current year but dated January 15 of next
year.
c. Time deposit which matures in one year.
d. A customer’s check denominated in a foreign currency.

14. 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?
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 credit

15. 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
a. Deposits credited by the bank but not yet recorded by the entity
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity

16. 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
a. Deposits credited by the bank but not yet recorded by the entity
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity

17. Which of the following will not require an adjusting entry on the depositor’s books?
a. NSF check from customer
b. Check in payment of account payable as recorded by the depositor is overstated
c. Deposit of another entity is credited by the bank to the account of the depositor
d. Bank service charge

18. 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
a. Bank errors, outstanding checks and deposits in transit.
b. All items except bank errors, outstanding checks and deposits in transit.
c. Book errors, bank errors, deposits in transit and outstanding checks.
d. Outstanding checks and deposits in transit.

19. 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.

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20. 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 have not been deposited.
d. Discovering an inadequate separation of incompatible duties of employees.

II. Problems. Each correct answer is 2 points. Teacher has the discretion to give extra credit to solutions.

Problem 1

In connection with your audit of Caloocan Corporation for the year ended December 31, 2018, you
gathered the following:

Current account at Metrobank P2,000,000

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 postdated 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 10,000
for P6,000)
Treasury bills, due 3/30/19 (purchased 12/29/18) 200,000
Treasury bulls, due 1/31/19 (purchased 2/1/18) 300,000

1. Based on the above information and the result of your audit, compute for the cash and cash
equivalents that will be reported on the December 31, 2018 statement of financial position.
a. P2,784,000
b. P3,084,000
c. P2,790,000
d. P2,704,000

Problem 2

In the course of your audit of the Las Pinas Corporation, its controller is attempting to determine the
amount of cash to be reported on its December 31, 2018 statement of financial position. The following
information is provided:

a. Commercial savings account of P1,200,000 and a commercial checking account balance of

P1,800,000 are held at PSB Bank.
b. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee
to reimburse through salary deduction).
c. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term
debt.
d. Petty cash fund of P10,000.
e. An I.O.U. from a company officer in the amount of P40,000.
f. A bank overdraft of P250,000 has occurred at one of the bank the company uses to deposit its
cash receipts. At the present time, the company has no deposits at this bank.
g. The company has two certificates of deposit, each totaling P1,000,000. These certificates of
deposit have maturity of 120 days.
h. Las Pinas has received a check dated January 2, 2019 in the amount of P150,000.
i. Las Pinas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure
future credit availability.
j. Currency and coin on hand amounted to P15,000.

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2. Based on the above and the result of your audit, how much will be reported as cash and cash
equivalents at December 31, 2018?
a. P3,025,000
b. P2,825,000
c. P2,575,000
d. P5,025,000

Problem 3

The cash account of the Makati Corporation as of December 31, 2018 consists of the following:

On deposit in current account with Real Bank P900,000

Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for
insufficient fund 150,000
A check drawn by the Vice-President of the Corporation
dated January 15, 2019 70,000
A check drawn by a supplier dated December 28, 2018
for goods returned by the Corporation 60,000
A check dated May 31, 2018 drawn by the Corporation
against the Piggy Bank in payment of customs duties.
since the importation did not materialize, the check
was returned by the customs broker. This check was
an outstanding check in the reconciliation of the
Piggy Bank account 410,000
Petty Cash fund of which P5,000 is in currency; P3,600
in form of employee’s I.O.U.s; and P1,400 is supported by
approved petty cash vouchers for expenses all dated prior to
closing of the books on December 31, 2018 10,000
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel
mortgage on the inventories 300,000
Balance per ledger 1,650,000

3. At what amount will the account “Cash” appear on the December 31, 2018 statement of financial
position?
a. P1,315,000
b. P1,425,000
c. P1,495,000
d. P1,725,000

Problem 4

You noted the following composition of Malabon Company’s “cash account” as of December 31, 2018 in
connection with our audit:

Demand deposit account P2,000,000

Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2019) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2019 50,000
Customer’s check outstanding for 18 months 40,000
Total P7,760,000

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Additional information follows:

a. Check of P200,000 in payment of accounts payable was recorded on December 31, 2018 but
mailed to suppliers on January 5, 2019.
b. Check of P100,000 dated January 15, 2019 in payment of account payable was recorded and
mailed on December 31, 2018.
c. The company uses the calendar year. The cash receipts journal was held open until January 15,
2019, during which time P400,000 was collected and recorded on December 31, 2018.

4. The cash and cash equivalents to be shown on the December 31, 2018 statement of financial position
is
a. P3,310,000
b. P1,910,000
c. P2,910,000
d. P4,410,000

Problem 5

The Cash account in the ledger of Pateros Company had a balance of P844,800 at December 31, 2018. An
examination of the account, however, disclosed the following:

a. The sales book was left open up to January 5, 2019, and cash sales totaling P120,000 were
considered as sales in December.
b. Checks of P74,400 in payment of liabilities were prepared before December 31, 2018, recorded in
the books, but not mailed or delivered to payees.
c. Post-dated checks totaling P62,400 are being held by the Cashier as part of Cash. The company’s
experience shows that post-dated checks are eventually realized.
d. Customer’s check for P12,000 deposited with but returned by Bank, “NSF” on December 27,
2018.
e. The Cash account includes P320,000 earmarked for the purchase of personal computers which
will soon be delivered.

5. The cash balance to be shown on the statement of financial position at December 31, 2018 should be
a. P799,200
b. P724,800
c. P404,800
d. P416,800

Problem 6

You were able to gather the following from the December 31, 2018 trial balance of Mandaluyong
Corporation in connection with your audit of the company:

Cash on hand P500,000

Petty cash fund 10,100
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000

Cash on hand includes the following items:

a. Customer’s check for P40,000 returned by bank on December 26, 2018 due to insufficient fund
but subsequently redeposited and cleared by the bank on January 8, 2019.
b. Customer’s check for P20,000 dated January 2, 2011, received on December 29, 2018.
c. Postal money orders received from customers, P30,000.

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The petty cash fund consisted of the following items as of December 31, 2018.

Currency and coins P2,000

Employees’ vales 1,600
Currency in an envelope marked “collections for
charity” with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to
the petty cashier 4,000
P10,100

Included among the checks drawn by Mandaluyong Corporation against the BPI current account and
recorded in December 2018 are the following:

 Check written and dated December 29, 2018 and delivered to payee on January 2, 2018, P80,000.
 Check written on December 27, 2018, dated January 2, 2019, delivered to payee on December 29,
2019, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the
deposit balance. These checks were still outstanding at December 31, 2018.

The savings account deposit in PNB has been set aside by the board of directors for acquisition of new
equipment. This account is expected to be disbursed in the next 3 months after the end of the reporting
period.

6. Cash on hand
a. P410,000
b. P530,000
c. P470,000
d. P440,000

7. Petty cash fund

a. P6,000
b. P7,200
c. P2,000
d. P4,900

8. BPI current account

a. P1,000,000
b. P1,120,000
c. P1,080,000
d. P1,040,000

9. Cash and cash equivalents

a. P2,917,200
b. P3,074,900
c. P3,052,000
d. P3,066,000

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 Problem 7

The books of Manila’s Service, Inc. disclosed a cash balance of P687,570 on December 31, 2018. The
bank statement as of December 31 showed a balance of P547,800. Additional information that might be
useful in reconciling the two balances follows:

a. Check number 748 for P30,000 was originally recorded on the books as P45,000.
b. A customer’s note dated September 25 was discounted on October 12. The note was dishonored
on December 29 (maturity date). The bank charged Manila’s account for P142,650, including a
protest fee of P2,650.
c. The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit
of P27,000.
d. Outstanding checks totaled P98,850 as of December 31.
e. There were bank service charges for December of P2,100 not yet recorded on the books.
f. Manila’s account had been charged on December 26 for a customer’s NSF check for P12,960.
g. Manila properly deposited P6,000 on December 3 that was not recorded by the bank.
h. Receipts of December 31 for P134,250 were recorded by the bank on January 2.
i. A bank memo stated that a customer’s note for P45,000 and interest of P1,650 had been collected
on December 27, and the bank charged a P360 collection fee.

Based on the above and the result of your audit, determine the following:

10. Adjusted cash in bank balance

a. P583,200
b. P577,200
c. P589,200
d. P512,400

11. Net adjustment to cash as of December 31, 2018

a. P104,370
b. P110,370
c. P98,370
d. P175,170

Problem 8

Stark Industry’s accountant is preparing its October bank reconciliation and has collected the following
data:

Per Books Per Bank

Oct. 1 balance P11,600 P10,000
Oct. deposits 24,600 21,200
Oct. checks 27,800 29,000
Note Collected (plus 10% interest) 0 4,400
Oct. service charge 0 20
Oct. 31 balance 8,400 6,580

Additionally, deposits in transit and outstanding checks from September reconciliation were P4,400 and
P2,800, respectively.

12. The correct cash balance at October 31 should be:

a. P10,960
b. P12,780
c. P11,180
d. P 3,980

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 Problem 9

Samsung Inc. uses four-column bank reconciliation. The bank reconciliation for March shows outstanding
checks for P300. During April, the company wrote check totaling P23,600. The bank statement for April
shows P23,010 of checks clearing the company’s account.

13. The amount of outstanding checks on April bank reconciliation must be:
a. P 890
b. P 600
c. P 300
d. P 1,200

Problem 10

Nitendo Co. reported a balance of P14,300 in its cash account at the end of the month. There were
P12,000 deposits in transit and P11,500 of checks outstanding. The bank statement showed a balance of
P15,000. Service charge of P600, and the collection of a note plus interest. The note had a face value of
P1500.

14. How much interest did the company collect?

a. P 1,800
b. P 300
c. P 2,400
d. P 1,200

Problem 11

Sony uses four-column bank reconciliation. The bank statement for May shows payments of P13,150,
including service charge of P200. At the beginning of May, there were P900 of checks outstanding. At the
end of May, there were P1,200 of checks outstanding.

15. Before recording the bank service charge, Sony must have recorded May payments of:
a. P13,250
b. P12,650
c. P13,050
d. P13,650

Problem 12

A company received its monthly bank statement, which showed an ending balance of P150,000.
Adjustment on the bank reconciliation included a deposit in transit of P20,000; outstanding checks of
P30,000; NSF check of P5,000; bank service charge of P300; proceeds of a note collected by the bank of
P40,000.

16. What was the correct cash balance to be shown in the statement of financial position?
a. P134,700
b. P105,300
c. P140,000
d. P174,700

17. Using the same information in no. 18, how much is the unadjusted cash balance per books?
a. P134,700
b. P105,300
c. P140,000
d. P174,700

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 Problem 13

GIC Enterprise’s cash account had a balance of P96,200 on August 31. This included a bank deposit of
P8,700 that was in transit on the 31st. The August 31 bank statement contained the following information:

Bank statement balance P108,900 NSF check P1,600

Bank service charge 1,700 Collection of note 8,600

18. GIC also had an outstanding check of P16,100. What is GIC’s reconciled balance?
a. P92,900
b. P96,200
c. P104,700
d. P101,500

Problem 14

Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the
month of December, 2018.

The bank reconciliation provided by Cubao Company at November 30 is reproduced below:

Unadjusted bank Unadjusted book

Balance P96,800 balance P58,640
Add: deposit in Add: CM – Note
transit 18,000 collected 40,320
Total 114,800 Total 98,960
Less outstanding Less: DM bank
checks: charges 160
No. 276 P2,400
282 7,200
284 4,800
285 1,600 16,000
Adjusted balance P98,800 Adjusted balance P98,800

The December bank statement, which has a beginning balance of P96,800, is reproduced below:

May Bank
Account Name: Cubao Company
Date Debits Credits
December 01 P18,000
December 02 P7,200 40,000
December 04 24,000
December 06 48,000
December 08 400,000 CM83
December 10 40,000 DM97
December 11 56,000
December 16 20,000
December 18 64,000
December 21 72,400
December 28 36,000 80,000
December 31 4,000 DM98 64,000 CM84
Totals
DM97 – Customer’s DAIF check CM83 – Note collected by the bank
DM98 – Service Charges CM84 – Amount collected by the bank

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 The company’s cash receipts and cash disbursements journals for the month of December 2018 are
provided below:

Cash Receipts Journal Cash Disbursements Journal

Date OR No. Amount Date Check No. Amount
Dec. 01 415 P40,000 Dec. 01 286 P16,000
05 416 48,000 03 287 24,000
10 417 56,000 10 288 32,000
17 418 64,000 14 289 20,000
20 419 72,000 20 290 28,000
27 420 80,000 23 291 36,000
31 421 88,800 26 292 40,000
28 293 44,000
31 294 48,000
Total P440,800 Total P304,000

The company’s Cash in Bank ledger appears below:

Cash in Bank
Balance P58,640 12/31/18 CDJ P304,000
12/01/18 GJ 40,320
12/10/18 GJ (CM83) 400,000
12/31/18 CRJ 440,800
Based on the application of the necessary audit procedures and appreciation of the above data, you are to
provide the answers to the following:

19. How much is the outstanding checks as of December 31, 2018?

a. P208,000
b. P232,800
c. P216,800
d. P224,000

20. How much is the adjusted book receipts for December, 2018?
a. P913,200
b. P985,200
c. P904,800
d. P771,600

21. How much is the adjusted book disbursements for December, 2018?
a. P347,840
b. P332,000
c. P348,000
d. P339,200

22. How much is the adjusted cash balance as of December 31, 2018?
a. P664,000
b. P680,000
c. P688,800
d. P672,800

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 Problem 15

You obtained the following information on the current account of Paranaque Company during your
examination of its financial statements for the year ended December 31, 2018.

The bank statement on November 30, 2018 showed a balance of P306,000. Among the bank credits in
November was customer’s notes for P100,000 collected for the account of the company which the
company recognized in December among its receipts. Included in the bank debits were cost of
checkbooks amounting to P1,200 and a P40,000 check which was charged by the bank in error against
Paranaque Co. account. Also in November you ascertained that there were deposits in transit amounting
to P80,000 and outstanding checks totaling P170,000.

The bank statement for the month of December showed total credits of P416,000 and total charges of
P204,000.The company’s books for December showed total debits of P735,600, total credits of P407,200
and a balance of P485,600. Bank debit memos for December were: No. 121 for service charges, P1,600
and No. 122 on a customer’s returned check marked “Refer to Drawer” for P24,000.

On December 31, 2018 the company placed with the bank a customer’s promissory note with a face value
of P120,000 for collection. The company treated this note as part of its receipts although the bank was
able to collect on the note only on January, 2019.

A check for P3,960 was recorded in the company cash payments books in December as P39,600.

Based on the application of the necessary audit procedures and appreciation of the above data, you are to
provide the answers to the following:

23. How much is the undeposited collections as of December 31, 2018?

a. P339,600
b. P179,600
c. P219,600
d. P139,600

24. How much is the outstanding checks as of December 31, 2018?

a. P191,960
b. P397,600
c. P361,960
d. P363,160

25. How much is the adjusted cash balance as of November 30, 2018?
a. P216,000
b. P256,000
c. P176,000
d. P157,200

26. How much is the adjusted bank receipts for December?

a. 635,600
b. 515,600
c. 475,600
d. 435,600

27. How much is the adjusted book disbursements for December?

a. P395,960
b. P431,600
c. P225,960
d. P397,160

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28. How much is the adjusted cash balance as of December 31, 2018?
a. P625,640
b. P195,640
c. P220,000
d. P375,640

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