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Understanding Cash and Cash Equivalents

The document discusses cash and cash equivalents, petty cash funds, bank reconciliation, and the audit process. It defines types of cash such as undeposited collections and various bank accounts. It explains petty cash funds using both an imprest and fluctuating fund system. Bank reconciliation is discussed using the adjusted balance method and correcting entries. The audit process is summarized as the auditor obtaining evidence to test management assertions and determine overall fairness before issuing a report.

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Jenny Bernardino
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7 views4 pages

Understanding Cash and Cash Equivalents

The document discusses cash and cash equivalents, petty cash funds, bank reconciliation, and the audit process. It defines types of cash such as undeposited collections and various bank accounts. It explains petty cash funds using both an imprest and fluctuating fund system. Bank reconciliation is discussed using the adjusted balance method and correcting entries. The audit process is summarized as the auditor obtaining evidence to test management assertions and determine overall fairness before issuing a report.

Uploaded by

Jenny Bernardino
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

CASH and CASH EQUIVALENTS

[Link] on hand:

Undeposited Cash collections

Customer’s check

Manager’s check

Traveller’s check

Bank drafts

Money order

[Link] in bank (Unrestricted as to withdrawal):

Demand deposit

Checking account

Saving deposit

[Link] Fund (set aside for current purposes & parallel to related liability):
Petty cash fund
Payroll fund
Travel fund
Interest fund
Dividend fund
Tax fund

[Link] EQUIVALENTS

3month BSP Treasury Bill


3year BSP Treasury bill purchased 3 months before maturity
3month Time deposit
3month money market instrument or commercial paper
Certificate of deposit
Preference shares w/ specified redemption date and acquired 3months before redemption date
4.1 Other items included in Cash and Cash equivalents

a. Deposits in foreign countries (not subject to foreign exchange restriction)

Compensating balance (not legally restricted as to withdrawal)


Undelivered checks (already recorded as outflow of cash but the check is still undelivered)

Restored to cash

Cash

Accounts payable or appropriate accounts

b. Postdated checks DELIVERED to payee (already recorded as outflow of cash but can’t be encash)

Restored to cash

Cash

Accounts payable or appropriate accounts

*RECEIVED FROM CLIENT- Accounts Receivable, depending on date

PETTY CASH FUND

PETTY CASH FUND

IMPREST FUND SYSTEM TRANSACTIONS FLUCTUATING FUND SYSTEM

Petty cash 5000 Establishment of fund Petty cash 5000


Cash in bank 5000 Cash in bank 5000

Memo only Payment of expenses out of fund Expenses 3000


Petty Cash 3000

Expenses 3000 Replenishment of fund Petty cash 3000


Cash in bank 3000 Cash in bank 3000

Expenses 1000 End of reporting No adjustment


BANK RECONCILIATION

ADJUSTED BALANCE METHOD DEFINITION CORRECTING ENTRIES

BOOK BALANCE
ADD:
Notes receivable Cash receipts, credit memo or Cash in bank
Proceeds of bank loan deposits credited by bank Accounts receivable

Cash in bank
Understatement of cash
receipts on the book of Accounts receivable
depositor

LESS:
NSF Checks Accounts receivable
Technically defective checks Cash in bank
Cash disbursements, debit
Bank service fee memos or checks paid by the
Reduction of loan bank

Understatement of checks Accounts payable


drawn by depositor Cash in bank

ADJUSTED BOOK BALANCE

BANK BALANCE
ADD:
Deposit in transit
Check of another entity collections too late to appear
charged by the bank to the on bank statement,
depositor undeposited collections
LESS:
Outstanding checks(net of
certified checks)
cash disbursments, checks
Deposit of another entity drawn and given to payee
credited by the bank to the but not presented for
depositor payment

ADJUSTED BANK BALANCE

*ERRORS-should be corrected by
the one who commits the error
MANAGEMENT
Terms of engagement AUDITOR
(Representation
(Engagement Letter)
Letter)

Implement Internal
Obtains EVIDENCE
Controls

Test Management
Conduct Transactions
Assertions

Accumulates Determine Overall


transactions into Fairness
balances

Issues Audit Report


Prepares Financial
Statements

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