GLOBAL RECIPROCAL COLLEGE

CALOOCAN CITY

Accounting Information System March 1, 2021

01 Cash Composition Instructor: John Bo S. Cayetano

LEARNING OBJECTIVES:
1. Inclusions and Exclusions from Cash and Cash Equivalents

Cash on hand Cash in bank

Included: 1. Savings account – included as cash
§ Currencies and coins
§ Bank drafts 2. Current account/checking account/demand
§ Money order deposit –
§ Valid checks included as cash

Valid check includes: 3. Time deposit

• Customer’s check a. Less than 3 months – included as cash
• Cashier’s check equivalents
• Certified check b. Less than 12 months – excluded from cash
• Personal check c. More than 12 months – excluded from cash
• Manager’s check
• Traveler’s check 4. Compensating balance
a. Not legally restricted – included as cash
Checks excluded from cash: b. Legally restricted – excluded from cash
• Customer’s PDC c. Silent – included as cash
• Customer’s NSF
• Customer’s Stale 5. Deposit in closed bank – excluded from cash

Checks drawn by the entity that should be 6. Deposit in foreign bank

added back to cash: a. Not restricted – included as cash
• Company’s undelivered check b. Restricted – excluded from cash
• Company’s post-dated check
7. Bank overdraft
a. Different bank – excluded from cash
b. Same bank – included as cash (included in
the computation as deduction to cash)

Cash funds Cash Equivalents

(a) Cash funds for operation – included as cash Are highly liquid investments that includes:
§ Petty cash fund
§ Revolving fund 1. Time deposit (a.k.a. Certificate of deposit)
§ Change fund 2. Money market (a.k.a. commercial paper)
§ Payroll fund 3. Treasury bills
§ Travel fund 4. Investment in preference share with
§ Interest fund redemption date
§ Tax fund
§ Dividend fund Cash Equivalent – Accounting Treatment
§ Within 3 months – included as cash
(b) Cash funds NOT for operation: equivalents
§ Beyond 3 months – excluded as cash
Set aside for payment of NON-CURRENT equivalents
LIABILITY, such as bond sinking fund, pension § Silent – included as cash equivalents
fund, preference share redemption fund:
• Included if disbursed within 12 months Three-month rule:
• Excluded if disbursed beyond 12 Start: Date of purchase
months End: Maturity date
• Included if silent Note:
1. If the date of purchase and maturity is not
Set aside for payment of NON-CURRENT given, use the original term to test the three-
ASSET, such as PPE acquisition fund, month rule.
depreciation fund, contingency fund, insurance
fund: 2. Treasury bonds and treasury notes are
• Excluded – always excluded if silent.

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DISCUSSION:

1. On December 31, 2022, the cash account of Not My Type Company shows the following composition:

Petty cash fund 60,000

Cash in bank (payroll fund) 4,000,000
Travel fund 300,000
Dividend and interest fund 500,000
Taxes (e.g., income tax, value added tax, withholding tax, among others) fund 240,000
Cash in bank (current) 6,000,000
Certificate of deposit – terms 90 days 2,000,000
Certificate of deposit – terms 180 days 3,000,000
Cash in foreign bank – restricted 1,000,000
Money market fund – 60 days 1,000,000
Money market fund – 180 days 1,800,000
Customer’s check – dated January 14, 2023 120,000
Customer’s check – NSF check 80,000
Customer’s check – outstanding for 18 months 100,000
BSP treasury bill – 30 days 2,000,000
3 years BSP treasury bills – acquired three months prior to maturity date 2,400,000
Bond sinking fund 1,600,000
Preference share redemption fund 800,000
Contingent fund 600,000
Insurance fund 400,000
Fund for acquisition of machine 1,000,000
Traveler’s check 120,000
Cashier’s check 200,000
Savings deposit set aside for dividends 1,000,000
Pension fund 800,000
Savings deposit in closed bank 100,000

What is the correct cash and cash equivalents balance to be reported by the Not My Type on December 31,
2023?
A. 19,820,000
B. 15,620,000
C. 18,820,000
D. 16,420,000

2. The controller for Riel Company is attempting to determine the amount of cash to be reported on the
December 31, 2020 statement of financial position. The following items are included in the Cash in Bank items
of Riel Company:

BDO special checking account used for payroll payments 500,000

MBTC checking account (per ledger), checks of P80,000 are outstanding as of 12/31/20 300,000
DBP, checking account (per bank statement) of P50,000 are outstanding as of 12/31/20 600,000
EWB, includes a P100,000 compensating balance restricted as to withdrawal 1,000,000
BPI special account used as a bond sinking fund 400,000
PNB, includes a P200,000 compensating balance 1,000,000
LBP checking accounts
Current Account -000-111111 P 600,000
Current Account -000-111112 (250,000) 350,000
EBC, (bank under liquidation), realizable value was P0.75 of every P1 deposit 200,000
RCBC, current account (50,000)
1-year Treasury note, maturity date 01/31/2021 600,000
1-year Treasury note, maturity date on 01/31/2021 (acquired 11/28/2020) 800,000
90-day, Central Bank Treasury bills 450,000
ABC, US-dollar denominated deposit (opened in October 17); exchange rate on
October 17 was P40; average (October 17 – December 31) was P50;
December 31 was P45 $20,000

The amount to be reported as Cash and Cash Equivalents in Riel Company’s December 31, 2020 balance
sheet is
A. 5,850,000
B. 5,750,000
C. 5,470,000
D. 5,450,000

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Numbers 3 and 4
On December 31, 2023, Burns Company cash account per ledger of P10,500,000 which included the following:

Cash in bank – demand deposit 2,500,000

Equity investment 500,000
NSF check of customer 200,000
Money market placement 3,500,000
Saving deposit 1,000,000
IOU from an employee 300,000
Pension fund 1,500,000
Customer check dated January 31, 2024 600,000
Customer check outstanding for 18 months 400,000

• Check of P150,000 in payment of accounts payable was dated and recorded on December 31, 2023 but
mailed to creditors on January 15, 2024.

• Check of P300,000 dated January 31, 2024 in payment of account payable was recorded and mailed Dec.
31, 2023.

• The cash receipts journal was held open until January 15, 2024, during which time an amount P400,000 was
collected and recorded on December 31, 2023.

3. What total amount should be reported as cash on December 31, 2023?

A. 3,550,000
B. 3,000,000
C. 4,050,000
D. 5,550,000

4. What total amount should be reported as cash equivalents on December 31, 2023?
A. 3,500,000
B. 4,000,000
C. 4,500,000
D. 0

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