Financial Accounting Second Quarter

Financial Accounting and Reporting
Module 2: Cash and Cash Equivalents
Module Overview
Cash simply means money. Money is the standard medium of exchange in business transactions. It refers
to the currency and coins which are in circulation and legal tender. However, in accounting perspective
term “cash” has deeper meaning and connotes more than money. In accounting cash includes “money
and other negotiable instrument that is payable in money and acceptable by the bank for deposit and
immediate credit”. On the other hand, cash equivalent is defined as short-term and highly liquid
investments that are readily convertible into cash and so near their maturity that they present
insignificant risk of changes in value because of the changes in interest rates.
Lesson 2.1: Measurement of Cash and Cash Equivalents
Lesson Summary
Cash is measured at face value. Cash in foreign currency is measured at the current exchange rate. The
caption cash and cash equivalents should be shown as the first item among the current assets. This caption
includes all cash items, such as cash on hand, cash in bank, petty cash fund and cash equivalents which
are unrestricted in use of the current operations. However, the details comprising the “cash and cash
equivalents” should be disclosed in the notes to financial statements.
Learning Outcomes
1. Differentiate cash equivalents from cash;

2. Identify the different inclusions in cash and cash equivalents;
3. Identify the different types of checks;
4. Identify the two methods of handling the petty cash; and
5. Compute the total cash and cash equivalents.
Learning Tasks/Activities
1. Differentiate cash equivalents from cash.

2. List down all the inclusions in cash and cash equivalents.
3. List down the different types of checks.
4. Differentiate the two methods of handling petty cash in terms of Journal Entries.
5. Compute the total amount of cash and cash equivalents using the following information:
On December 31, 2020, the cash and cash equivalents of Monggos Company had a total of
P3, 500, 000.00. An analysis showed the following details:
Undeposited collections P 60,000.00

Cash in Bank-PCIB checking account 500, 000.00
1
MARY JANE C. GERALDO
Faculty, Entrepreneurship Department
Cash in Bank-PNB (overdraft) (50,000.00)
Undeposited NSF check received from customer,dated
December 1, 2020 15,000.00
Undeposited check from a customer,dated January
January 15, 2021 25,000.00
Cash in Bank-PCIB (fund for payroll) 150,000.00
Cash in Bank-PCIB (saving deposit) 100,000.00
Cash in Bank-PCIB (money market,90 days) 2,000,000.00
Cash in foreign bank 100,000.00
IOUs from officers 30,000.00
Sinking fund cash 450,000.00
Listed shares held as trading investment 120,000.00
Instructions on how to submit student output
You must submit all your output through this email [email protected].
However, for those who cannot submit through online will have a corresponding point deduction.
References and Additional Resources
Valix, Conrado T., et.al. (2015). Financial Accounting Volume One. Gic Enterprises & Co., Inc, 113-141.
Lesson 2.1: Bank Reconciliation
Lesson Summary
Bank reconciliation is done when an entity has demand deposit or checking account. A bank
reconciliation is the process of matching the balances in an entity's accounting records for a cash
account to the corresponding information on a bank statement. The goal of this process is to
ascertain the differences between the two, and to book changes to the accounting records as
appropriate. The information on the bank statement is the bank's record of all transactions
impacting the entity's bank account during the past month.
Learning Outcomes
1. Identify the different reconciling items;

2. Compute for the different reconciling items;
3. Identify the different forms of bank reconciliation; and
4. Prepare bank reconciliation statement; and
Learning Tasks/Activities
1. List down all reconciling items.

2. Using the following information, prepare a bank reconciliation statement using the three
different forms of bank reconciliation.
1
The cash records of Company X show the following for the month of January.
CASH RECEIPTS CASH DISBURSEMENT

Jan. 5 60,000.00 Jan. 6 Check no. 721 5,000.00
13 20,000.00 7 Check no. 722 10,000.00
25 30,000.00 10 Check no. 723 18,000.00
31 40,000.00 14 Check no. 724 2,000.00
150,000.00 28 Check no. 725 37,000.00
31 Check no. 726 28,000.00
100,000.00
The general ledger of the company shows cash in bank account for January as follows:
Cash in Bank-First Bank

Jan 31 CR 150,000.00 Jan 31 CD 100,000.00
The balance of the cash in bank on the depositor’s book is P50,000.00.

The following is the bank statement for January received from First Bank:
In account with: No. 775

Company X FIRST BANK
Quezon City Manila Philippines
Date Check No. Withdrawals Deposits Balance

Jan 6 60,000.00 60,000.00
8 721 5,000.00 55,000.00
11 722 10,000.00 45,000.00
12 723 18,000.00 27,000.00
14 20,000.00 47,000.00
17 724 2,000.00 45,000.00
26 30,000.00 75,000.00
26 15,000.00 CM 90,000.00
30 5,000.00 RT 85,000.00
30 1,000.00 SC 84,000.00
Code: CM-Credit Memo SC-Service charge

DM-Debit Memo RT-Returned Check
The following data are gathered in connection with the CM and DM appearing on the bank
statement:
a. The CM of P15,000.00 on January 26 represents proceeds of note collected by the bank

in favor of the company.
1
b. The RT of P5,000.00 represents check of customer deposited previously but returned by
the bank because of “no sufficient fund” or NSF.
Instructions on how to submit student output
You must submit all your output through this email [email protected].
However, for those who cannot submit through online will have a corresponding point deduction.
References and Additional Resources
Valix, Conrado T., et.al. (2015). Financial Accounting Volume One. Gic Enterprises & Co., Inc, 113-141.
1

Financial Accounting Second Quarter

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Financial Accounting and Reporting

Module 2: Cash and Cash Equivalents

Lesson 2.1: Measurement of Cash and Cash Equivalents

1. Differentiate cash equivalents from cash;

1. Differentiate cash equivalents from cash.

Undeposited collections P 60,000.00

Instructions on how to submit student output

References and Additional Resources

Lesson 2.1: Bank Reconciliation

1. Identify the different reconciling items;

1. List down all reconciling items.

CASH RECEIPTS CASH DISBURSEMENT

Cash in Bank-First Bank

The balance of the cash in bank on the depositor’s book is P50,000.00.

In account with: No. 775

Date Check No. Withdrawals Deposits Balance

Code: CM-Credit Memo SC-Service charge

a. The CM of P15,000.00 on January 26 represents proceeds of note collected by the bank

Instructions on how to submit student output

References and Additional Resources

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