ACES Tutorial 2023

__________________________________________ B. CASH IN BANK:

a. Checking account (Current account,
CASH AND CASH EQUIVALENTS Demand deposit) - generally included as
__________________________________________ cash.

CASH – standard medium exchange b. Savings account - generally included as

- It connotes more than money -> any negotiable cash.
instrument that is payable in money and
acceptable by the bank for deposit and c. Time deposit - excluded from cash. It is
IMMEDIATE CREDIT. included as part of cash equivalents.
- Composed of cash on hand, cash in bank, and
cash funds. d. Compensating balance:
➔ Legally restricted - excluded
from cash.
A. CASH ON HAND:
1. "other current asset" - if
a. Currencies and coins the related loan is short
b. Bank drafts term
c. Money Order 2. "other non-current
d. Checks -> “withdrawable” on the BS will asset" - if the related
be included as part of cash. loan is long term
➔ Cashier’s ➔ Not legally restricted –
➔ Certified, included as cash
➔ Customer’s, ➔ Silent – included as cash
➔ Personal,
➔ Manager’s, e. Deposit in closed bank- excluded from
➔ Traveler’s cash. It may be included as part of "Trade
and other accounts receivable" or "other
“non-withdrawable” -> presented as AR.
current asset".
➔ PDC, NSF, Stale

f. Deposit in foreign bank - converted to

*Company’s drawn check - If the company draw
Philippine Peso using the closing
a check, it is assumed that the company already
exchange rate:
made the journal entry for the payment (DR:
➔ Legally restricted - excluded
Accounts Payable and CR - Cash).
from cash. Included in the
It is proper to reduce the Cash account even if it "other non-current asset"
is not yet withdrawn, unless the check drawn by ➔ Not legally restricted -
the company is undelivered or post-dated. included as cash
➔ Silent - included as cash.
o Company's undelivered check - since the
control over the cash is not yet g. Bank overdraft:
surrendered; the undelivered check ➔ Different bank - excluded from
should be reverted (added back) to cash cash, it is presented as current
in bank. liability.
o Company's post-dated check - since the ➔ Same bank - included in the
payee cannot withdraw the check yet, computation of cash as
the control over the cash is not yet deduction.
surrendered; the post-dated check ➔ Silent - excluded from cash,
should be reverted back (added back) to assume different banks.
cash in bank.
 C. CASH FUNDS:
a. For operations - always included as cash, this includes the following:
• Petty cash fund • Payroll fund
• Revolving fund • Travel fund
• Interest fund • Change fund
• Tax fund • Dividend fund

b. Not for operation:

➔ For settlement of Non-current liability
1. Sinking fund, Pension fund, Preference share redemption fund
**If expected to be disbursed within 12 months, it is included as cash.
If expected to be disbursed beyond 12 months, it is excluded from cash and treated as investment.
➔ For payment of Non-current asset
1. PPE acquisition fund, Depreciation fund, Contingency fund, Insurance fund
**Always excluded from cash and treated as investment

CASH EQUIVALENTS - includes the following Non-cash Items (Distractions):

investments:
a. I Owe You (IOUS) - are classified as accounts
A. Time deposit (Certificate of deposit) receivable
B. Money market (Commercial papers) b. Postage Stamps - are classified as supplies
C. Treasury bills c. Credit Memo- are classified as purchase returns
D. Investment in preference shares with fixed d. Cash Surrender Value - are classified as
redemption date investments
e. Ordinary Shares-are classified as investments
The three (3) month rule:
__________________________________________
If the purchase date up to maturity date should be
within three months, it is classified as Cash Equivalents. PETTY CASH FUND
Investments without maturity value (equity investments) __________________________________________
should not be classified as Cash Equivalents.

If this period is beyond 3 months, it will be excluded from – Internal Control

cash and will be classified as "other current asset" if the
remaining period before maturity at the reporting date is A. Bills and Coins
within one year and it will be classified as "other non- Given xx
current asset" if beyond one year. Bills and Coins from Customers (xx)
Open Envelope (xx)
Note: If the 3-month rule is cannot be determined (i.e., Expenses AFTER BS xx
purchase date or maturity date is not given), use the xxx
original term to test the 3-month rule. If the original term B. Checks
is also not given, assume it is within 3 months and should - Custodian
be included as cash equivalents. Stated otherwise, if the Accommodation xx
problem is silent, Cash Equivalents are assumed within 3- Replenishment xx
months. - Good Check xx
xxx
Treasury Notes and Treasury Bonds are long-term forms
of Treasury Bills and should be excluded from Cash, if the *Check -> from INSIDER (Employees/Officers)
3-month rule is cannot be tested. **Good Check means NOT BAD (NSF, DAU)
Overage/Shortage BANK RECONCILING ITEMS:

Deposit in transit – receipt recorded by the book BUT

Petty Cash Fund NOT recorded by the bank.
Imprest Balance Bad Checks
Balance ➢ Established PCF Expenses Outstanding Checks – disbursement recorded by the
Advances -> IOUs book BUT NOT recorded by the bank.

(Certified Check should be excluded)

Overage Shortage
Petty Cash Fund ERRORS:

- Errors made by the bank are ADJUSTMENT by

--------OR--------
the bank.
- Errors made by the book are ADJUSTMENT by
Established PCF – Accounted xx
Petty Cash Items - Accountability (xx) the book.
Shortage / (Overage) xx / (xx) Errors Made Adjustment
Understatement of receipt Add
Petty Cash Items Understatement of disbursement Minus
1. Remaining Bills and Coins xx Overstatement of receipt Minus
2. Petty Cash Vouchers xx Overstatement of disbursement Add
3. IOUs xx
4. Insiders Check (Good/Bad) xx
5. Custodian Checks xx Proforma: Page 47 (IA Volume 1 by Valix)
a. B/C from customer (xx)
b. Open Envelope (xx)
xx

__________________________________________

BANK RECONCILATION
__________________________________________

It explains the difference between cash balance per

book and cash balance per bank.

BOOK RECONCILING ITEMS:

1. Credit Memo – receipt recorded by the

bank BUT NOT recorded by the book.
I. Notes Receivable
II. Interest Income
III. Proceeds of loans

2. Debit Memo – disbursement recorded by

the bank BUT NOT recorded by the book.
I. Bank Service Charge
II. NSF
III. Loan Payment
__________________________________________________________________________________________

PROOF OF CASH
__________________________________________________________________________________________

Computation of book balance

Balance per book – beginning of the month xxx

Add: Book debits (receipts) during the month xxx
Total xxx
Less: Book credits (disbursements) during the month xxx
Balance per book – end of the month xxx

Computation of bank balance

Balance per bank – beginning of the month xxx

Add: Bank credits (receipts) during the month xxx
Total xxx
Less: Bank debits (disbursements) during the month xxx
Balance per bank – end of the month xxx

Computation of deposit in transit

Deposit in transit – beginning of the month xxx

Add: Cash receipts deposited during the month
(book debits less receipts not representing deposits) xxx
Total xxx
Less: Deposits acknowledged by bank during the month
(bank credits less receipts not representing deposits) xxx
Deposit in transit – end of the month xxx

Computation of outstanding checks

Outstanding checks – beginning of the month xxx

Add: Checks drawn by depositor during the month
(book credits less disbursements not representing checks) xxx
Total xxx
Less: Checks drawn by bank during the month
(bank debits less disbursements not representing checks) xxx
Outstanding checks – end of the month xxx