FINANCIAL ACCOUNTING AND REPORTING

CASH AND ACCOUNTS RECEIVABLE

1. An entity provided the following data on December 31, 2019:

Checkbook balance 5,000,000
Bank statement balance 4,000,000
Check drawn on entity’s account, payable to supplier, dated and
recorded on December 31, 2019 but not mailed until January 31,2020 1,000,000
Cash in sinking fund 1,500,000
Treasury bills, purchased November 1, 2019 and maturing January 31, 2020 2,500,000
Time deposit, purchased October 1, 2019 and maturing January 31, 2020 2,000,000
What amount should be reported as cash and cash equivalents on December 31, 2019?
a. 8,000,000
b. 8,500,000
c. 7,500,000
d. 6,000,000

2. An entity had the following cash balances on December 31,2019:

Cash in bank 5,000,000
Petty cash fund, all funds were reimbursed on December 31, 2019 50,000
Money market placement or commercial papers 1,500,000
Saving deposit 800,000

Cash in bank included P500,000 of compensating balance against short-term borrowing arrangement on December
31, 2019. The compensating balance is legally restricted as to withdrawal. A check of P1,000,000 dated January
31, 2020 in payment of accounts payable was recorded and mailed on December 31, 2019. What amount should be
reported as cash and cash equivalents on December 31, 2019?
a. 6,350,000
b. 7,850,000
c. 6,850,000
d. 5,550,000

3. An entity had the following account balances on December 31, 2019:

Cash on hand, including a customer check P100,000 dated January 31, 2020 500,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,000,000
Cash in bank – restricted account for plant addition expected to be disbursed in 2020 500,000
Cash in sinking fund set aside for bond payable due June 30, 2020 1,500,000
Three- month time deposit 2,000,000
Traveler’s check 200,000
Manager’s check 300,000
Money order 100,000

1. What total amount should be reported as cash under current assets?

a. 7,500,000
b. 9,500,000
c. 7,600,000
d. 6,000,000

2. What total amount should be reported as cash equivalents?

a. 2,000,000
b. 2,600,000
c. 3,500,000
d. 4,000,000

4. Yasmin Company provided the following information on December 31, 2019:

Petty cash fund 50,000
Current account – First Bank 4,000,000
Current account – Second Bank (overdraft) (250,000)
Money market placement –Third Bank 1,000,000
Time deposit – Fourth Bank 2,000,000
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 A check for P100,000 was drawn against First Bank current account dated and recorded December 29, 2019
but delivered to payee on January 15, 2020.
 The Fourth Bank time deposit is set aside for land acquisition in early January 2020.

What amount should be reported as cash and cash equivalents on December 31, 2019?
a. 5,050,000
b. 5,150,000
c. 4,900,000
d. 4,150,000

5. Kent Company provided the following information on December 31, 2019:

Cash on hand 500,000
Security Bank current account 1,000,000
PNB Current account No. 1 400,000
PNB Current account No. 2 (overdraft) (500,000)
BSP treasury bill – 60 days 3,000,000
 The cash on hand included a customer postdated check of P100,000 and postal money order of P40,000.
 A check for P200,000 in payment of account was drawn against Security Bank account, dated January 15,
2020, delivered to the payee and recorded December 31, 2019.

What total amount of cash and cash equivalents should be reported on December 31, 2019?
a. 4,550,000
b. 5,050,000
c. 4,750,000
d. 1,950,000

6. In preparing the bank reconciliation for the month of August, Apex Company provided the following information:
Balance per bank statement 1,805,000
Deposit in transit 325,000
Return of customer check for insufficient fund 60,000
Outstanding checks 275,000
Bank service charge for August 10,000
What is the adjusted cash in bank?
a. 1,855,000
b. 1,795,000
c. 1,785,000
d. 1,755,000

7. Lira Company prepared the following bank reconciliation on June 30:

Balance per bank 9,800,000
Deposits in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000
There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank statement.
All reconciliation items on June 30 cleared the bank on July 31.

Checks outstanding amounted to P1,000,000 ad deposits in transit totaled P1,200,000 on July 31.
1. What is the amount of cash receipts per book in July?
a. 6,500,000
b. 7,300,000
c. 5,700,000
d. 7,900,000

2. What is the amount of cash disbursements per book in July?

a. 8,600,000
b. 7,600,000
c. 9,400,000
d. 8,400,000

3. What is the adjusted cash in bank on July 31?

a. 7,300,000
b. 6,300,000

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c. 7,500,000
d. 6,500,000

4. What is the cash balance per ledger on July 31?

a. 8,800,000
b. 8,500,000
c. 6,300,000
d. 7,500,000

8. An entity provided the following information for 2019:

Accounts receivable – January 1 2,000,000
Credit sales 10,000,000
Collection from customers, excluding the recovery of accounts written off 8,000,000
Accounts written off as worthless 100,000
Sales returns 500,000
Recovery of accounts written off 50,000
Estimated future sales returns on December 31 150,000
Estimated uncollectible accounts on December 31 per aging 300,000

What is the “amortized cost” of accounts receivable on December 31, 2019?

a. 3,400,000
b. 3,100,000
c. 2,950,000
d. 2,900,000

9. On December 31, 2019, an entity reported accounts receivable of P6,000,000 and allowance for doubtful accounts
of P1,000,000 on January 1, 2019.

Net credit sales Writeoffs Recoveries

2016 9,000,000 400,000 30,000
2017 13,000,000 600,000 70,000
2018 15,000,000 700,000 120,000
2019 20,000,000 650,000 150,000

Doubtful accounts are provided for as percentage of net credit sales. The percentage is computed annually by using
the data of the three years prior to the current year.

1. What amount should be reported as doubtful accounts expense for 2019?

a. 800,000
b. 650,000
c. 500,000
d. 600,000

2. What is the allowance for doubtful accounts on December 31, 2019?

a. 1,300,000
b. 1,950,000
c. 1,150,000
d. 1,800,000

10. An entity provided the following unadjusted accounts at year-end:

Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible.
1. What is the ending allowance for doubtful accounts?
a. 640,000
b. 750,000
c. 100,000
d. 150,000

2. What amount should be recognized as doubtful accounts expense for the current year?

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a. 110,000
b. 150,000
c. 190,000
d. 600,000

11. From inception of operations, an entity provided for doubtful accounts under the allowance method and provisions
were made monthly at 2% of credit sales.
No year-end adjustments to the allowance account were made. The balance in the allowance for doubtful accounts
was P1,000,000 on January 1, 2019.
During 2019, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit
sales, P200,000 of bad debts were written off, and recoveries of accounts previously written off amounted to
P50,000. An aging was made on December 31, 2019.
Classification Balance Uncollectible
November – December 6,000,000 10%
July – October 2,000,000 20%
January – June 1,500,000 30%
Prior to January 1, 2019 500,000 50%
Based on the reviewer of collectibility of the account balances in the “prior to January 1, 2019” aging category,
additional accounts totaling P100,000 are to be written off on December 31, 2019. Effectively December 31, 2019,
the entity adopted aging method for estimating the allowance for doubtful accounts.

1. What is the required allowance for doubtful accounts on December 31, 2019?
a. 1,650,000
b. 1,950,000
c. 1,700,000
d. 1,450,000

2. What amount should be reported as doubtful accounts expense for current year?
a. 1,200,000
b. 1,650,000
c. 900,000
d. 950,000

3. What is the adjustment to the allowance for doubtful accounts on December 31, 2019?
a. 900,000 debit
b. 900,000 credit
c. 500,000 debit
d. 500,000 credit

4. What is the net realizable value of accounts receivable on December 31, 2019?
a. 9,900,000
b. 8,250,000
c. 8,350,000
d. 8,200,000

Theory

1. Which of the following should be considered cash?

a. Certificates of deposit
b. Money orders
c. Money market instruments
d. Treasury bills
2. What is compensating balance?
a. Saving account balance
b. Loan account with bank
c. Temporary investment serving as collateral for loan
d. Minimum deposit required to be maintained in connection with borrowing arrangement.
3. Deposits held as compensating balance
a. Usually do not earn interest.
b. If legally restricted and held against short-term credit may be included as cash.

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c. If legally restricted and held against long-term credit may be included among current assets.
d. None of these.
4. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amount cash and
a. Is acceptable as a means to pay current liabilities.
b. Has a market value greater than original cost
c. Bears an interest rate that is least equal to the prime interest rate
d. Is so near maturity that it presents insignificant risk of change in interest rate.
5. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if the investments
have a maturity of 90 days or less
a. From the date the investments are acquired
b. From the end of the reporting period
c. From the date of issue of financial statements
d. From the date the investments are acquired or from the end of the reporting period
6. Which of the following could not be reported as cash or cash equivalents?
a. Money market accounts
b. Demand deposits
c. BSP treasury bills with an original maturity of sixty days from date purchased
d. Legally restricted deposit held as compensating balance against borrowing arrangement
7. 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
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 employees
d. To effectively control cash disbursements
9. Which of the following statements in relation to petty cash fund is incorrect?
a. Each disbursement from petty cash should be supported by a petty cash voucher.
b. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of the general cash
account.
c. At any time, the sum of the cash in the petty cash fund and the total of petty cash vouchers should equal the
amount for which the imprest petty cash fund was established.
d. With the establishment of an imprest petty cash fund, one person is given the authority and responsibility for
issuing checks to cover minor disbursements.
10. When an imprest petty cash fund is used, which of the following statements is true?
a. The balance of the 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 a journey entry that is posted as a long-term
investment.
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 form the petty
cash fund are made.
11. If the balance shown in the 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. Deposit in transit
d. Bank charges not yet recorded by the entity
12. If the cash balance shown in the 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. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the entity

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13. 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 deposit in transit.
b. All items except bank errors, outstanding checks and deposits in transit.
c. Book errors, bank errors, deposit in transit and outstanding checks.
d. Outstanding checks and deposits in transit.
14. Bank statements provide information about all of the following, except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
15. The ideal measure of short-term receivables is the discounted value of cash to be received in the future. Failure to
follow this practice usually does not make the statement of financial position misleading because
a. Most short-term receivables are noninterest bearing.
b. The allowance for uncollectible accounts includes a discount element.
c. The amount of the discount is not material.
d. Most receivables can be sold to a bank or factor.
16. Which is more theoretically correct to record cash discount?
a. Net approach
b. Gross approach
c. Allowance approach
d. All three approaches are theoretically correct
17. All are problems associated with the valuation of accounts receivable, except
a. Uncollectible accounts
b. Returns
c. Cash discounts under the net method
d. Allowances granted
18. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt
expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance
19. Which method of determining bad debt expense best achieves the matching concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct writeoff
20. Which is not permitted for accounting for uncollectible accounts receivable?
a. Percentage of accounts receivable using allowance method
b. Percentage of sales using allowance method
c. Direct writeoff method
d. All of the choices are acceptable
21. The advantage of relating bad debt expense to accounts receivable is that this approach
a. Gives a reasonably correct statement of receivables in the statement of financial position.
b. Best relates bad debt expense to the period of sale.
c. Is the only generally accepted method for valuing accounts receivable.
d. Makes estimates of uncollectible accounts unnecessary.
22. Which concept relates to the allowance method in accounting for accounts receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an aging analysis of accounts receivable
d. Bad debt expense is management’s determination of which accounts will be sent to the attorney for collection.
23. Which method does not properly match expense and revenue?

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a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts using a percentage of accounts receivable under the allowance method.
c. Charging bad debts using aging accounts receivable under the allowance method.
d. Charging bad debts as accounts are written off as uncollectible.
24. When an entity uses the allowance method for recognizing doubtful accounts, the entry to record the writeoff of
a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
25. When the direct writeoff method is used, the entry to write off a customer account would
a. Increase net income
b. Have no effect on net income
c. Increase both accounts receivable and net income
d. Decrease both accounts receivable and net income
26. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an
account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income

END

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CASH AND CASH EQUIVALENTS

Bank Overdraft
CASH  Current Liability
 Readily available in the payment of current obligations  Should not be offset against other bank accounts with Debit
 Unrestricted in use balance
 Exceptions:
CASH o Can be offset if accounts are in 1 Bank
Coins and currency Personal checks o Can be offset against other bank account if the
Petty cash fund Manager checks amount is not material
Checking deposit Certified checks
Demand deposit Money order Compensating Balance
Customer’s checks Traveler’s checks Not legally restricted as to
part of Cash, Current Asset
withdrawal
Measurement: classified separately as “cash
Legally restricted as to
 @ Face Value held as compensating balance”,
withdrawal
 Current exchange rate (if in Foreign Currency) Current Asset
 Estimated Realizable Value (if under bankruptcy/financial If the related loan is long- classified as noncurrent
difficulty) term investment, Noncurrent Asset

Undelivered company checks should be restored to Cash Shortage Cash count < Cash balance per Book
Postdated company checks CASH Cash Overage Cash count > Cash balance per Book
Undelivered customer checks should be restored to
Postdated customer checks Accounts Receivable Petty Cash Fund
 Money set aside to pay small expenses
Cash Fund
 for the payment of liability due within 1 year Two Methods of handling Petty Cash Fund:
 Current as part of CASH  Imprest Fund System
o All cash receipts should be deposited intact and all
 fund for the acquisition of noncurrent asset even within cash disbursements should be made by means of
1 year check
 Noncurrent
 Fluctuating Fund System
o Checks drawn to replenish the fund do not
CASH EQUIVALENTS necessarily equal the petty cash fund
 PAS 7, short-term and highly liquid investments disbursement
 readily convertible into cash
 insignificant risk of changes in value because of
changes in interest rates

CASH EQUIVALENTS
Treasury bills
with maturity of 3 months or less
Money market
from the date of purchase
Time deposit

Note:
 If problem is silent, treasury bills, money market and time
deposit are assumed to be Cash Equivalents.
 Equity Securities – cannot qualify as cash equivalents
 Preference shares with specified redemption date – can
qualify as cash equivalent if acquired 3 months before BANK RECONCILIATION
redemption date
Bank Reconciliation
Investment of excess Cash - a statement which brings into agreement the cash balance
Term Classification per book and cash balance per bank.
a. 3 months or less Cash Equivalent, Current Asset
Forms of Bank Reconciliation
Short-term financial
b. More than 3 months but
asset/temporary investment,
within 1 year a. Adjusted Balance Method
Current Asset
Long-term investments,
c. More than 1 year Book Balance X
Noncurrent Asset
+ Note Receivable collected by Bank X
- NSF and Service Charge X
± Errors X
Adjusted Book Balance X

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Bank Balance X
+ Deposits in Transit X ACCOUNTS RECEIVABLE
- Outstanding Checks X
± Errors X Trade Receivable
Adjusted Bank Balance X - expected to be realized in cash within the normal operating
cycle or one year, whichever is longer, are classified as
Note: Certified checks are NO longer outstanding CURRENT ASSET

b. Book to Bank Method

Nontrade Receivable
Book Balance X
+ Note Receivable collected by Bank X - expected to be realized in cash - CURRENT ASSETS
+ Outstanding checks X within 1 year
- NSF and Service Charge X - collectible beyond 1 year - NONCURRENT
- Deposits in transit X ASSETS
Bank Balance X

c. Bank to Book Method Customer’s Credit Balances

- Current Liabilities
Bank Balance X - NOT offset against the debit balances in other customer’s
+ Deposits in transit X accounts
+ NSF and Service Charge X
- Outstanding checks X
- Note Receivable collected by Bank X Accounts Receivable
Book Balance X Measurement:

Computation for Book Balance Face Amount or Original Invoice

Initial -
Amount
Balance per Book – beg. X Amortized Cost or Net Realizable
+ Book debits during the period X Subsequent -
Value
- Book credits during the period X
Balance per Book – end X
Accounts Receivable
Computation for Bank Balance Beg. Balance Collections
Credit sales Sales discounts
Balance per Bank – beg. X
Sales returns and allowances
+ Bank credits during the period X
- Bank debits during the period X Writeoff
Balance per Bank – end X End

Computation for Deposits in Transit Note: Recovery of Accounts

- IGNORE in computing accounts receivable, unless
Deposits in Transit – beg. X included in collections in which case DEDUCT from
+ Cash receipts deposited during the period X collections
- Deposits acknowledged by bank during the period X
Deposits in Transit – end X
Aging of AR - Required allowance
Computation for Outstanding Checks % of AR - Required allowance
% of Sales - Doubtful accounts expense
Outstanding Checks – beg. X
+ Checks drawn by depositor during the period X
- Checks paid by bank during the period X Allowance for Doubtful Accounts
Outstanding Checks – end X Writeoff Beg. Balance
Recovery
DA Expense
PROOF OF CASH
Beginning Receipts Disbursement Ending End
Balance per Book Px Px Px Px
Note collected:
Beginning x (x)
End x x
NSF Check:
Beginning (x) (x)
End x (x)
Service charge:
Beginning (x) (x)
End X (x)
Adjusted Book Balance Px Px Px Px

Balance per Bank Px Px Px Px

Deposits in Transit:
Beginning x (x)
End x x
Outstanding Checks
Beginning (x) (x)
End x (x)
Adjusted Bank Balance Px Px Px Px 1905