1- OVERVIEW: CASH AND CASH EQUIVALENTS Definition Cash include cash on hand, consisting of coins, currency, undeposited checks; money orders and drafts; and deposits in banks. Anything accepted by a bank for deposit would be considered as cash. Cash must be available for a demand withdrawal. Cash equivalents include shot-term, high liquid investments that: 1) Are readily convertible to known amounts of cash, and 2) Are so near their maturity (maturities of 3 months or less from the date of purchase by the entenprise) that they present negligible risk of changes in value because of changes in interest rates, ‘Treasury bills, commercial paper, and money market funds are al examples of cash equivalents Presentation ~ Cash and Cash Equivalents are by definition the most liquid assets of an enterprise; thus, they are usually the first items presented in the current assets section of the balance sheet. Bank Reconciliation ~ A bank reconciliation is a schedule comparing the entity’s cash balance per books with balance shown on the bank statement (usually monthly). The most common approach is to reconcile from the bank statement to unadjusted book balance. & Because the two balances usually vary, the bank reconciliation statement permits the ‘entity to determine whether the difference is attributable to normal conditions, errors, or irregularities. It also sever as a basis for accounting entries to adjust the entity's books to reflect unrecorded items, b. Common reasons for diffrence - The bank and emtity inevitably record many transactions at different times, and both may make errors. 1) Deposits in transit - A deposit made by the company late in the period that was rot yet incuded on the bank statement; usually determined by comparing company deposits with the deposits listed on the bank statement. 2). ‘Altematively, the amount can be determined as follows: Deposits in transit at end of prior period Sxxx Deposits for the current period (per books) wx ‘Total that could have been deposited xxx Deposits per bank statement (xxx)Deposits in transit at end of current period sux 3). Owistanding checks ~ Checks that have not cleared the bank, usually determined by comparing checks written with checks clcared. Alternatively, the amount can be determined as follows: ‘Outstanding checks at end of prior period Sxxx Cheeks written during current period (per books) xx Total that could have been cleared xr Chocks cleared per bank statement (om Outstanding checks at end of current period Sua 4) Amounts added by the bank (credit memos) — Interest income added to an account ‘may not be included in the book balance. Bank may act as collection agents, for example, for notes on which the depositors is the payee. If the depositor has not learned of a collection, it will not be reflected in the entity's records. a) These amounts are subtracted from the bank balance to reconcile to the ‘unadjusted book balance. b) They should be recorded on the entity's books after which they are not reconciling items. 5) Amounts deducted by the bank (debit memos) — These amounts generally include service charges and customer checks returned for insufficient funds (NSF checks). Service charges cannot be recorded in the books until the bank statement is, received, and customer checks retumed for insufficient funds may have been deducted by the bank but still included in the book balance. a) These amounts arc added to the bank balance to reconcile to the unadjusted book balance, b) After they are revorded on the books, they are not reconciling items, 6) Errors — If the bank has wrongly charged or credited the entity's account (or failed to record a transaction at all), the errors may be detected in the process of preparing the reconciliation. Book errors may likewise be discovered. Other Noncash Items a) NSF checks, postdsted checks, and IOU's should be treated es reocivables. b) Advances for expenses to employees may be classified as receivables (if expected to be paid by employees) or as prepaid expenses. ©) Postage stamps are accounted for as prepaid expenses or office supplies.Problem 1-1 —Adjusted bank Balance As of March 31, 2020, the bank statement of Quinta Trading Co. has an ending balance of $73,612. The following data were assembled in the course of reconciling the bank balance: - On March 15, Quinta Trading Co., was erroneously credited by the bank for $2,150. . The bank charged back NSF checks amounting to $2,340, of which $800 has been re-deposited by March 20. . On March 31, collections were made totaling $10,330 was deposited the following month. Outstanding checks as of March 31 were $30,205. ‘The bank collected notes on behalf of Quinta Trading $8,150 and the corresponding charge was $50. Required: What is the adjusted bank balance in March 31,2020? aeProblem 1-2 — Outstanding Checks ‘The following information was included in the bank of reconciliation for Vivi, Inc., for June: Checks and charges recorded by bank in June, including a June service charge of $120 $68,840 Deposit in transit at June 30 2,400 Customer's NSF check returned in May and rredeposited in June (no entry made on books either in May or June) 1,000 Service charge made by bank in May and recorded ‘on the books in June 80 ‘Total of credits to Cash in all journals during June 79,208 ‘Customer's NSF check returned as @ bank charge in June (no entry made on books) 400 Outstanding checks at June 30 32,240 Required: Compute the total outsianding checks at the beginning of June.Problem 1-3 Bank Reconciliation ‘The cash records of Crushy Company show the following for the months of January. CASH RECEIPTS: ‘CASH DISBURSEMENT. Jan 5 ‘$60,000 Jan. 6 Check No.S01 $5,000 B 20,000 7 Check No.502 10,000 25 30,000 10 Cheek No. $03 18,000 31 40,000 14 Cheek No. 504 2,000 $150,000, 28 Check No. 505 37,000 31 Check No. 506 28,000 $100,000 ‘The general ledger of the company shows the cash in bank account for January as follows: Cash in bank - First Bank Jan. 31 cR $ 150,000 | Jan. 31 cD $100,00 ‘The balance of the cash in bank on the depositor’s book is $50,000, ‘The following is the bank statement for Janvary received from the First Bank: In aecount with : 875 Crushy Company FIRST BANK Bandung City ‘West Java, Indonesia Dats Check No. Withdrawals Deposits Balance Jan. 6 ‘$60,000 ‘$60,000 g sol 5,000 55,000 im 502 10,000 45,000 12 503 13,000 27,000 4 20,000 47,000 7 504 2,000 45,000 6 30,000 75,000 26 15,000 CM 90,000 30 5,000 RT 85,000 30 1,000 SC Code: CM — Credit memo ‘SC- Service charge ‘DM - Debit memoThe following data are gathered in connection with the CM and DM appearing on the bank ‘staternent: a. The CM of $15,000 on January 26 represents proceeds of note collected by the bank in favor of the company. 'b. The RT of $5,000 represent check of customer deposited previously but reiurned by the bank because of “no sufficient fund” or NSP. Required: Prepare Bank Reconciliation for January 31.Problem 1-4 Bank Reconciliation From the following information, prepare a bank reconciliation statement, using the adjusted balance method. Also, prepare adjusting entries on the books of Abacus Company. Abacus Company Date Cheek No. Withdrawal Deposits Balance Dec. 2 $100,000 $100,000 18 1104 $10,000 90,000 20 nol 5,000 85,000 2 1106 25,000 60,000 0 50,000 110,000 9 10,000 120,000 29 103 40,000, 80,000 29 CM 30,000 110,000 31. Service charge DM 2,000 108,000 CENTRAL BANK Dec. | Deposit ‘$100,000 Dec.4 Check No.1101 $5,000 21 Deposit 50,000 6 Chock No.1102 15,000 27 Deposit 10,000 8 Check No.1103 40,000 31. Deposit 80,000 8 Check No.1104 10,000 10 Check No.1105 30,000 14 Check No.1106 25,000 28 Check No.1107 50,000 ‘The credit made by the bank on December 29 represents the proceeds of a note received from a customer which was given to the bank for collection by the entity on December 26,