In the course of your audit of Cash of Fatherhood Corporation as of and for the period ended December 31, 2024, the following is a list that comprise the company’s Cash and cash equivalent account: Current account at Metrobank 3,250,000 Savings account at Rural Bank 2,750,000 Current account at BDO (240,000) Undeposited collections on hand 1,278,000 Traven fund 50,000 Interest and dividend fund 120,000 Payroll fund 400,000 Pension fund 250,000 Change fund 25,000 Bonking sinking fund 500,000 Petty cash fund, imprest balance 30,000 Deposit in closed bank 300,000 Postage stamps 3,000 IOU from key employee 30,000 Credit memo from a vendor for a purchase return 60,000 Investment in treasury bills, due 3/31/25 (purchased 12/31/24) 600,000 Investment in money market placement, due 1/31/25 (purchase 1/1/24) 900,000 Investment in ordinary shares (trading securities), intended to sell by 2/28/25 400,000 Investment in ordinary shares (FVOCI securities) 300,000 Investment in redeemable preference share, due 2/28/25. (purchased 12/1/24) 300,000 Audit notes: The current account at Metrobank included the recordings of the following: P75,000 check to supplier, in payment of an outstanding invoice dated December 1, 2024. The check was issued as of December 30, 2024 but were dated January 5, 2025. P120,000 check to a supplier, in payment of another invoice dated December 20. The check which was dated December 30, 2024 was still on hand as of December 31, 2024 and yet to be released to the payee. P180,000 check to another supplier dated December 31 and released on the same date for the payment of an invoice dated December 15. The savings account at Rural Bank included a P500,000 compensating balance related to a 5 year, 12% P5 million bank loan dated January 1, 2022. The terms of the loan called for the legal restriction on drawing from the said compensating balance at any time during the five-year term of loan. The undeposited checks, bank drafts and money order included the following items: P180,000 check from a customer dated 6/1/24. P125,000 check from a customer dated 1/6/25. P155,000 customer check dated 11/6/24, returned on November 31 marked NSF, not yet redeposited. P127,000 check from an employee dated12/20/24. P80,000 check from an office dated 12/2/24 returned by the bank marked NSF P150,000 postal money order. P120,000 bank drafts. On hand by the petty cash custodian on December 31, 2024 were: P7,000 worth of bills and coins. P11,500 replenishment check. P10,000 worth of unreplenished paid petty cash vouchers. All other cash funds were accounted for as equaling cash / securities on hand. The company made an estimated that only 50% from cash in closed bank shall be recovered but the period of recovery is indefinite. Questions: For the preparation of the statement of financial position year-ended December 31, 2024, answer the following: 1. What is the adjusted current account at Metrobank that should be presented as part of cash and cash equivalents? 2. How much from the undeposited checks, money orders and bank drafts on hand is part of cash and cash equivalents?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
In the course of your audit of Cash of Fatherhood Corporation as of and for the period ended December 31, 2024, the following is a list that comprise the company’s Cash and cash equivalent account:
|
Current account at Metrobank |
3,250,000 |
|
Savings account at Rural Bank |
2,750,000 |
|
Current account at BDO |
(240,000) |
|
Undeposited collections on hand |
1,278,000 |
|
Traven fund |
50,000 |
|
Interest and dividend fund |
120,000 |
|
Payroll fund |
400,000 |
|
Pension fund |
250,000 |
|
Change fund |
25,000 |
|
Bonking sinking fund |
500,000 |
|
Petty cash fund, imprest balance |
30,000 |
|
Deposit in closed bank |
300,000 |
|
Postage stamps |
3,000 |
|
IOU from key employee |
30,000 |
|
Credit memo from a vendor for a purchase return |
60,000 |
|
Investment in treasury bills, due 3/31/25 (purchased 12/31/24) |
600,000 |
|
Investment in |
900,000 |
|
Investment in ordinary shares (trading securities), intended to sell by 2/28/25 |
400,000 |
|
Investment in ordinary shares (FVOCI securities) |
300,000 |
|
Investment in redeemable |
300,000 |
Audit notes:
- The current account at Metrobank included the recordings of the following:
- P75,000 check to supplier, in payment of an outstanding invoice dated December 1, 2024. The check was issued as of December 30, 2024 but were dated January 5, 2025.
- P120,000 check to a supplier, in payment of another invoice dated December 20. The check which was dated December 30, 2024 was still on hand as of December 31, 2024 and yet to be released to the payee.
- P180,000 check to another supplier dated December 31 and released on the same date for the payment of an invoice dated December 15.
- The savings account at Rural Bank included a P500,000 compensating balance related to a 5 year, 12% P5 million bank loan dated January 1, 2022. The terms of the loan called for the legal restriction on drawing from the said compensating balance at any time during the five-year term of loan.
- The undeposited checks, bank drafts and money order included the following items:
- P180,000 check from a customer dated 6/1/24.
- P125,000 check from a customer dated 1/6/25.
- P155,000 customer check dated 11/6/24, returned on November 31 marked NSF, not yet redeposited.
- P127,000 check from an employee dated12/20/24.
- P80,000 check from an office dated 12/2/24 returned by the bank marked NSF
- P150,000 postal money order.
- P120,000 bank drafts.
- On hand by the petty cash custodian on December 31, 2024 were:
- P7,000 worth of bills and coins.
- P11,500 replenishment check.
- P10,000 worth of unreplenished paid petty cash vouchers.
- All other cash funds were accounted for as equaling cash / securities on hand.
- The company made an estimated that only 50% from cash in closed bank shall be recovered but the period of recovery is indefinite.
Questions: For the preparation of the statement of financial position year-ended December 31, 2024, answer the following:
1. What is the adjusted current account at Metrobank that should be presented as part of cash and cash equivalents?
2. How much from the undeposited checks, money orders and bank drafts on hand is part of cash and cash equivalents?
3.
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