Cash

Brief history of cash

 barter system
 gold is the standard of wealth
 Gold was the equivalent of cash
 Gold smith-recognized/initiated by the government
 Nowadays if u have a gold, gov’t will buy it as it has no value.
 Cash originated from gold.

Definition of cash:
 The standard medium of exchange
 Currency and coins (paper and coins) that is circulating and is legal tender (pag inabot
okay agad yan).
 In accounting, it includes money and any other negotiable instruments that is payable in
money and accepted by the bank for deposit and immediate credit.
 Most liquid asset cos u can use it anywhere.

Presentation- when we present cash, it is a current asset (unrestricted)

EXCEPTION: cash is not a current asset when it is restricted for at least 12 mos at the end of the
reporting period.
Example is when a bank closes cos it is under litigation or for whatever reason, u cannot
withdraw the cash immediately cos as mentioned the bank is under the said matter.

Measurement- face value (paglalagay ng value-like when u record a trans like for ex debit cash,
the amount u place there is what u call the measurement)
Cash in foreign currency is measured at current exchange rate.
If the bank or fin. Institutions is under bankruptcy, cash SHOULD be written tp estimated
realizable value IF the amount recoverable is estimated lower than the face value

Has 2 periods:
1. Initially-how much sya nung when u first see it.
-recorded at face value (like literally how u can see the documents or the actual cash)
2. Subsequently- when the time passes, it changes, right? For example, initially it was just 10
pesos, then time has passed, it only costs 5 nlng.
Recorded also at face value based on how much it is.

NOTE: it can be recorded not as face value using estimated recoverable or realizable value
amount- when there is a problem at face value
If u have foreign currency, u have to convert it to peso, the valuation to be used is the current
exchange rate. Like ung palitan at a specific time that u will be exchanging.

Cash includes:
1. Cash on hand
 Undeposited collection- bills and coins
 Customer’s check- not assured that it is funded.
 Manager’s check- automatic may fund na. it means na it is approved and there is already
fund. To have this, u have to go to a bank first then ask for manager’s check. When u
deposit a 1m and ask for this check, the 1m will be deducted na then 1ook will be a
manager’s check.
 Cashier’s check- purpose is the same as manager’s check.
 Traveller’s check- a person goes to a bank and nag pa approve. Traveller’s check is
carried by a traveller instead of carrying a cold cash and alsready funded.
 Bank draft – a dpcument written by bank. Like manager’s checnk and the like in a sense
that is is funded but mas mabigat kasi ang nag guarantee mismo is ung bank parang check
sya ni bank na mismo.
 Money order- magbibigay ka ng pera tas magbibigay sila ng money order. Like western
union and other remittances. Gcash us somewhat considered as this.

2. Cash in bank
 checking account (demand deposit) – You did not deposit to earn or save but rather u
want to use it for transaction. U can get it anytime kasi demand, right? Checking account
kasi it includes other negotiable instruments like check.
Example: u have 1M and u deposited in the bank d the bank credited u for that since they
have debt to u. every time u wanna get it and u have a check, u just put the amount there
and the person will go to the bank to claim such amount then maleless ung 1m. Hence,
convenient siya.

 Savings deposit – pang-ipon lang. u have atm card or sometimes even passbook. It earns
interest.
  Example: u have 1m in bank and instead of paying cold cash, u pay in check. Like when
u pay the electricity, the entry would be dr electricity exp and cr cash in bank

Cash Equivalents
Cash equivalent- 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
changes in interest rates.
Key terms:
1. Short term- should be 3 MONTHS ONLY
2. Highly-liquid- talks about companies like san mo iinvest
3. Readily convertible into cash
4. So near that it presents insignificant risks (cos of change in interest rates).

Example:
a. Three-month BSP treasury bills (BSP collects money then parang nangungutang sayo
then u earn interest)
b. Three-month time deposit
c. Three month money market instrument or commercial paper

Commercial paper- same with T-bills except that the BSP was not the one to print the T-
bills, rather it is printed by companies, hence, calling it commercial paper) – if kunware
local business lng d sanlaki ng san Miguel and the like and 3 mos din, it is not considered
as highly liquid, so, di cash equivalent.

Money market instrument- lagay mo sa bank and then the bank will be the one to invest
then u earn interest.

d. Xxx-year BSP treasury bills/commercial paper/redeemable preference share

purchased three-months before maturity date
Hindi lahat ng t-bills three months lang, madalas mas matagal pa.

For example: person A has a 5-year T-bills, then di sya makawait to withdraw, person b
then has the interest to purchase the remaining 3 months, that could happen and if it does,
person b may consider it as a cash equivalent since it was purchase 3 months before its
maturity date.
 Another example if person A has owned the said T-bills and he/she made a report in the
remaining 3-mos, a person would not be able to reclassify it and call it cash equivalent.

Redeemable preference share is the same thing as substance over form. In form share sya
pero in substance di sya share rather liability kasi it has a maturity date.

Excess Cash Investment

Cash is important in operations, hence, it shall be managed properly. Any cash
accumulated in excess of a needed current operations shall be invested even temporarily
in order to earn interest.
Classification of investment of excess cash

Investment in time deposit, money market instrument and T-bills should be classified accordingly.

If the investment is 3 months, assuming it is highly liquid - cash equivalent

If the investment is more than 3 months but not more than 12 months – short-term
investment
If the investment is more than 12 months – long-term

Details comprising cash and cash equivalent should be disclosed in the notes to financial
statements.

Foreign currency
Deposit in foreign countries- if not subject to foreign exchange restriction, cash sya
Deposits in foreign bank- if subject to foreign exchange restriction, classified separately among
non-current assets.

Cash Fund – classification is cash BUT under restriction. Pwedeng bills and coins. Change
fund, tax fund, payroll fund, dividend fund, interest fund, travel fund.
Restricition
No restriction-cash
Current operation- can be considered as cash fund.

The f.f. are not considered as cash fund

Long term
Non-current liab (bonds) – sinking fund
Non-current asset

Plant expansion fund(long term asset) fund for acquisition/construction of prop.

Redemption fund
Contingent fund
Insurance fund
Connection of cash in bank and cash fund:
Classification: should be parallel to the related liability. For ex, sinking fund to pay a bond
classified as 1 yr, current asset. BUT cash funds set aside for acquisition of non-current assert is
classified as non-current regardless of the yr disbursement.

Bank overdraft
- is not legally allowed in the Philippines.
- Are like check drawn more than the deposited account.
- is a current liability since it is a debt to the bank.
- offsetting (isa negative isa positive) is NOT allowed in overdraft
- so for example:
A. (200,000)
B. 1,000,000
C. 2,000,000
Ang recorded mo is 2.5M, so, u only add the positive ones – b & c
With the exception of closing bank, for example u have a current and savings account. For
example u have a savings account of 200,000 and current account of 800,000, you can offset kasi
u have a utang of 200,000 and savings account. This could only happen within the same bank.
Another exception is the immateriality

Example the depositor has deposited 1M in a bank and issued 1.2M to a person. If the recipient
of the check went to a bank, he/she could not claim it and the bank would penalize the depositor
and could affect the financial relationship. (there are instances where the bank could give the
excess amount if ever the bank and the depositor has already developed a financial relationship).
Compensating balance
kunware pautangin ka ng bank, they’’ll give u 10mdebt but ur deposit should not go lower than
200k. the 200k is the compensating balance. This one is a restriction.
If formal ung restriction, it is not a cash but is held for compensating balance as long term
investment. If the restriction is informal, it is considered as cash and can be withdrawn anytime.

If the problem is silent and it only states that it is a compensating balance, it is to be considered
as informal. Hence, it is cash.
Undelivered checks-supposedly ibabbayad pero d naibagay sa dapat recipient. D ka nawalan ng
money here.
Prior this is the entry:
a/p
cib
To correct, Reverse lng:
cib
a/p
Post-dated check
When delivered, it’s a check drawn, recorded, and already given to payee BUT bears a date
subsequent to end of reporting period.
You addressed the date in the check later than the end of reporting period, like for example you
gave a check to someone but date is for next month pa.
Original entry shall be reversed too as:
Cash xx
A/P or appropriate account xx
No payment until check is presented in the bank.

Stale checks- checks na nasira na. kunware u have a check and antagal na d pa na encash in
bank. Dapat within the reasonable time iclaim ung check when it is received. Usually 6 mos ung
ma stale.
 If ever you issue a check and the recipient happens to lose it, you have the option to issue again
as it has not deducted your cash in bank. However, the law states that you can also disapprove to
replace the lost check without getting imprisoned. The same matter applies to stale check.
The Negotiable Instrument Law provides that where the instrument is payable on demand,
presentment must be made within a reasonable time after issue.
Reasonable time varies since the law did not specify a period of time. Hence, consideration
should be made regarding the nature of instrument, usage of trade/business, if any, with respect
to the said instrument and the facts of the particular case.
In banking, check becomes stale if not claimed within 6 months from the time of issuance.
If you decided not to replace the stale check the entry would be:
CIB
Misc. fees

If you replace it just reverse the dr a/p and cr cib:

CIB
A/P

Cash shortage and overage is a SUSPENSE ACCCOUNT OR TEMPORARY ACCOUNT

If shortage bc of the fault of custodian, bawas sa kanya yon.
Receivable from custodian
Cash shortage
Pwede rin na misc fees or loss account
The offsetting account is cash short or over account

If over
Cash overage
Payable to custodian

BASED ON BOOK
Cash shortage
If cash count shows cash less than the balance per book, cash shortage is to be recorded.
Cash short/over xx
Cash xx

If cash short or over is only a temporary account, fin. Statements are prepared the same should
be adjusted.
 Due from cashier xx
Cash short or over xx

If reasonable efforts fail to disclose the cause of the shortage, adjustments is:
Loss from cash shortage xx
Cash short or over xx
Cash overage
Cash is more than the balance per book
Cash xx
Cash short or over xx
Cash overage is treated as misc inc if there’s no claim on the same
Cash short or over xx
Misc. income xx
But if found to be the money of cashier:
Cash short or over xx
Payable to the cashier xx
PETTY CASH FUND

Petty cash fund- is money set aside to pay small expenses which cannot be paid
conveniently by means of check.

-included in cash account under cash fund (those with restrictions for current operations).

Cash in (receipts) > company x > Cash out (disbursement)

8am-5pm
Bills cash expenses
Coins checks to pay
Check
Bank drafts
Money order

Imprest system
- All cash in at the end of the day will be deposited to the bank and the balance in the said
bank will be used to pay the expenses from the disbursement through checks.

-has 2 systems:
1. Imprest Fund System- expenses are compiled before irecord all the expenses.
Petty cash custodian- holder of petty cash fund
Memorandum book- records all transaction all throughout. Not required in the F.S.
Serves as the ledger of the said custodian.

First step: establishment of fund

Entry:
Petty cash fund xxx
Cash in Bank xxx

No effect in cash equivalent

Second step: Expenses – payment of expense out of the fund

NO ENTRY- bc benefit over cause

Not recorded in the journal but recorded in the petty cash memo book.

Third step: Replenishment

Custodian hingi ulit kay acctg dept to replenish.
Replenishment check is usually equal to petty cash disbursements

Entry:
Expenses xxx
Cash in Bank xxx
Should point out that petty cash disbursements should replenished ONLY by means of
check and NOT from undeposited collection.

Fourth step: Increase or decrease of fund

Increase
Petty cash fund xxx
Cash in bank xxx
Decrease vice versa

Fifth step: End of reporting period

Expenses xxx
Petty cash fund xxx

Sixth step: Cash short/over

Kunware fund is 10k tas nung binilang bills and coins 9k lng.

Entry for shortage:

Cash shortage xxx
Cash in bank xxx
Entry for over:
Cash in bank xxx
Cash overage xxx

Cash shortage and overage is a SUSPENSE ACCCOUNT OR TEMPORARY

ACCOUNT
If shortage bc of the fault of custodian, bawas sa kanya yon.
Receivable from custodian
Cash shortage
Pwede rin na misc fees or loss account

If over
Cash overage
Payable to custodian

2. Fluctuating Fund System- every time there is a movement in the fund, record agad.

First step: establishment of fund

Entry:
Petty cash fund xxx
Cash in Bank xxx
Second step: Expenses

Entry:
Expenses xxx
Petty cash fund xxx

There is an entry kasi pinapagalaw ing flow of petty cash fund

Third step: Replenishment

Custodian hingi ulit kay acctg dept to replenish.

Not recorded as expenses.

Entry:
Petty cash fund xxx
Cash in bank xxx

Fourth step: Increase or decrease of fund (adjust the replenished expenses in order to
state the correct petty cash balance)

Increase
 Petty cash fund xxx
Cash in bank xxx

Decrease vice versa

Cash in bank xx
Petty cash fund xx

Fifth step: End of reporting period (adjust the replenished expenses in order to state the
correct petty cash balance)
Expenses xx
Petty cash fund xx
Adjustments is to be reversed at the beginning of the next acctg. Period
Reversal is made so that the normal replenishment procedure may be followed w/o
distinguishing whrher the expenses pertain to a current or prior period.

Sixth step: Cash short/over

Kunware fund is 10k tas nung binilang bills and coins 9k lng.

Entry for shortage:

Cash shortage xxx
Petty cash fund xxx

Entry for over:

Petty cash fund
Cash overage

Cash shortage and overage is a SUSPENSE ACCCOUNT OR TEMPORARY

ACCOUNT
If shortage bc of the fault of custodian, bawas sa kanya yon.
Receivable from custodian
Cash shortage
Pwede rin na misc fees or loss account

If over
Cash overage
Payable to custodian
Fluctuating Fund system
a. establishment of fund
petty cash fund xx
 cib xx
b. payment of expense of fund
Expenses xx
petty cash fun xx
c. replenishment or increase the petty cash fund balance
petty cash fund xx
cib cc
d. end of period, no adjustments is necessary
e. decrease of fund is reverted to general cash
cib xx
petty cash fund xx