Intermediate Accounting 1

Cash and Cash Equivalent

Reviewer by: Clarenz A. Agramon, CPA

Sources:

NEUVLE

Sir Win
IA1 by Valix

Content: - What the presentation of a cash?

Cash -Measurement Period

- Definition/ Concept - What is the measurement of Cash?

 - Face Value

- Estimated Recoverable/ Realizable Value

- Current Exchange Rate

Cash Items:

* Cash on Hand

- Customer's Check
Concept and Definition of Cash
-Traveler's Check

- Manager's Check
- Cash simply means money.

- Cashier's Check What is Money?

- bank Draft - Money is the standard medium of exchange
- money order - Money refers to the currency and coins which are
in circulation and legal tender
- company's undelivered check

- company's postdated checks Definition of Cash:

- company's stale check Cash includes money and any negotiable instruments that
* Cash in Bank is payable in terms of money and accepted by the bank
for deposited immediate credit
- Checking Account
Negotiable instruments- such as checks
 Presentation of cash - for funds of an entity in bank or financial
institutions which is in bankruptcy or financial
- Cash should be unrestricted and Current Asset difficulty
Unrestricted cash 3. Current Exchange rate
- Convert foreign current to the current rate of
- cash must be readily available in the payment of current
peso.
obligations
- for cash in foreign currency
Measurement Period Financial Statement Presentation
-first line item under current assets
Initial Subsequently - should be disclosed in the notes of financial statements
- It is the original value - it is the new value as time pass by

How do we measure cash?

Cash Items:
1. Face Value 1. Cash on Hand
- cash is measured initially and subsequently at - cash on the business itself.
face value - Undeposited cash collections
a. Coins and Bills
b. Different Checks
What is FACE VALUE?  Customer's Check- hindi always legit
- value that you see in the documents or money.  Manager's Check
2. Estimated Recoverable value
 - prepared by the manager of the bank; Company's Undelivered Check
there is already an assurance that there is
fund for the its encashment.
Mind dump: from the manager of the bank ng
customer, automatically ibabawas ang certain
amount sa money ng customer na nasa bank

 Cashier's Check
- prepared by the cashier of the bank;
same as the manager’s check.
 Traveler's Check
- good as cash; as security feature, a
second signature of the owner should
be placed on the check before
encashment Mind dump: ibabayad sana kaso hindi naibayad
Mind dump: check na dala dala ng mga whenever you have undelivered checks, you need to reverse your
traveller entry. although you didn't lose any money but your initial entry stated
that you credit cash.
 Company's Undelivered Check
- merely drawn and recorded but not given
to the payee before end of the reporting
period
 Company's Postdated Checks (not yet
cash)
-  check drawn, recorded and already
given to the payee but it bears a date
subsequent to the end of reporting
period
Mind Dump: date of check is later or higher
than the date today
example, gumawa ka ng cheque nov 1 pero
and nakalagay sa cheque na date ay nov 15,
walang value hanggang di pa nov 15

 Company's State Checks (not cash)

 - a check not encashed by the payee - draft created by the bank
within a relatively long period of - most guaranteed
time - banko na mismo ang nagaapprove na
- In banking practice, a check becomes may pondo sa banko ng customer
stale if not encashed within six
months from the time of issuance
 if the amount of stale check is IMMATERIAL, it d. Postal Money Order
is accounted as MISCELLANEOUS INCOME Mind dump: Example, you go to some bank, you
Cash XXX gave them money to make the money order,
Miscellaneous Income XXX technically, you already deposited money from
that specific bank
- Gcash
 if the amount of stale check is MATERIAL and
the LIABILITY is expected to continue, the
CASH is restored and the LIAB is again set up 2. Cash In Bank (unrestricted)
Cash XXX - pero na nakalagay sa banko
Accounts payable XXX  Checking Account / Demand Deposit
Mind dump:
c. Bank Drafts use for transactions
Mind dump:
 -you can use anytime for o Cash in bank- demand deposit
transactions o Cash in bank- savings deposit
- includes cheque/ checks o Manager's Check
 Savings Account o Traveler's Check
- ipon ng business o Change Fund
 Compensating Balance (Restricted) o Petty Cash Fund
- if mangungutang sa bank, need may o Emergency Fund- non current
deposited na specific balance or hindi o Money Order
bababa sa agreed deposit money o Bank Drafts
 if legally restricted (FORMAL) o Company's Stale Checks
-serious yung pagka restricted o Company's Postdated Checks- not yet cash
X HINDI PART NG CASH o Company's Undelivered Check
 If unrestricted (INFORMAL) o Cashier's Check
– part of cash
- If the problem is silent, we will use Specific Items not included in Cash
INFORMAL  RECEIVABLES
o Cash in closed banks or banks having
financial difficulty
o Cash o Customer’s postdated checks
o Bills And Coins o Customer’s NSF checks
 - DAIF checks – Drawn Against Insufficient o Short-term papers acquired more than 3
Funds months before its maturity – this are
- DAUD checks – Drawn Against Unclear temporary investments
Deposits
o Customer’s stale checks  NON-CURRENT ASSETS
o  IOU – “I owe you”
o Restricted foreign bank accounts
 PREPAID ASSETS
o Advances for employee travel
o Restricted compensating balance for long-
term loan
o  Postage stamps
o Bond sinking fund
o Supplies
o Plant Expansion/Acquisition Fund

o Preferred Redemption fund

 TEMPORARY INVESTMENTS
o Retirement Fund
o Trading securities – investments of the
company
o Pension Fund

o h.    Insurance Fund
 o i.      Contingent Fund
 CURRENT LIABILITY
o Bank overdraft
 EXPENSES
o Unreplenished expense vouchers
Cash Equivalent
Define Cash Equivalent (PAS 7, Paragraph 6)
- it is a short-term, highly liquid investments that are
readily convertible to known amount of cash and which
are subject to an insignificant risk of changes in value
How short is short-term?
- Three months or less
What do you mean by highly liquid investment?
- company na hindi nalulugi o nagsasara within
three months and more.
- trusted na company
NOTE: ONLY HIGH LIQUID INVESTMENTS
ACQUIRED THREE MONTHS BEFORE
MATURITY CAN QUALIFY AS CASH
EQUIVALENT
Examples of Cash Equivalent:
1. Three-month BSP Treasury bill
 - nagrerelease ang BSP ng treasury bills kung - excess cash may be invested in time deposits, money market
saan uutangin ni BSP ang pera mo then lalagyan instruments and treasury bills for the purpose of earning
ng interest interest income.
2. Three-month time deposit
- bank deposit na hindi puwede iwithdraw within Classifications Of Investment Of
the specific time frame
Excess Cash:
3. Three-month money market or commercial
a. Cash Equivalent
paper
- three months or less
Commercial Paper- same concept ng treasury
b. Short-Term investment
bills pero issued by the businesses or companies
- 4-12 months
Money market- idedeposit yung excess money sa
c. Long-Term Investments
stock market
- more than one year
4. xxx-year BSP treasury bill purchase three
months ago before maturity date.
NOTE: IMPORTANT IS THE DATE OF PURCHASE
WHICH SHOULD BE THREE MONTHS OR LESS
BEFORE MATURITY

Investment Of Excess Cash

  Redemption Fund

Cash Fund 

Contingent FUnd
Insurance Fund
Concepts of Cash Fund  Fund for acquisition or construction of property,
- If CF is set aside for use in CURRENT operations or for plant, and equipment
payment of CURRENT obligations, it is a CURRENT
ASSETS Bank Overdraft
Examples: - company’s bank account has a credit balance. It
 Petty cash fund should be presented as current liability and should not
 Payroll Fund be offset against other bank accounts with debit
 Travel Fund balances
 Interest Fund
 Dividend Fund
Mind dump: (BANKDRAFT)
 Tax Fund
- If CF is set aside for use in NON-CURRENT operations - not legally allowed in the Philippines
- issued check more than the deposited money in the
or for payment of NON-CURRENT obligations, it is a
bank
LONG-TERM INVESTMENT - sometimes, other banks allowed them to incash more
Examples: (not included in cash) or higher than the deposited money
 Sinking Fund - allows when bank and depositor have a good and
 Preference Share strong relationship
for example,
you issued 1.2m check to someone but you have no idea that your
deposited money is only 1m, if you and the bank have a good and
strong relationship since you are a regular depositor in the bank, the
bank will issued that check, the excess or the 200k that is kulang will If reasonable efforts fail to disclose the cause of shortage,
be categorized as CURRENT LIBILITY and OVERDRAFT. adjustment should be:
RULE: THERE IS NO OFFSET YOU WILL JUST Loss from cash shortage xxx
PRESENT THE CASH AND THE EXCESS OR THE Cash short or over xxx
OVERDRAFT IS NOT BELONG
Accounting for Cash Shortage
Accounting for Cash Shortage Cash count shows cash which is less than the balance per book
Cash count shows cash which is less than the balance per book Cash xxx
Cash short or over xxx Cash short or over xxx
Cash xxx NOTE: ACCOUNT NAME SHOULD BE CASH SHORT
OR OVER, whether shortage or overage
NOTE: CASH SHORT OR OVER IS ONLY A
TEMPORARY ACCTOUNT. WHEN FS ARE PREPARD Cash overage is treated as miscellaneous income if there is no
THE SAME SHOULD BE ADJUSTED claim on the same
Cash short or over xxx
If cashier/custodian is held responsible for the shortage, the
Miscellaneous Income xxx
adjustment should be:
Due from cashier xxx If the cash overage is properly found to be the money of
Cash short or over xxx cashier, JE will be:
 Cash short or over xxx - is money set aside to pay small expenses which
Payable to Cashier xxx cannot be paid conveniently by means of check
PETTY CASH CUSTODIAN
- person you assigned that will be maintaining the
petty cash fund such as bills and coins
- has own book to record the expenses called
PETTY CASH MEMORANDUM BOOK

2 Methods of handling petty cash

1. Imprest Fund System
2. Fluctuating Fund System
Imprest Fund System
- one usually followed in handling petty cash
transactions
Mind dump:
Petty Cash Fund before a business record the expenses. they will
Definition combine all the expenses first
IMPREST SYSTEM
 - sa isang business, may dalawang
transaction ang cash each day
1. Cash In- receipts (umaga). Ang
company ay may matatanggap na mga
cash items
- at the end of the day, one employer will Fluctuating fund system
go to the bank para ideposit yung mga -  everytime there is a movement in the
cash items na natanggap ng araw na iyon fund, you will record it immediately
2. Cash Out- disbursements (gabi) - Petty cash disbursements are
-may mga matatanggap na expenses na need immediately recorded thus resulting in a
bayaran, and hindi yung perang natangga[p fluctuating petty cash balance per book
within this day ang ipapangbayad sa mga from time to time
expenses na yon
-checks will be use for the payment of expenses
Petty cash disbursements should be replenished only
by means of check and not from undeposited
collections
 Accounting Procedures

Imprest system Fluctuating fund system

1. Establishment of the fund 1. Establishment of the fund

          Petty cash fund           xx             Petty cash fund           xx

                        Cash in bank               xx                         Cash in bank               xx

2. Payment of expenses out of the fund 2. Payment of expenses out of the fund

          No journal entries are made             Expenses                    xx

                          Petty cash fund            xx

-       The petty cashier generally requires a signed

petty cash voucher for such payments and simply
prepares memorandum entries in the petty cash
journal
3. Replenishment of petty cash payments 3. Replenishment of petty cash payments

-       may or may not be the same as the petty cash

            Expenses                    xx disbursement

                        Cash in bank               xx

          Petty cash fund           xx

                        Cash in bank               xx

4. At the end of the period, it is necessary to adjust 4. At the end of the period, no adjustment is
for the unreplenished expenses necessary because the petty cash expenses are
recorded outright.
            Expenses                    xx

                        Petty cash fund            xx

5. Increase in the fund 5. Increase in the fund

          Petty cash fund           xx           Petty cash fund           xx

                        Cash in bank               xx                         Cash in bank               xx

6. Decrease of fund 6. Decrease of fund
            Cash in bank               xx

                        Petty cash fund            xx             Cash in bank               xx

                        Petty cash fund            xx