ACCOUNTING FOR

CASH AND CASH

TRANSACTIONS
Reporter: GROUP 1
 CASH
Is one of the most important assets of a company. It has
many functions and uses. It can be used in the day-to-
day operations and can be used to pay the liabilities of
the company.
The presence of a reasonable amount of cash is a good
indicator of a company's liquidity. It means that it has
the capability to pay currently maturing obligations as
they fall due.
KENT DELA CRUZ
NATURE AND COMPOSITION OF CASH
■ Cash is an example of a financial asset.
■ It is widely used as a medium of exchange.
■ It is classified as a current asset.
■ It is usually presented as the first line item in
the statement of financial position of every
company.
Before an item is to be presented as “Cash" in
the balance sheet, it must first meet the twin
requirements as follows:
1. The item must be unrestricted as to its
withdrawal.
2. It must be immediately available for use in
the current operations of the company.
Note: Cash deposited in banks that are
experiencing financial difficulties cannot be
classified as “Cash" in the balance sheet. These
amounts are to be properly classified as
“Receivables" from the bank because they can
no longer be withdrawn anytime.
An item is said to be available for use in current
operations if:
1. It will be used to pay for operating
expenses.
2. It will be used to pay for current liabilities.
3. It will be used to acquire current assets.
 SPECIFIC CASH ITEMS
Cash Item means cash, coins, paper currency, demand deposits
with banks, timely checks of others, certified checks, bank drafts,
money orders, travelers checks, letters of credit, and shares of a
registered investment company that holds itself out as a money
market fund. Take note that returned check does not include in
cash item.
Cash item simply means money, or any items that are easily
converted to cash (e.g. loan, voucher, “scratchies", shares, or
lottery ticket), regardless of value.
CHERRY EMBOLODE

1. Cash on Hand
a. Bills and Coins. These are the paper bills and
metal coins issued by the Bangkok Sentral Ng
Pilipinas (BSP). These are the most common
items used in day-to-day transactions. It can
be used to pay liabilities or to purchase
b. Different Checks. Checks received as
payment from other people entitles the
holder to demand payment from the drawee
bank indicated in the check. Before a check
can be classified as cash, it should first meet
the following criteria:
1. The check was received from the
customer on or before the balance
sheet date; and
2. The check is dated on or before the
balance sheet date.
The following are the different kinds of checks:
I. Customer's Checks. These are checks received from
customers. These are usually issued as payment for
the inventories or services that they purchased from
the entity.
II. Traveler's Checks. A kind of check with a security
feature. Upon receipt of a traveler's check, the payee
should immediately sign the traveler's check. Before
the payee can make use of such check, the payee
must sign the same check again.
III. Manager's Checks. These are checks issued by bank
managers. This is a guaranty by such bank that the
holder of the check has the necessary funds
deposited with their financial institution.
IV. Cashier's Check. These are checks issued by bank
cashiers. Like manager’s check, such documents
indicate a guaranty by such bank that such an
amount has been deposited to them.
V. Company’s Undelivered Checks. These are
KATELENN BAGUIO
checks prepared by the company that will
eventually be delivered to corporate
creditors or suppliers. As long as they are
not yet delivered to the payee, the amount
indicated in the check should be c. Bank Drafts. These are documents
considered as part of the cash of the issued by banks as an evidence of
issuing company. money deposited to them.
VI. Company’s Postdated Checks. These are
company checks that were already d. Postal Money Orders. There are cash
delivered to payees, but they cannot be items sent through the post office.
encashed or deposited until the date on the During earlier times when cash
check. The payee creditor does not have
control on the amount. As such, the amount remittance centers and inter-bank
is part of the cash balance of the issuing transfers were not yet prevalent,
company. money was sent through post offices
VII. Company’s Stale Checks. These are checks located nationwide. Although still
issued by the company to suppliers and operational today, this is no longer the
creditors and are not encashed on time.
Payees like suppliers and creditors are preferred choice for sending cash due
usually given 6 months from the date of the to more cost and time efficient
check to encash it. If such checks were not alternatives in sending money.
yet encashed after the lapse of the 6 month
period, such checks will be considered stale
and will no longer be accepted by the bank.
KATELENN BAGUIO
2. Cash in Bank (Unrestricted)
a. Savings Account. This is the usual and
regular savings account that earns interest
income over the time that money was
deposited in such account. The bank
depositor is usually issued a passbook for
over-the-counter withdrawals and deposits.
b. Checking Account. Other depositors prefer
to have a checking account. The bank will
issue a checkbook to the depositor upon
the opening of the account. This will be
used to issue check payments to creditors
and suppliers. This is safer because there
is no need to carry huge amounts of cash
anymore. Checking accounts do not usually
earn interest income. However, some
banks give interest income to their
checking accounts to encourage new
depositors.
c. Bank Accounts in Foreign Currency.
These are cash items deposited in
foreign countries and denominated
in different foreign currencies.
Following the monetary unit concept,
all items in the financial statements
should be stated in one currency
only. As such, all foreign currency
denominated bank accounts should
be translated to the Philippine peso
using the exchange rate on the
balance sheet date.
3. Working Funds
These are cash items segregated by the company for a specific purpose
only. These are often used for the day-to-day operations of the company.
a. Petty Cash Fund – this is set up to pay for small expenses incurred by the company
on a daily basis.
b. Change Fund – this will be used in the store by the cashier.
c. Payroll Fund – this fund will be segregated to make sure that there will be enough
funds to pay the salaries of the employees.
d. Dividend Fund – this fund will be segregated to pay the dividends that were
declared by corporations to their stockholders.
e. Tax Fund – this fund will be segregated to pay taxes owing to the BIR. This will
prevent the company from incurring additional interest and penalty on unpaid
income and business taxes to the government.
f. Interest Fund – this fund is set aside to pay interest that will become due from short
and long-term liabilities of the entity. This will prevent default on the part of the
company.
 SPECIFIC NON-CASH ITEMS
Non-cash items are referred to as those entries on a cash
flow statement or income statement that do not involve
actual cash transactions. In other words, these are
expenses that are listed in an income statement that do not
involve cash payment.
Non-cash items are useful for recording or tracking the
wear and tear of assets or the changes taking place in
value of the investments that haven’t been sold.

1. Receivables
a. Cash in closed banks or banks having
financial difficulty. These items are no
longer considered as cash because they
no longer meet once of the twin
requirements needed. If cash is
deposited in a closed bank or a bank
that is experiencing financial difficulties,
then it will no longer be considered as
cash in the financial statements.
b. Customer’s post-dated checks. This is a
postdated check that was issued to the
company by a customer. Since the check
was postdated, the company does not
have the right yet to encash it from its
babank.
c. IOU (I Owe You).These are the amounts
borrowed by employees from the
company. This is the usual practice of
employees who run out of cash before
the scheduled payday. This is
considered as a receivable by the
company from its own employees.
d. Customer’s NSF checks. There are several
instances when customers will issue checks with
problems. This are also known as No Sufficient
Fund (NSF) checks. It can further be classified
into:
i. Drawn Against Insufficient Fund (DAIF)
checks
ii. Drawn Against Unclear Deposits (DAUD)
checks
Due to the problems being encountered by the
company during encashment, such amount will
be considered as a receivable again from the
customer. This will be the case as long as the
replacement check has not yet been received.
e. Customer’s stale checks. This is a check
received from a customer that was not encashed
by the company on time. If the 6 month period
was not observed, the company will be forced to
request a replacement check from the customer.
As long as the replacement check has not yet
been received from the customer, such amount
will be considered as a receivable from them.
 LINDYNA CAMPOS
2. Prepaid Assets
a. Advances for employee travel
Employees to go out for business related trips are usually given travel advances.
This will be used by employees while they are on a business trip. Such amount will
no longer be considered as cash from the point of view of the company. It will now
be treated as a prepaid asset. This is because such amount is no longer readily
available for use in their daily operations.
b. Postage stamps
This item can no longer be considered as cash because they can no longer be used
as a medium of exchange. Postage stamps can only be used for sending mails
through the post office.
c. Supplies
These are the usual office supplies being used by the company. Supplies are
classified as prepaid items in the statement of financial position.
3. Temporary Investments
a. Trading securities
These are shares of stocks of other companies that
reproduce by the company using excess funds.
Stocks are not considered as a form of cash
because they are not the medium of exchange.
 JUHAIFA FAHAD
4. Non-Current Assets
a. Restricted Foreign Bank Accounts
These cannot qualify as a cash item for there is a restriction as to its withdrawal.
b. Bond Sinking Fund
This is a fund reserved for payment of bonds payable that are about to mature. Since it is
already segregated for payment of a non-current item, it can no longer be considered as a
cash item.
c. Plant Expansion/Acquisition Fund
This is a fund reserved for the purchase of additional non-cash assets like land and building.
The fact that it is segregated for a non-current asset makes it a non-cash item.
d. Retirement Fund
This is a fund reserved for the retirement benefits of employees. This is to ensure that they
will be assured of help once they stop working for the company due to old age.
e. Pension Fund
Like retirement funds, pension funds are also instituted for the benefit of managers and
employees.
f. Contingent Funds
Companies tend to prepare for the worst case scenarios. As such, prudence dictates that
they institute a contingency fund. This will answer for unseen expenditures and acquisitions.
5. Expenses
a. Expense Vouchers
This vouchers and receipts represents the
expenses that were incurred by the company for the
period. They are no longer considered as cash.
 CASH MANAGEMENT
The company must maintain an adequate amount of cash for their day-to-day
operations. It is generally not acceptable that the company possesses a very low
amount of cash. It may be an indicator that a company is no longer liquid and does not
possess the capability to pay their currently maturing obligations.
It is likewise unacceptable that the company maintains a very high amount of cash. It
means that the company is not maximizing the earning potential of its assets. Cash that
are deposited in bank accounts only earn a small amount of interest income every year.
With proper planning and strategy from the management, excess cash can be invested
in higher earning portfolios like trading securities or stocks.
Every company must employ internal control procedures to safeguard their cash assets.
This is because cash is very susceptible to theft and misappropriation.

The following may be employed by a company to protect its cash:

ACERO CARLOU RED
1. Segregation of duties
In every company, there are 3 duties that are considered to be incompatible: (a) Authorization,
(b) Custody, and (c) Recording. As much as possible, these duties should be given to three
different persons. This is to prevent manipulation and inappropriate use of the company’s cash
balances.
The person that will be given the “authorization” function will be in charge of allowing the
purchase requisition orders. Requisition orders are requests from employees to purchase the
needed assets of the company. These must be approved first by a higher-level manager. These
managers are usually given the authorization function.
The “custodian” function is usually given to the treasurer of the company. He or she will be in
charge of safekeeping the assets of the company. He or she will be in charge of releasing the
cash to requesting employees.
The “recording” function is usually reserved to accountants and bookkeepers. They are in
charge of making the necessary journal entries in the books of the company. The source
documents that will be used for the journal entries will come from the employees who
purchased the assets needed in their operations.
JAMES BATALLA
2. Imprest system
There are two important features under the imprest system:
a. All cash receipts for the day must be deposited intact to their depositary bank.
This is to prevent huge amounts of cash to be left in the premises of the company.
It will be a safety risk for its assets if it will just be left inside their building.
b. All cash disbursements must be made through checks.
Paying creditors through checks is a safer alternative for companies than handing
out actual bills and coins. A checking account must be availed by such company.
As an exception to the rule, a petty cash fund may be established by a company to
answer for small day-to-day expenses by the company. This is because it would be
inefficient on the part of the company if they will issue checks for every small
expense that the company will incur.
3. Voucher System
Under the voucher system, employees must first get
the approval of a higher level management before
cash disbursements can be made. This is to make
sure that all disbursements being made are really
needed by the company.
 4. Internal audit at irregular intervals
Internal audit is a very common procedure for every company.
This is to check the accuracy of the work of every employee,
especially those who are handling important matters like cash.
It should be noted that it must be unannounced and must not
be on regular intervals. Surprise cash counts must be made.
This is to prevent familiarization on the part of the employees.

JENNY BALSAMO
5. Periodic bank reconciliation

Records of the company must be reconciled

with the bank records. This is usually done
on a monthly basis.

CHRIST TAN
Example:
At the start, both accounts have zero balances.
Cash in Bank Deposit from ABC Co.
0 0

1. The company received ₱300,000 from a customer. It was

deposited in the bank at the end of the day.
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
2. The company issued a check worth 47,000 pesos
to a supplier. It was encashed the day after.

Cash in Bank Deposit from ABC Co.

0 0
300,000 300,000
47,000 47,000
3. On the last day of July, the company received a
₱100,000 payment from a walk-in customer. Due to a
delay in the delivery to the bank, the amount was only
credited by the bank on August 2, 2016.
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
47,000 47,000
100,000 -
4. The company issued a check worth ₱92,000 to a
creditor. It was only encashed by the creditor on
August 13, 2016.
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
47,000 47,000
100,000 -
92,000 -
5. The bank credit ₱400 interest income to the account of
ABC Company in July. The company only knew of this amount
upon the receipt of the July bank statement on August 1,
2016.
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
47,000 47,000
100,000 -
92,000 -
- 400
6. The bank deducted ₱80 from the account of ABC
Company as a 20% withholding tax for the ₱400 interest
income. The company was informed upon the receipt of the
bank statement on August 1, 2016.
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
47,000 47,000
100,000 -
92,000 -
- 400
- 80
Assuming that there are no other transactions for the
month of July, the reciprocal accounts will have balances
like this:
Cash in Bank Deposit from ABC Co.
0 0
300,000 300,000
47,000 47,000
100,000 -
92,000 -
- 400
- 80
261,000 253,320
The following adjustments must be made:
1.Deposits in transit should be added per bank.
2.Outstanding checks should be deducted per bank.
3.Credit memos should be added per book.
4.Debit memos should be deducted per book.
PER BOOK PER BANK

261,000 253,320
400 100,000
(80) (92,000)
261,320 261,320
 ACCOUNTING FOR PETTY CASH
Petty cash fund is considered to be part of the working
fund of every company. It is setup to pay for small or
petty expenses of the company.

Small expenses for transportation, photocopying,

communication, and food are addressed by the petty
cash fund.

BERTUDAN AZIZAH
Example:
1. On January 1, 2016, JCD Company established a petty
cash fund worth ₱5,000.
ACCOUNT TITLE DEBIT CREDIT
Petty Cash Fund 5,000
Cash in Bank 5,000

2. On January 8, 2016, the company incurred ₱400 for

photocopying, ₱1,200 for transportation, and ₱2,300 for
communication expenses.
- No Journal Entry –
3. On January 10, 2016, the petty cash custodian replenished to
petty cash fund. Before the replenishment, the petty cash drawer
only has bills and coins amounting to ₱1,100.
ACCOUNT TITLE DEBIT CREDIT
Photocopying Expense 400
Transportation Expense 1,200
Communication Expense 2,300
Petty Cash Fund 3,900

ACCOUNT TITLE DEBIT CREDIT

Petty Cash Fund 3,900
Cash in Bank 3,900
4. On January 28, 2016, the company incurred ₱700
in transportation expenses.
ACCOUNT TITLE DEBIT CREDIT
Transportation 700
Expense
Petty Cash Fund 700

If at this moment, the petty cash drawer has ₱4,300

worth of bills and coins, there is no shortage or
overage in the petty cash fund.
If the bills and coins amounted to ₱4,000 only, there is now
a petty cash shortage of ₱300. It should be recorded as
follows:
ACCOUNT TITLE DEBIT CREDIT
Petty Cash Shortage 300
Petty Cash Fund 300

Internal control dictates that the company must investigate

the reason for the cash shortage. If the shortage was due
to the misappropriation of the petty cash custodian, then
the amount must be collected from him through a
receivable account.
 ACCOUNT TITLE DEBIT CREDIT
Receivable from 300
Custodian
Petty Cash Shortage 300

If the reason for the shortage cannot be determined, it can

be charged to a Miscellaneous Expense account.
ACCOUNT TITLE DEBIT CREDIT
Miscellaneous 300
Expense
Petty Cash Shortage 300
On the other hand, if the remaining bills and coins
amounted to ₱4,350, there is now an overage of ₱50. This
should be recorded through a journal entry.

ACCOUNT TITLE DEBIT CREDIT

Cash in Bank 50
Petty Cash Overage 50

If the excess amount is found to be from a customer, then

the collection from him or her should be recorded as
follows:
 ACCOUNT TITLE DEBIT CREDIT
Petty Cash Overage 50
Miscellaneous 50
Income

If the source of the excess amount can no longer be

determined, then the Petty Cash Overage should be closed
to a Miscellaneous Income account.
ACCOUNT TITLE DEBIT CREDIT
Petty Cash Overage 50
Accounts Receivable 50
Problem#1
Anahaw company has a petty cash fund with an imprest balance of ₱4,000. On the
balance sheet date, the following items were seen on the petty cash drawer:
Bills 800
Coins 60
Expense Receipts:
Xerox 900
Stamps 500
Food 1,200
Transportation 400

1. How much is the petty cash shortage or overage?

2. How much is the balance of the Petty Cash Fund?
Answer:
1. To compute for the petty cash shortage or overage, the imprest balance
of ₱4,000 should be compared with the total of the contents of the petty
cash drawer (3,860).
If the amount of accountability (₱4,000) is larger than the amount per
count (₱3,860), then there is a petty cash shortage of ₱140.
2. To compute for the remaining balance of the petty cash fund, all of the
cash items in the petty cash drawer must be added together:
Bills 800
Coins 60
The remaining petty cash fund for this problem would amount to ₱860.
Problem#2
Bughaw Company has a petty cash fund with an imprest balance of ₱7,000. On the
balance sheet date, the following items were seen on the petty cash drawer:
Bills 500
Coins 40
Expense Receipts:
Food 500
Drinks 600
Xerox 900
E-load 1,200
Salary check of the petty cash custodian 2,000
Petty Cash fund replenishment check 1,000

1. How much is the petty cash shortage or overage?

2. How much is the balance of the Petty Cash Fund?
Answer:
1. To compute for the petty cash shortage or overage, the imprest balance of
₱7,000 should be compared with the total of the contents of the petty
cash drawer (₱6,740).
If the amount of accountability (₱7,000) is larger than the amount per
count (₱6,740), then there is a petty cash shortage of ₱260.
2. To compute for the remaining balance of the petty cash fund, all of the
cash items in the petty cash drawer must be added together:
Bills 500
Coins 40
Salary check of the petty cash custodian 2,000
Petty Cash Fund replenishment check 1,000
The remaining petty cash fund for this problem would amount to ₱3,540.
Problem #3
Cawayan Company has a petty cash fund with an imprest balance of ₱10,000. On the
balance sheet date, the following items were seen on the petty cash drawer:
Bills 500
Coins 30
Expense Receipts:
Xerox 1,200
Transportation 600
Representation 2,900
Postdated check from an employee 1,000
Employee check marked NSF 1,500
IOU from employee 2,500

1. How much is the petty cash shortage or overage?

2. How much is the balance of the Petty Cash Fund?
Answer:
1. To compute for the petty cash shortage or overage, the imprest balance of ₱10,000
should be compared with the total of the contents of the petty cash drawer (₱10,230).
If the amount of accountability (₱10,000) is smaller than the amount per count
(₱10,230), then there is a petty cash coverage of ₱230.
2. To compute for the balance of the petty cash fund, the total cash items must be
added.
Bills 500
Coins 30
In cases where there is a cash overage, the amount of overage (₱230) must be
removed from the bills and coins and must be deposited to the bank.
₱530 - ₱230 = ₱300
The correct amount of petty cash fund is ₱300.
Problem #4
Diwa Company has a petty cash fund with an imprest balance of ₱8,000. On the balance sheet date, the
following items were seen on the petty cash drawer:
Bills 400
Coins 60
Expense Receipts:
Food 200
Drinks 600
Transportation 900
IOU from Mr. A . 1,000
Replenishment check 1,200
Postdated check from Mr. B 900
Salary check from custodian 2,500
Envelope containing contribution for flood victims 200
1. How much is the petty cash shortage or overage?
2. How much is the balance of the Petty Cash Fund?
Answer:
1. The total accountability of ₱8,000 must be compared to the total
per count of ₱7,760. This will indicate that there is a shortage of
₱240.
2. To compute for the balance of the Petty Cash Fund, all of the cash
items must be added.
Bills 400
Coins 60
Replenishment check 1,200
Salary check from custodian 2,500
This shows that the petty cash balance at the end of the
accounting period is ₱4,160.