TEACHING DEMO FLOW

Prayer

- 1 slide (RECITATION)

Topic Overview

- 1 slide

Concept Discussion

1. What is Cash?

Definition:

- Used to acquire goods and services

Types of cash

- Cash on Hand
o Definition
 Cash that you physically keep and one that is readily available
o Examples:
 Bills and coins
 Customer’s check
 Traveler’s check
 Cashier’s/Manager’s/Treasurer’s/Official check
 Postal money order
 Bank drafts
- Cash In bank
o Definition
 Deposits that is readily available for withdrawals
o Examples:
 Current account/checking account
 Demand Deposit
 Savings Deposit

2. Cash - Financial Statement Classification

- Account classification of cash (RECITATION)
- Criteria to be considered Cash
o Check FINACC 1 Book
o Unrestricted/Restricted
o Current use/Non-current use

*show graph like this one

Current Use (PART OF CASH LINE ITEM)

- Petty cash fund

o Fund set aside for small business expenses
- Payroll Fund
o Fund set aside to pay employee salary and wages
- Tax Fund
o Fund set aside to pay taxes

Non-current use (NOT PART OF CASH LINE ITEM)

- Sinking Fund
o Fund set aside to pay debt or bond
- Plant expansion fund
o Fund set aside for future business expansion
- Contingency fund
o Fund set aside to cover possible future expenses

3. Bank Overdraft
- Negative bank balance caused by overpayment (masyado marami binayaran)
- Accounting treatment –
o treated as a liability if different banks
o offsetted if same banks
-
4. Compensating Balance
- Minimum amount of cash that must be kept in a bank account as collateral or security for bank
loans
- Restricted/Unrestricted
- Restricted = excluded from cash line item
o Either other current assets or non current assets depending on the related liability
- Unrestricted = part of cash line item

5. Adjusting entries

SHOW TABLE

A. Postdated Checks
- Drawn, recorded, and delivered to payee
- Dated after the reporting period

B. Undelivered Checks
- Drawn, recorded, not delivered at the end of the reporting period

C. Stale Check
- Check that has not been cashed by the payee
- After 6 months
Problem Discussion

Valorant Company’s checkbook balance on December 31, 2025 was P160,000. On the same date,
Valorant held the following item in its safe”

A P5,000 check payable to Valorant dated January 2, 2026, was not included in the December 31
checkbook balance.

A P3,500 check payable to Valorant that was deposited December 19 and included in the December 31
checkbook balance, was returned by the bank on December 30 marked NSF. The check was re-deposited
on January 2, 2026 and cleared on January 9.

A P25,000 check payable to a supplier and drawn on Valorant’s account was dated and recorded on
December 31, but was not mailed until January 19, 2026.

In its December 31, 2025 statement of financial position, how much should Valorant report as cash?
SCRIPT

*1 slide for opening slide*

Good Day Class!

Before we begin the lesson let us first pray the Angelite prayer

*1 slide for Angelite Prayer*

*1 slide for lesson overview*

Today’s discussion will be about accounting for cash.

Shown on the screen is the flow on how we would tackle this topic.

We’ll first start by

 Defining cash
 Its criteria and condition
 The types of cash
 It’s Measurement
 Bank Overdraft
 Compensating Balance
 Types Of check
 Problem Solving

*1 slide for question*

When you hear of the word cash, what is the first thing that comes into your mind?

Okay, I’m seeing here money, coins, currency

Those are correct answers

*1 slide for cash and its condition*

Definition

Based on the definition of cash, it is the standard medium of exchange used in day-to-day transactions.
In layman’s terms, cash is simply money. The thing that we use in order to buy goods or to avail services.
In an accounting sense however, cash is not limited to money. There are what we call bank drafts,
money orders, savings account and other negotiable instruments that are considered as cash.

Condition

But how can we say a financial item is considered cash?

A financial item is considered cash if it is unrestricted in use. What this means is that the financial item,
is readily available without any restrictions. If we want to access or obtain it, we can easily do so.

Question, what if cash is set aside for current operations? Does it qualify as cash or not?

The answer is yes, setting aside cash and restricting cash are two different things. When setting aside
cash, the company is only informally reserving cash. It is still able to access that cash whenever a
company needs it. Restricting cash on the other hand, involves formally dedicating a portion of cash to a
business operation, whether by legal or contractual obligations.

Thumbs up if you can follow, thumbs down if we need to repeat this area of the lesson

Thank you

*1 slide for type of cash*

*1 slide for the subcategories for the types of cash*

There are three types of cash

 Cash on Hand
- Cash on hand refers to cash items that a business keeps in physical custody and its readily
available.
- Examples of this are
o Bills
o Coins
o Checks
 Ordinary Check
 Manager’s check
o Money Order
o Bank draft

 Cash In Bank
- Cash in bank on the other hand, refers to the deposits we have on the bank, that we easily
withdraw
- Examples would be
o Demand/Checking Account
o Savings Account
  Cash Fund
- Next cash fund would refer to cash that is set aside for use in the business operations
- In this type of cash, the nature of business operations should be considered.
- If the cash fund is used for current business operations such as the payment of salaries or petty
cash which are payable within a year, then that cash is part of the line item cash and cash
equivalent
- However if cash fund is used for non-current business operations such as the acquisition of land
or property, then cash would be classified as a non-current asset

Examples of cash fund that are used for current operations are

- Petty cash fund

- Travel Fund
- Dividend Fund

Examples of cash fund that are used for non-current operations are

- Sinking fund
- Plant expansion fund
- Contingency fund

Thumbs up if you can follow, thumbs down if we need to repeat this area of the lesson

Thank you

*1 slide for measurement*

When it comes to measurement. Cash is measured at face value. Meaning if someone gives you 100
pesos, 100 pesos is the amount that will be recorded in the books of the business

However, if it is a foreign currency like dollars or euros, we need to get the peso equivalent by
multiplying the foreign currency to the current exchange rate.

There are also times when a company is in financial distressed. When this happens, the measurement of
cash would be its net realizable value or recoverable amount and not the face value

Thumbs up if you can follow, thumbs down if we need to repeat this area of the lesson

Thank you

*1 slide for Bank Overdraft*

Bank overdraft happens when our bank account balance becomes negative. This thing happens because
we paid for expenses that are beyond our capacity. For example, if we have 200 pesos in our bank
account and we paid for food that costs 300 pesos. The negative 100 in our bank account balance is
considered as the bank overdraft

Normally, this is not allowed in the Philippines, but for discussion purposes. When we encounter a bank
overdraft we present it as a current liability because the general rule we cannot offset a bank overdraft
with other bank accounts.

However, offsetting is possible when these two conditions are present. First, there are two bank
accounts within the same bank, meaning one bank account has a negative balance and the other one
has a positive balance. Second, the positive balance bank account is not restricted. Meaning if a positive
bank account is restricted, it cannot be used to offset a bank overdraft even if the bank accounts belong
to the same bank

Thumbs up if you can follow, thumbs down if we need to repeat this area of the lesson

Thank you

*1 slide for compensating balance*

Let’s go to compensating balance. This term refers to the minimum amount that must be kept in a
company’s bank account that serves as a collateral or security for a loan. For example, you want to
borrow 1 million pesos to the bank in order to buy a car. The bank says sure, but a 10% compensating
balance is required. This means that, 1,000,000 times 10% or 100,000 is the amount that you have to
maintain in your bank account until the 1,000,000 pesos is fully paid.

When it comes to the accounting treatment of compensating balances, we have to consider first if it is
legally or not legally restricted.

If the compensating balance is not legally restricted, it forms part of the line item cash and cash
equivalents

If it is legally restricted it does not form of the line item cash and cash equivalents. As for its asset
classification, we have to consider the related liability. If the related liability is short term then the
compensating balance is classified as a current asset. If the related liability is long term, the
compensating balance is a non-current asset.

Thumbs up if this part of the discussion is clear, thumbs down if we need to repeat it

Thank you

*1 slide for checks*

Let us to go checks, the process of checks involves three processes. The drawing or issuing process, the
recording process, and the delivery process. In the first process, a check is accomplished or filled out in
order to pay for goods or services. Afterwards, the check is recorded in the books of the business. Then
lastly delivered or presented to the customer for payment.
*1 slide show picture*

A check usually looks like this. As you can see, It is dated 2020, as shown on the upper right part of the
picture.

Question, if this check were to be delivered to a customer in 2019, would there be any issues?

Yes, there would be, the check then becomes a postdated check. The customer would not be able to
encash the check until 2020 even though it was given to the customer during 2019.

Another question, what if this check was not delivered?

Then it simply becomes an undelivered check. From the word undelivered, the check was not presented
to the customer and is still in the hands of the business.

Thumbs up if everyone can still follow, thumbs down if we need to repeat this section

Okay

Another question, what if the check was drawn, recorded, and delivered to the customer but the
customer forgot to encash the check, would there be any issues?

Well it depends on the time, if the customer forgot to encash the check beyond 6 months then it
becomes a stale check. The customer cannot redeem it as the check expired.

*1 slide for original entry and adjustment

When it comes to the accounting treatment, the general rule regardless if it is a postdated, undelivered
or stale check is to debit cash in bank and credit accounts payable. We do this entry in order to bring the
correct balance of cash and accounts payable.

To explain further, when a business issues check, the original entry is debit accounts payable credit cash
in bank. This means that the business does not have any more obligations to pay a supplier for goods or
services. But what if, the check was postdated, was not delivered or became stale? From that moment,
it is as if the original entry did not take place because the supplier was not able to receive the money
given by the business. So, in order to account for that event, we have to make an adjustment in our
books that is by bringing back the cash from our account, and bringing back the obligation to pay the
supplier. Hence the entry debit cash in bank and credit accounts payable

Check Drawn Recorded Delivered Issue

Dated after the end of
Postdated Yes Yes Yes
the reporting period
Not in the hands of
Undelivered Yes Yes No
the payee
Not encashed by the
Stale Check Yes Yes Yes
payee after 6 months
FIRST PROBLEM

Let us now go to problem solving

In this first problem, we are asked to compute for the correct cash balance.

What we would first do is to first look at the additional information.

It says here Cash on hand includes undeposited collections of 80,000.

Question, would we make any adjustments to cash on hand?

Okay, the answer is no, from the word undeposited, this means that the 80,000 collection is not yet
remitted to the bank, meaning it is still at the hands of the business which makes it part of the cash on
hand account.

Number 2, cash in bank – bdo savings includes a 200,000 compensating balance which is legally
restricted.

Question, does the 200,000 form part of cash in bank?

Very good, it does not form part of cash in bank because it is legally restricted, so we have to deduct it
from the bdo savings account. This then becomes 1,300,000.

Now, lets proceed to solving the rest of the problem, BDO has two accounts, if we would see, one Is
positive and one is negative. In addition, since there is no information if the positive account is
restricted, the assumption is that the account is unrestricted. Meaning we could offset the negative
500,000 which makes the BDO bank balance amount to 800,000

For security bank, there is also a positive and negative account. However, as the positive account is
restricted, it cannot be offsetted with the negative 120,000 bank overdraft. In addition, as the positive
account is restricted, it does not form part of cash as the condition for a financial item to be considered
cash is that it is unrestricted

for BPI, if we would notice there is only one bank account presented. Since no other BPI bank accounts
are available, offsetting is not possible.

Lastly, treasury bills are considered as cash equivalents, this is a topic we would discuss in our next
meeting.
With that, adding 320,000 and 800,000,. The correct cash balance of valorant company would be
1,120,000

SECOND PROBLEM

Let’s go to the second problem

For this problem, we are task to compute for the correct amount of cash.

If you would notice, the ending balance was already given at 160,000. What this means is we have to
make adjust this amount based on the information given, in order to obtain the correct amount of cash

Let’s start

Bullet 1 states that a 5,000 check was not included in the December 31 balance.

Question is this correct?

The answer is yes, the company was not able to receive cash of 5,000 since the check is considered a
postdated check. It is dated 2026, instead of 2025.

For bullet 2 a check was returned to the company on December 30 for having no funds but was re-
deposited on January 9 the following year

Question will this form part of cash?

The answer is no, this is an example of an undelivered check. Remember that on December 30 the check
was marked NSF, what this means is that the bank account which the check belongs to does not have
any funds available. In short, it’s as if the company did not receive a check worth 3,500. We would have
to deduct this amount then to the given ending balance.

Last bullet, another case of undelivered check

Question, is the recording of the check on December 31 correct?

Good, it is not correct because it is an undelivered check. As of December 31, the company still has the
check in its possession, which means that the check worth 25,000 is still considered part of cash. We
have to add it back to the given ending balance.

Overall, the ending balance of 160,000 less 3,500 plus 25,000 would total 181,500 which is letter D.

That would be all for today and see you on our next meeting. Have a great day ahead