Money itis the standard medium of exchange in business transactions. it refers to the currency and coins which are in circulation and legal tender Cash In the context of accounting, it includes money and any other negotiable instrument that is payable in money and acceptable by the bank far deposit and immediate credit. Check itis a document that orders a bank to pay a specific amount of money from the person's account to the person in whose name the same has been issued. In general, it is included in the books as cash provided that the same is payable to the reporting entity. Bank Draft It is a check drawn by a bank on its own funds in another bank. If it is payable to the reporting entity, it is included in the books as cash. Money Order itis @ paper document, similar to a check, used for making payments. it is prepaid, so it is only issued after a buyer pays for the same with cash or anather form of guaranteed funds. If it is payable to the reporting entity, it is included in the books as cash. Postdated Check It is a check written by the drawer (payor) for a date in the future. it may only be cashed or deposited on or after the date written on it. If it is payable to the reporting entity, itis not Included in the books as cash. If it is payable to a different party, it should not be excluded in the total cash balance. Cash items Included in the Accounting Books Cash on Hand It includes undeposited cash collections and other cash items awaiting deposit. Cash In Bank It includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal Cash Fund Set Aside for Current Purposes Examples of this include: Peity cash fund Dividend fund Payroll fund Revolving fund Tax fund Interest fund wpange Bond Sinking Fund It is a restricted asset of a corporation that was required to set aside money for redeeming or buying back some of its bonds payable. General rule: It is presented as a noncurrent asset. Exception: It is presented as a current asset when the bonds associated to it become due within 12 months after the end of the reporting period, Fund Held for Future Plant Expansion It is a noncash item always presented as a noncurrent asset.Preference Share Redemption Fund Itis a noncash item always presented as a noncurrent asset. Cash Equivalents These are 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. Criterion for an Item to Qualify as Cash Equivalent Only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents. Equity Securities as Cash Equivalents General rule: Equity securities cannot qualify as cash equivalents because shares do not have a maturity date. Exception: Preference shares with specified redemption date and acquired three months before redemption date can qualify as cash equivalents. Classification of Invesiments of Excess Cash a. Cash Equivalent These are 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. b. Short-Term Financial Asset Itis an investment that matures in more than three months but within one year from the end of the reporting period and is presented separately as current asset. c. Long-Term Investments itis an investment that matures in more than one year from the end of the reporting period and is classified as noncurrent asset. Reclassification of Long-Term Investments Hf a long-term investment becomes due within one year from the end of the reporting period, the same shall be reciassified as current or temporary investment. Measurement of Cash a. In general —face value b. Foreign currency — current exchange rate c. Cash held by a bank or financial institution under bankruptcy or financial difficulty — estimated realizable value Foreign Exchange Restriction Deposits in foreign banks which are subject to foreign exchange restriction, if material, should be classified separately among noncurrent assets and the restriction clearly indicated. Classification of Cash Fund Related to a Liability The classification should be parallel with such related liability (Le., if the noncurrent liability is reclassified as current, the related noncurrent cash fund shall also be reclassified as current asset), Classification of Cash Fund Set Aside for the Acquisition of a Noncurrent Asset Such fund shoud be classified as noncurent asset regardless of the year of disbursement. Bank Overdraft It occurs when the cash in a bank account has a credit balance resulting from the issuance of checks in excess of deposits.Classification of Bank Overdraft General rule: It shall be classified as a current liability and should not be offset against other bank accounts with debit balances. Exceptions: a, If there are other deposit accounts in the same bank as the account with the credit balance, offsetting with such other accounts |s allowed, b, Ifthe amount Is immaterial, offsetting Is allowed. Compensating Balance It generally takes the form of minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank. Types of Compensating Balance Informal Compensating Balance It refers to one that is not legally restricted and shall be included as part of cash. If the problem is silent, the compensating balance is treated as unrestricted Formal Compensating Balance It refers to one that Is legally restricted and shall be classified as current or noncurrent asset depending on the terms of the related loan. Unreleased or Undelivered Checks It is a check that is merely drawn and recorded but not given to the payee before the end of reporting period. Adjustment Required for Undelivered or Unreleased Checks. Dr. Cash in bank; Cr. Expense or liability The entry made upon issuance of said check should be reversed because in essence, no i n Postdated Check Delivered Itis a check drawn, recorded and already given to the payee but it bears a date subsequent to the end of reporting period. Adjustment Required for Postdated Checks Delivered Or. Cash in bank; Cr. Expense or liability The entry made upon issuance of said check should be reversed because in essence, no been made. ‘Stale Check or Check Long Outstanding It is a check not encashed / withdrawn by the payee within a relatively long period of time. Prescriptive Period for Checks In banking practice, a check becomes stale If not encashed / withdrawn within 6 months from the time of Issuance. Adjustment Required for Issued Checks That Became Stale a. If the amount is material - Dr. Cash in bank: Cr. Accounts payable or appropriate account b. If the amount is immaterial - Dr, Cash in bank: Cr. Miscellaneous incomeash Overag Dr. Gash; Cr. Cash short or over Dr. Gash short or over; Cr. Miscellaneous income cashier imprest System It ls a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check, Methods of Handling the Petty Cash Fund imprest Fund System a A memorandum entry is simply prepared in the petty cash journal for each disbursement, b. Replenishment of the fund is usually equal to the petty cash disbursements. c. Replenishment should only be by means of drawing checks and not from undeposited collections, d, It ls necessary to adjust the unreplenishad expenses at the end of the reporting period In order to state the correct balance of the fund, Fluctuating Fund System a. Disbursements are immediately recorded In the general joumal or cash disbursements journal, b. Replenishment of the fund may or may not be the same amount as the petty cash disbursement, ¢. No adjustment for unreplenished expenses |s needed at the end of the reporting perlad because of the outright recording of expenses. Journal Entries for the Handling of Petty Cash Fund Dr. Patty ‘caan fund; Cr. Cash in bank memorandum entry in the | Or, Expenses; Cr, Petty cash fund Cr. Cash in | Dr. Petty cash fund; Cr, Cash in bank Dr. Expenses; cr. Cash in | no entry required bank Adjusting entry if no replenishment Is made at ear-end Increase In fund Or. Petty cash fund; Cr. Cash | Or. Petty cash fund; Gr. Cash in bank in bank Decrease in fund if Cash In bank: Cr. Petty | Dr. Gash in bank; Cr. PettyDemand Deposit itis the current account or checking account or commercial deposit where deposits are covered by deposit slips and where funds are withdrawable on demand by drawing checks against the bank. Savings Deposit It is a bank account where the depositor is given a passbook upon initial deposit. the passbook is required when making deposits and withdrawals. this type of bank deposit is interest bearing Time Deposit itis a bank deposit evidenced by a formal agreement called certificate of deposit. it is interest bearing and may be pre-terminated or withdrawn on demand or after a certain period of time agreed upon. Journal Entry Used to Record Collection of Cash In the Books of the Reporting Entity Or. Cash or Cash in bank: Cr. Accounts receivable or any other appropriate account Journal Entry Used by the Bank to Record Collection of Cash by the Reporting Entity and Subsequent Deposit to the Bank Dr. Cash; Cr. Bank account of reporting enti Journal Entry Used to Record Disbursements of Cash In the Books of the Reporting Journal Entry Used by the Bank to Record Withdrawals or Disbursements of Cash by the Reporting Entity fr r_ Bank ity; Cr Bank Reconciliation It is a statement which brings into agreement the cash balance per book and cash balance per bank. Bank Statement itis a monthly report of the bank to the depositor showing data about the transactions of the reporting entity with the bank during the period and the beginning and ending balances of its bank account. Cancelled Checks These are the checks (attached to the bank statement upon receipt) issued by the depositor and paid by the bank during the month. Book Reconelling Items a. Credit Memos These refer to items not representing deposits credited by the bank to the account of the depositor but not yet recorded by the depositor as cash receipts, Examples: a. Notes receivable collected by banik in favor of the depositor b. Proceeds of Dank loan ©. Matured time deposits transferred by the bank to the current account of the depositor b. Debit MemosThese refer to items not representing checks paid by bank which are charged or debited by the bank to the account of the depositor but not yet recorded by the depositor as cash disbursements. Examples @. NSF checks or DAIF (drawn against insufficient fund) checks: b. Technically defective checks c. Bank service charges d. Reduction of loan c. Book Errors These refer to incorrect recording of cash receipts or disbursements resulting to either overstatement or understatement of cash balance in the books of the entity. d. NSF or DAIF Checks These are checks deposited but not returned by the bank because of insufficiency of fund. Bank Reconciling items a. Deposits in Transit These are collections already recorded by the depositor as cash receipts but not yet reflected on the bank statement. b. Outstanding Checks These are checks already recorded by the depositor as cash disbursements but not yet reflected on the bank statement. c. Bank Errors These refer to incorrect posting of cash deposits or withdrawals resulting to either overstatement or understatement of cash balance in the bank account of the depositor. Certified Check It is a check for which the issuing bank guarantees availability of cash in the holder's account. Accounting Treatment for Certified Checks Certified checks should be deducted from the total outstanding checks (if included therein) because they are no longer outstanding for bank reconciliation purposes. Forms of Bank Reconciliation a. Adjusted Balance Method It is a form of Dank reconciliation where the book balance and the bank balance are brought to a current cash balance that must appear on the balance sheet. b. Book to Bank Method It is a form of bank reconciliation where the book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance. c. Bank to Book Method It is a form of bank reconciliation where the bank balance is reconciled with the book balance or the bank balance is adjusted to equal the book balance. Formula to Compute for the Adjusted Book Balance under the Adjusted Balance Method of Bank Reconciliation Book balance + Credit memos - Debit Memos + Effect of errors = Adjusted book balance:Formula to Compute for the Adjusted Bank Balance under the Adjusted Balance Method of Bank Reconciliation Bank balance + Deposits in transit - Outstanding checks (after excluding certified checks) + Effect of errors = Adjusted bank balance Formula Used Under the Book to Bank Method of Bank Reconciliation Book balance + Credit memos + Outstanding checks (after excluding certified checks) - Debit memos - its in transit + Effect of errors = Bank balance Formula Used Under the Bank to Book Method of Bank Reconcillation Bank balance + Deposits in transit + Debit memos - Outstanding checks (after excluding fi = it mem = NK Proof of Cash itis a reconciliation of the general ledger cash balance at both the beginning and end of a period, combined with a reconciliation of cash deposited for the period with the cash receipts journal, and a reconciliation of checks for the period with the cash disbursements journal. ‘Computation of End of Month Balance per Book Beginning of month balance per book + Book debits during the month - Book credits during the month = End of month balance per book Book Debits: These refer to cash receipts or all items debited to the cash in bank account. Book Credits These refer to cash disbursements or all items credited to the cash in bank account. Computation of End of Month Balance per Bank Beginning of month balance per bank + Bank credits during the month - Bank debits during the month = End of month balance per bank Bank Credits These refer to ail items credited to the account of the depositor which include deposits acknowledged by bank and credit memos. Bank Debits These refer to all tems debited to the account of the depositor which includes checks paid by bank and debit memos, Computation of End of Month Deposits In Transit Beginning of month deposits in transit + Book debits - CM from previous month - Bank credits + CM from current month = End of month deposits in transit Computation of End of Month. Outstanding Checks” Beginning of month outstanding checks + Book credits — DM from previous month + Bank debits + DM from current month = End of month outstanding checks