Professional Documents
Culture Documents
Ia1 Notes
Ia1 Notes
CASH
Equity securities- cannot qualify as cash equivalent because share do not have maturity dates.
It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle
It holds the asset for the purpose of trading
It expects to realize the asset within 12 months after the reporting period
The asset is cash or a cash equivalent unless the asset is restricted from being exchanges or
used to settle a liability for at least 12 mos after the reporting perio
ASSET:
- Cash - Prepaid expenses
- Accounts receivable - Inventories
- Marketable Equity Securities
- Office & store supplies
CASH ITEMS
Cash is measured at face value
To qualify as cash presented as a current asset, cash items must be generally unrestricted
TYPES OF CASH
1. Cash on Hand
Currencies & coins
Cash currently on hand
PCF (Petty Cash Fund)
- small amount of money set aside for small expenses
Undeposited Checks
Postal Money Order
- instrument issued by the gov thru post office
2. Cash in Bank
Savings (ATM)- interest bearing
Deman Deposit or current/ checking account ( Passbook or Check)- non-interest bearing, for
payment or collections of transaction
Checks Received from Customer
1. Personal Checks
- Under sayo yung name ng check but it is a company’s check, sayo lang naka name
2. Certified Checks
- Certified by the bank
3. Cashier/ Managers Check
- under sa mismong bank
- issued by the bank
- guaranteed ng bank na may pambayad yung check
4. Bank Draft
- Drafted by bank
- For large amount of purchase
- Written order to pay to the order of the maker
5. Travelers check
3. Working Funds
Petty Cash Fund
Change Fund
Dividend Fund
Payroll Fund
* They are separated for specific purpose of operations. Only set aide for small operation with small expenses.
POSTDATED CHECK
Cash- issued by company
Not Cash- received by company
CASH EQUIVALENTS
(Debt Instrument)
- Short-term
- Highly Liquid
- Readily Convertible to cash
- Subject to an insignificant risk of changes in value
(IAS 7: Statement of Cash Flows)
NOTE TREASURY BONDS: date of purchase should be 3 months or less before MATURITY.
EXAMPLE:
TB 15 yrs starting 2023, then after 15 yrs, 3 mos before Maturity date sold to other, that other will record
TB as cash equivalents.
Cash Equivalents
- less than 3 months
Short-term Investment (Current Asset)
- More than 3 months but less than 1 year
Long-Term Investments (Noncurrent assets)
- more than 1 year
NOTES
- w/ foreign restriction
- w/out foreign restriction
(3) NSF Check (Non-sufficient Fund), DAIF (Drawn against Insufficient Fund), DAUD (Drawn
Against Uncollected Deposit)
- NOT INCLUDED IN CASH
- bouncing check
Accounts Receivable XXX
Sales XXX
Cash XXX
Accounts Receivable XXX
Cash
- INFORMAL (not legally restricted)
Cash held as compensating balance (short-term)
- FORMAL with written agreement (legally restricted)
Long-term Investment
- Long-term legally restricted
Cash Shortage
Entry: Cash Short or over XXX
Cash XXX
Cash Overage
Entry: Cash XXX
Cash short or over XXX
Note: May cash overage ka nga pero for liab mo naman pala dapat yun, yung cashier lang nagbayad para sa enity.
NOTE: Case if the entity weren’t able to look for the reason
If cash are set aside for payment of NCA, regardless to be executed sya for the next 2 months,
Non-current Asset
Customers Postdated Check- issued by other company, bawas sa cash ng entity if narecord
na.
- + + -
BOOK-TO-BANK METHOD
ACCOUNTS RECEIVABLE
Retailers Trade and nontrade
Manufacturers receivables
Accounts receivables
Trade receivables
Notes Receivables
Notes Receivable
- supported by promissory notes.
Loans Receivable
- For banks and other financial institutions, receivables results primarily from loans to
customers.
If needed:
Accounts receivable XXX
Customer’s credit balances XXX
Initial Measurement of AR
Accounts receivable shall be measured initially at face amount or original invoice amount
Subsequent Measurement od AR
The net realizable value of accounts receivable is the amount of cash expected to be collected
or the estimated recoverable amount.
Net Realizable Value
Assets shall not be carried at above their recoverable amount
Deductions to AR:
1. Freight Charge
2. Sales Return
3. Sales Discount
4. Doubtful Accounts
Seller
FOB Destination
Freight Prepaid
Buyer
FOB Shipping point
Freight collect
An entity has a P100,000 AR with terms 2/10, n/30, FOB Destination and freight collect
To record sale:
Accounts receivable 100,000
Freight out 5,000
Sales 100,000
Allowance for freight charge 5,000
To record collection within discount period:
Cash 93,000
Sales discount 2,000
Allowance for freight charge 5,000
Accounts receivable 100,000
SALES DISCOUNT
Receivables
Are claims that an entity expects to be settled by customers or parties through receipt of cash.
- Loans and advances to company officers and employees and all other claims.
Subsequent measurement
- Net realizable value
Classification
Trade receivables
1. Accounts Receivables
2. Notes receivables
NOTES RECEIVABLES
Notes Receivable
- claims supported by formal promise to pay usually in the form of notes.
- represents only claims arising from sale of merchandise or service in the ordinary course of
business.
Negotiable promissory notes
- unconditional promise in writing made by one person to another.
Dishonored Notes
- a promissory note that matured and not paid
- should be removed from the notes receivable account and transferred to accounts receivable
included the face amount, interest and other charges.
NOTE: ALL NOTE IMPLICITLY CONTAIN INTEREST. “Interest being included in the face amount”
rather than being stated as a separate rate.
SUBSEQUENT MEASUREMENT
- amortized cost using effective interest method.
-long term noninterest-bearing notes receivable, amortized cost (present value + amortization
of discount) or (face value – unamortized unearned interest income)
LOAN RECEIVABLE
Loan Receivable
- financial asset arising from loan granted by bank or other financial institution to a borrower or
client.
INITIAL MEASUREMENT
- at fair value (transaction price) + transaction cost (directly attributable to acquisition of FA)
SUBSEQUENT MEASUREMENT
- at amortized cost using effective interest method
Origination Fess
- the fees include compensation
- if received from borrower, unearned interest income (amortized over the term of loan)
If the origination fees received exceed the direct origination costs, the difference is unearned
interest income and the amortization will increase interest income.
If the direct origination costs exceed the origination fees received, the difference is charged to
“direct origination costs” and the amortization will decrease interest income.
The origination fees received and the direct origination costs are included in the measurement
of the loan receivable.
IMPAIRMENT OF LOAN
- recognize a loss allowance for expected credit losses on financial asset measured at amortized
cost at amount equal to the lifetime expected credit losses if the credit risk on that financial
instrument has increased significantly since initial recognition.
Expected credit losses are an estimate of credit losses over the life of the financial instrument.
Measurement of impairment
The amount of impairment loss can be measured as the difference between the carrying
amount and the present value of estimated future cash flows discounted at the original effective
rate.
The carrying amount of the loan receivable shall be reduced either directly or through the use of
an allowance account.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the
other party by failing to discharge an obligation.
The risk does not necessarily relate to the credit worthiness of the issuer.
Lifetime expected credit loss shall always be recognized for trade receivables through aging,
percentage of accounts receivable and percentage of sales.
Interest income
a. Under stages 1 & 2 interest income is computed based on the gross carrying amount or
face amount.
b. Under stage 3, interest income is computed based on the net carrying amount which is
equal to the face amount minus allowance for loan impairment.
RECEIVABLE FINANCING
Pledge, assignment and factoring
Receivable Financing
- financial flexibility or capability of an entity to raise money out of its receivables.
INVENTORIES
INVENTORIES
- are assets held for sale in the ordinary course of business
- in the process of production for such sale
- in the form of materials or supplies to be consumed in the production or in rendering of
services
Services
Labor and other costs of personnel directly engaged in providing the service.
NOTE:
Selling cost- never included in cost of inventory
Trade Discount (Sale)
- deduction from the list/ catalog discount in order to arrive @ the invoice price w/c is the price
actually charge by buyer
MEASUREMENT
Cost of Inventories
(1) Cost of purchase
(2) Cost of conversion
(3) Other cost incurred in bringing the inventories to their present location and condition
(Direct Attributable Cost)
Cost of purchase
+ Purchase Price
+ Import Duties IGNORED: - Foreign
+ Irrevocable Taxes Exchange Differences
+ Freight Cost - Interest
+ Handling Cost Expense Over Financing
+ Other directly attributable cost Period
- Trade Discount - Selling Cost
- Rebates
Cost of Conversion
+ Direct Labor
+ Overhead ------------------- - Factory Expenses
Fixed - Indirect Materials
Variable - Indirect Labor
SUBSEQUENT MEASUREMENT
RULE:
Cost > NRV ----- w/ inventory writedown
Cost < NRV ----- no inventory writedown
ACCOUNTING METHOD
REVERSAL
Allowance on Inventory writedown XXX
Gain on reversal of inventory writedown XXX
COST FORMULAS
Specific Identification
Cost of EI = units on Hand X Specific UC
FIFO
Cost of EI = units on Hand X UC of latest purchases
Weighted Average
Cost of EI= Units on Hand X WAUC
WAUC = total cost of GAS/ Total available for sale
SPECIFIC IDENTIFICATION
- for item that are not ordinarily interchangeable
-for goods or services produced and segregated for specific projects
Gross Profit
Sales (7,500 units X P75 SP) P 562,500
Cost of Goods Sold 387,500
Gross Profit P 175,000
To check, the total combined ending inventory and cost of goods sold should equal the cost of
goods available for sale.
Beg. Inventory (2,000 X P50) P 100,000
Purchases:
Batch B P225,000
Batch C 330,000
Batch D 80,000 635,000
Cost of Goods Available for Sale P 735,000
FIFO @ PERPETUAL
Gross profit
Sales (6,000 units X P80 SP) P 528,000
Cost of Goods Sold 361,000
Gross Profit P 167,000
FIFO @ PERIODIC
Step 1. Compute for the cost of goods available for sale and the average cost per unit.
Moving Average
Total Cost / total units available = Average Cost
INVENTORY ESTIMATION
From the calculation below, if gross profit based on sales is 60%, what is the gross profit based
on cost?
FORMULA:
Beginning Inventory at Retail Price
+ net purchases at Retail Price .
Cost of Goods available for sale @ retail price
- Net Sales .
Estimated ending inventory @ retail price
X Cost-to-retail ration .
Estimated ending inventory @ cost
COS computation