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Equivalent
Definition of Cash
Current asset
Money is the standard medium of exchange, refers to the currency and coins
In accounting, cash includes money and any other negotiable instrument that is payable in
money and acceptable by the bank for deposit and immediate credit
o Includes checks, bank drafts and money orders (negotiable instrument)
Postdated checks – not considered as cash yet because theses checks are unacceptable by the
bank for deposit and immediate credit or outright encashment
o Postdated checks is a check on which the issuer has stated a later date than the current
date
Represents a risk to the check recipient, since the passage of time may result in
there being no cash left in the issuer’s bank account to be used to pay the
amount listed on the check when it is eventually presented to the bank for
payment
Perspective of the issuer – no journal entry to record the reduction of cash until
the date listed on the check
Perspective of the recipient – no entry to record the increase in cash until the
date listed on the check
Unrestricted Cash
According to ias1 – an entity shall classify an asset as current when the asset is cash or cash
equivalent unless it is restricted to settle a liability for more than twelve months after the end of
the reporting period
To be reported as “cash”, an item must be unrestricted in use
o Cash must be readily available in the payment of current obligations
o May pera sa bank tas pwedeng iwithdraw anytime = considered as cash
o If di pwedeng iwithdraw or gamitin – not considered as cash
1. Cash on hand – undeposited cash collections and other cash items such as customer’s checks,
cashier’s or manager’s checks, traveler’s checks, bank drafts and money orders, undeposited
cash collections
2. Cash in bank – includes demand deposit or checking account and saving deposit
3. Cash fund – petty cash fund (pay for minor expenditures), payroll fund (salaries), dividend fund
(pang bayad ng dividend)
Cash Equivalent
Short-term and highly liquid investments that are readily convertible into cash
Highly liquid – acquired three months before maturity
o 3 month BSP treasury bill, money marking instrument, time deposit & 3 year treasury
bill purchased three months before date of maturity
Equity securities - not cash equivalent because shares do not have maturity
Preference shares – can be qualified as cash equivalents
Entity must maintain sufficient cash for use in current operations – excess should be invested
even temporarily in some type of revenue earning investment (time deposit, money market
instruments and treasury bills)
If yung excess invested sa three month time deposit – di pwedeng iwithdraw for 3 months since
cash equivalent
o After three months makukuha yung invested money + interest
Measurement of Cash
Cash and cash equivalents – first line item under current assets
Includes all cash items – cash on hand, cash in bank, petty cash fund and cash equivalent which
are unrestricted in use
Details of cash and cash equivalents – should be disclose in the notes to financial statements
Cash in foreign currency – should be translated to Philippine pesos using the current exchange
rate
Cash fund for certain purposes
Cash fund as current or noncurrent should be parallel the classification of the related liability
Cash fund – current asset or long term investment
Bank Overdraft
When an individual’s bank account balance goes down to below zero, resulting in a negative
balance
Normal balance of cash in bank = debit [ if credit balance = bank overdraft]
Outflow > inflow
Mary went to a retail outlet and purchased cosmetics amounting to $2,000 and wrote a check
for the purchase. However, when the merchant deposited the check in the bank, Mary’s account
only contained $1,500, which means that she is $500 short of what is due for the check.
Two outcomes are possible – either the merchant’s bank will pay him the full amount, or they
will let the check “bounce” to Mary’s bank and stamp it with “NSF” or non-sufficient funds. In
case the first outcome happens, Mary will be charged for the overdraft. ( $500)
Bank overdraft = current liability
Exception – two or more accounts in one bank ; one bank results in an overdraft = pwedeng
ioffset against the other bank account with a debit balance
Example #1
Cash in bank? = 9M
100k = current liability since wala naming another account from city bank so di pwedeng ioffset
sa different bank accounts
Example #2
Compensating Balance
Entity nanghiram ng pera sa bank meron compensating balance which is si entity dapat mag
keep ng certain cash balance sa kanyang bank account – dapat imaintain sa checking account =
compensating balance
Borrow 1M sa bank – borrowing arrangement may compensating balance na 100,000 -> dapat
imaintain sa kanyang checking or demand deposit account
Compensating balance is part of the cash if yung compensating balance ay pwedeng iwithdraw
o Compentaing balance = not legally restricted – compensating balance is part ng cash
o If the problem if silent – considered at not legally restricted
If di pwedeng iwithdraw or legally restricted yung compensating balance, compensating balance
is classified as:
o Current asset : “ cash held as compensating balance” if the loan term is short term (1
year or less)
o Noncurrent asset : if the related loan term is long term
Checks is undelivered kapag naprepare na yung check pero di pa nabibigay dun sa payee –
adjusted entries required since wala pa naming actual payment na nangyayari
Cash xx
Check is ginawa ng July 29,2019 pero naka date pa ng Sept 25,2019 = postdated
Ibibigay ng July 29,2019 = di parin considered as payment kasi considered siya as payment ng
Sept 25,2019
Accounts payable xx
Cash xx
Cash xx
Accounts Payable xx
Stale Checks
If not encashed nung recipient within six months from the time of issuance
If the amount is immaterial (wala ng liability na mag ccontinue) – considered as paid yung
liability
Cash xxx
Cash
Cash count shows cash which is less than the balance per book = cash shortage
Example: shoes for sale = $100 ; cashier receives 99$ instead of $100.
Cash $99
Sales = $100
Cash count shows which is more than the balance per book = cash overage
Cash $101
Sales $100
All cash receipts should be deposited intact and all cash disbursements should be made by
means of check
It may be more economical and convenient to pay in cash rather than issue checks
money set aside to pay small expenses which cannot be paid conveniently by means of check
Two methods of handling the petty cash – (a) imprest fund system (b) fluctuating fund system
A. Check is drawn to establish the fund – mag iissue ka ng check (entity) para mapaencash mo sa
bank para magkaron ka ng petty cash fund
B. Payment of expenses out of the fund – no entries. Prepare memorandum entries in the petty
cash journal
C. Replenishment (act of filling something up again) of petty cash payment
If kulang na yung petty cash fund – check is drawn to replenish the fund
Replenishment check = petty cash disbursements
If paubos na yung fund dun pa lang irrecord yung payment of expenses out of the fund
Expenses xxx
D. End of accounting period – meron pang unreplenished expenses (di pa narrecord) – need
irecord to state the correct petty cash fund
Expenses xxx
Cash in Bank
F. Decrease in the fund – ddeposit mo yung petty cash dun sa bank account
Cash in Bank
Fluctuating System
B.