SUMMARIZED NOTES

NOTE_01: CASH & CASH EQUIVALENTS

LET’S GO!
CASH
• Immediately available for unrestricted use.
• Divided into three categories: (1) cash on hand; (2) cash in bank; (3) cash fund.

1. CASH ON HAND
a. Currencies (bills) and coins
b. Money order
c. Bank drafts
d. Checks:
i. Certified check
ii. Manager’s check
iii. Personal check
iv. Cashiers check
v. Customer’s check
vi. Customer’s postdated check – NOT CASH, included as component of receivables
vii. Customer’s state check – NOT CASH, included as component of receivables (if exceeds 6 months)
viii. Customer’s NSF/DAUD/DAIF check – NOT CASH, included as component of receivables
ix. Company’s postdated check – should be added back to cash in bank
x. Company’s stale check – should be added back to cash in bank
xi. Company’s unreleased/undelivered check – should be added back to cash in bank

2. CASH IN BANK
a. Current account / checking account / demand deposit
b. Saving account
c. Time deposit – NOT CASH:
ü (1) cash equivalent, if can be withdrawn within 3 months from date of purchase. SILENT
ü (2) other current asset, if can be withdrawn within 12 months from reporting date.
ü (3) other non-current asset, if can be withdrawn beyond 12 months from reporting date.
d. Deposit in closed bank – NOT CASH, included as part of other non-current asset.
e. Deposit in foreign bank
ü (1) cash in bank, if not restricted. SILENT
ü (2) other non-current asset, if restricted
f. Compensating balance / compensatory balance / maintaining balance
ü (1) cash in bank, if not legally restricted. SILENT
ü (2) other current asset, if legally restricted and related to a short term loans
ü (3) other non-current asset, if legally restricted and related to a long tem loans
g. Bank overdraft
ü (1) cash in bank, if happen in the same bank with positive balance (included as a deduction)
ü (2) current liability, if happen in the different bank. SILENT

3. CASH FUND
• Cash segregated for a specific use or purpose
• Dividend into category: (1) cash fund for current operation; (2) cash fund not for current operation

a. Cash fund for current operation

i. Petty cash fund
ii. Payroll fund
iii. Revolving fund
iv. Travel fund
v. Tax fund
vi. Interest fund
vii. Dividend fund
viii. Change fund
 b. Cash fund for not for current operation – NOT CASH, with exception
i. Segregated for payment of noncurrent liability
ü Sinking fund
ü Pension fund
ü Preference share redemption fund
(1) Cash, if the related noncurrent liability becomes current liability
(2) Investments (other NCA), general rule or silent.

ii. Segregated for payment of noncurrent asset

ü PPE acquisition fund
ü Depreciation fund
ü Insurance fund
ü Contingency fund
(1) NOT CASH, included as part of investment (other NCA) forever.

CASH EQUIVALENTS
• Highly liquid short term investments.
• Subject to insignificant risk of changes in value.
• To be included as part of cash equivalent, the investment should possess as maturity date (date where your investment
will return to you without selling it). Thus shares are automatically excluded because it doesn’t have maturity date with
the exception to preference shares with specific redemption date, the maturity date in this case is the redemption
date.
• Short term means 3 months, the counting of 3 months is from the date of purchase up to date of maturity.
• Composed of four securities usually encountered in the problems:
i. Time deposit / certificate of deposit
ii. Commercial paper / money market placement
iii. Treasury bill, treasury warrants, treasury bonds
iv. Preference shares with specific redemption date

OTHER IMPORTANT NOTES

• The usual distractions encountered in the problems:
ü (1) IOU from employees, NOT CASH, included as component of receivables.
ü (2) Postage stamps, NOT CASH, included as component of supplies.
ü (3) Credit memo from suppliers, NOT CASH, contra-account of purchases and deduction to accounts payable
ü (4) Cash surrender value, NOT CASH, included as component of investments

• If the question is what is the amount of “cash”? do not include the cash equivalents.

• If the question is what is the amount of cash and cash equivalents? Include the cash equivalents.

JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 2 OF 7
IMPREST SYSTEM
• All collection of the company whether bills, coins or check should be deposited as in the bank as soon as possible to
avoid cash thief.
• Since all the cash is deposited in the bank, all cash payment should be done through issuance of checks.
• Payments that are not practical to pay through issuance of checks should be paid by bills and coins coming from the
petty cash fund.

PETTY CASH FUND

• Cash set aside to pay small amount of disbursements were issuance of check to pay these are not possible/practical.

• Established by issuance of check by the general cashier to the custodian.

Entry to establish:
Dr. Petty Cash Fund xx
Cr. Cash in Bank xx

• Payment of cash coming from the petty cash fund requires preparation of voucher, but no entry is necessary.

• In event that the petty cash is low, it will be replenished through issuance again by the general cashier to the custodian
by a replenishment check to bring back the remaining petty cash balance to the imprest balance. The amount of the
replenishment check is the difference between the remaining petty cash and the imprest balance.

Amount of remaining petty cash – xx

Imprest balance of petty cash – xx
Amount of replenishment check – xx

Entry to replenish:
Dr. Various Expenses xx
Cr. Cash in Bank xx

• Imprest balance is the amount of petty cash when it was established plus any subsequent increase or decrease
because of board resolution.

Entry to increase the imprest balance:

Dr. Petty Cash Fund xx
Cr. Cash in Bank xx

Entry to decrease the imprest balance:

Dr. Cash in Bank xx
Cr. Petty Cash Fund xx

• The imprest balance should be maintain all throughout the accounting period, the “petty cash fund” account should not
be affected by disbursement and subsequent replenishment, but at year-end, and the balance of the imprest account
and the remaining petty cash is not equal, year-end adjustment is necessary.

Year-end adjustment for financial statement preparation:

Dr. Various Expenses xx
Cr. Petty Cash Fund xx

JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 3 OF 7
CASH SHORTAGE OR OVERAGE
• This is the difference between the accountability and accounted.
Accountability Accounted Diff.
a. Imprest balance a. Remaining currency and coins
b. Undeposited cash collections b. Envelope containing employee contribution (a)
c. Undeposited check collections (b) c. Customers checks accounted (b)
d. Unclaimed salary d. Paid expense voucher
e. Excess of advance travel e. Replenishment checks (c)
f. Employee contributions f. IOUs
. g. Accommodation check (d)
Total xx xx xx Shortage

NOTES:
(a) – will only be included in the accounted if the envelope still contains the cash contribution.
(b) – will only include withdrawable checks, (exclude stale, nsf, postdated)
(c) – clue, addressed to the custodian
(d) – include all accommodation check whether withdrawal or not
(e) – checks issued by the company should be ignored and not be included in the computation

Entry to record cash shortage if detected at replenishment:

Dr. Cash Short or Over xx
Cr. Cash in Bank xx

Entry to record cash shortage if detected at year-end:

Dr. Cash Short or Over xx
Cr. Petty Cash Fund xx

Entry to record cash overage if detected at replenishment:

Dr. Cash in bank xx
Cr. Cash Short or over xx

Entry to record cash overage if detected at year-end:

Dr. Petty Cash Fund xx
Cr. Cash Short or over xx

COMPUTATION OF ADJUSTED PETTY CASH BALANCE

• The adjusted petty cash balance is the amount to be presented in the year-end financial statements.
• The difference of the adjusted petty cash balance and the imprest balance is the net adjustment to petty cash fund.
ü Net debit if the adjusted is higher than the imprest balance.
ü Net credit if the adjusted is lower than the imprest balance.

COMPUTATION OF ADJUSTED PETTY CASH BALANCE

Currencies and coins at the date of cash count xxxx
plus: vouchers or payments from January 1 up to date of cash count xxxx
minus: any cash collections to whoever from January 1 up to date of cash count (xxxx)
Currencies and coins at December 31 after workback xxxx
minus: currencies and coins that do not belong to petty cash but included in the count
a. Unclaimed salary (only if in the form of currencies and coins) xxxx
b. Excess of advance travel (only if in the form of currencies and coins) xxxx
c. Employee contributions (only if the envelope contains nothing/open) xxxx
d. Undeposited cash collections xxxx (xxxx)
Total xxxx
plus: petty cash fund not in the form of currencies and coins
a. Accommodation checks (a) xxxx
b. Replenishment checks xxxx xxxx
Adjusted petty cash fund at December 31 xxxx

NOTES:
(a) – will only include withdrawable checks, (exclude stale, nsf, postdated)

JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 4 OF 7
BANK RECONCILIATION
• to determine causes of difference between the bank balance and book balance as a form of internal control.
• to compute the adjusted bank balance to be presented in the year-end statement of financial position.
• to serve as a basis of adjusting journal entry.

COMPUTATION OF ADJUSTED BALANCES

Per book Per bank
Unadjusted balances xx xx
a. deposit in transit xx
b. outstanding check (exclude certified checks) (xx)
c. debit memo
- service charge
- NSF/DAIF/DAUF check
- automatic debit (xx)
d. credit memo
- collection of the bank in behalf of company
- proceeds from loan directly credited to the bank account xx
e. errors xx/(xx) xx/(xx)
Adjusted balance xx xx

ERRORS
• no fixed adjustments, either plus or minus adjustment in either book or bank depending on the situation.
• the book error is a book recon item, while bank error is a bank recon item.
• per book
ü Overstatement of receipt – minus adjustment
ü Understatement of disbursement – minus adjustment
ü Overstatement of disbursement – plus adjustment
ü Understatement of receipt – plus adjustment
• per bank
ü erroneous (over) debit – plus adjustment
ü erroneous (over) credit – minus adjustment
ü unrecorded (under) debit – minus adjustment
ü unrecorded (under) credit – plus adjustment
• the difference between the unadjusted balance per book and the adjusted balance per book is the net adjustment.

JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 5 OF 7
PROOF OF CASH
• finished na
• format of petty cash below:
Per bank
Beginning Receipt Disbursement Ending
Unadjusted xx xx xx xx
Deposit in transit, beg + –
Deposit in transit, end + +
Outstanding check, beg – –
Outstanding check, end + –
Erroneous debit last month corrected this month + –
Erroneous credit last month corrected this month – –
Erroneous debit last month not yet corrected + +
Erroneous credit last month not yet corrected – –
Erroneous debit this month corrected this month – –
Erroneous credit this month corrected this month – –
Erroneous debit this month not yet corrected – +
Erroneous credit this month not yet corrected – –
Unrecorded debit last month, recorded dis mo. – –
Unrecorded credit last month, recorded dis mo. + –
Unrecorded debit last month, not yet recorded – –
Unrecorded credit last month, not yet recorded + +

Per book
Beginning Receipt Disbursement Ending
Unadjusted xx xx xx xx
Credit memo, last month recorded this month + –
Credit memo, last month not yet recorded + +
Credit memo, this month + +
Debit memo, last month recorded this month – –
Debit memo, last month not yet recorded – –
Debit memo, this month + –
Over of receipt last month corrected this month – –
Over of receipt last month not yet corrected – –
Over of receipt this month not yet corrected – –
Over of disburs. last month corrected this month + –
Over of disburs. last month not yet corrected + +
Over of disburs. this month not yet corrected – +
Over of disburs or receipt this mo. correct dis mo. – –
Under of receipt last month corrected this month + –
Under of receipt last month not yet corrected + +
Under of receipt this month not yet corrected + –
Under of disburs last month corrected this month – –
Under of disburs. last month not yet corrected – –
Under of disburs. this month not yet corrected + –
Under of disburs or receipt dis mo. correct dis mo. none none none none

SPECIAL ADJUSTMENTS
• iyak na tayo bes

1. NSF check redeposited in the same month without entry made on the return and redeposit.
ü Alternative 1
Per book
Beginning Receipt Disbursement Ending
nsf check redeposited in the same month + +

ü Alternative 2
Per bank
Beginning Receipt Disbursement Ending
nsf check redeposited in the same month – –

JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 6 OF 7
2. Cash receipt paid out in cash.
ü Alternative 1
Per book
Beginning Receipt Disbursement Ending
Cash receipt paid out in cash – –
ü Alternative 2
Per bank
Beginning Receipt Disbursement Ending
Cash receipt paid out in cash + +
3. NSF check recorded as deduction of receipt
ü Adjustment
Per book
Beginning Receipt Disbursement Ending
NSF check recorded as deduction of receipt + +

COMPUTATION OF UNADJUSTED BALANCE
Per bank
Checks withdrawn (per bank record) Deposits received (per bank record)
Debit memo, current month Credit memo, current month
Correction of over receipt Correction of over disburse
Correction of under disburse Correction of under receipt
Unadjusted debit / disbursement Unadjusted credit / receipt

Per book
Cash receipt from customer (per bank record) Checks issued to supplier (per record)
Credit memo, prior period Debit memo, prior month
Correction of over receipt Correction of over disburse
Correction of under disburse Correction of under receipt
Unadjusted debit / disbursement Unadjusted credit / receipt

CASH SHORTAGE – CASH BASIS PROBLEM

Beginning cash balance xx
Cash receipts during the year xx
Cash disbursements during the year (xx)
Ending cash balance – should be (accountability) xx

Unadjusted cash balance per bank xx

Deposit in transit xx
Outstanding checks (xx)
Ending cash balance – actual (accounted) xx

Ending cash balance – should be (accountability) xx

Ending cash balance – actual (accounted) (xx)
Cash shortage xx
CASH SHORTAGE – BANK RECON PROBLEM
Per book Per bank
Unadjusted balances xx xx
Unrecorded disbursement cash shortage SQUEEZE
a. deposit in transit xx
b. outstanding check (exclude certified checks) (xx)
c. debit memo
- service charge
- NSF/DAIF/DAUF check
automatic debit (xx)
d. credit memo
- collection of the bank in behalf of company
- proceeds from loan directly credited to the bank account xx
e. errors xx/(xx) xx/(xx)
Adjusted balance xx Xx

END OF JSC.NOTE_01:


JSC.NOTE_01: CASH & CASH EQUIVALENTS PAGE 7 OF 7