Cash and Cash Equivalents PDF

EL KAMOT NA MIKHAMOOOT GROUP KAYA KO NA TO, NA SOLOOOO SOLOOOO~~~~~~ TANGINANG BUHAY TOH BWHAHAHAHAHAHA tangina nilang lahat Pwede ka na mamatay sa monday HWHAHHAHAHAHA nakalibing na ngayon HAHAHHAHAH bwiset Okay na sana kung tatlong topics lang eh, bat dinagdagan HWHAHHAHA kupal ka ba ms. S...

EL KAMOT NA MIKHAMOOOT GROUP KAYA KO NA TO, NA SOLOOOO SOLOOOO~~~~~~ TANGINANG BUHAY TOH BWHAHAHAHAHAHA tangina nilang lahat Pwede ka na mamatay sa monday HWHAHHAHAHAHA nakalibing na ngayon HAHAHHAHAH bwiset Okay na sana kung tatlong topics lang eh, bat dinagdagan HWHAHHAHA kupal ka ba ms. Sayo ba trixie yung cash overage at shortage? Omsim (okay boss HAHHAHA) STATUS SA BUHAY: ALIVE DEAD Naagnas na HINDI HUMIHINGA CASH AND CASH EQUIVALENTS Definition of cash As contemplated 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". Accordingly, cash includes checks, bank drafts, and money orders. But postdated checks received cannot be considered as cash. Unrestricted cash '"\ There is no specific standard dealing with "cash". PAS 1, paragraph 66, which provides that "an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it is restricted to settle a liability for more than twelve months after the end of the reporting period." Accordingly, to be reported as "cash", an item must be unrestricted in use. Cash items included in cash a. Cash on hand b. Cash in bank c. Cash fund Cash equivalents PAS. 7, paragraph 6, defines ''cash equivalents" as 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." The standard further states that "only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents". Examples of cash equivalents are: a. Three-month BSP treasury bill b. Three-year BSP treasury bill purchased three months before date of maturity c. Three-month time deposit d. Three-month money market instrument or commercial paper Investment of excess cash The control and proper use of cash is an important aspect of cash management. Basically, the entity must maintain sufficient cash for use in current operations. Accordingly, excess cash may be invested in time deposits, money market instruments and treasury bills for the purpose of earning interest income. Classifications of investment of excess cash Investments in time deposit, money market instruments and treasury bills should be classified as follows: a. If the term is three months or less, such instruments are classified as cash equivalents and therefore included in the caption "cash and, cash equivalents". b. If the term is more than three months but within one year, such investments are classified as short-term financial assets or temporary investments and presented separately as current assets. c. If the term is more than one year, such investments are classified as noncurrent or long-term investments. Measurement of Cash Cash is measured at face value Cash in foreign currency is measured at the current exchange rate. Financial statement presentation The caption "cash and cash equivalents" should be shown as the first item among the current assets.  However, the details comprising the "cash and cash equivalents" should be disclosed in the notes to financial statements. Foreign currency Cash in foreign currency should be translated to Philippine pesos using the current exchange rate. , Deposits in foreign countries which are not subject to any foreign exchange restriction are included in ''cash". Cash Fund for a certain purpose If the cash fund is set aside for use in current operations or for the payment of current obligation, it is- a current asset It is included as part of cash and cash equivalents. If the cash fund is set aside for noncurrent purpose' or payment of noncurrent obligation, it is shown as·long-term investment. Bank overdraft When the cash in bank account has a credit balance, it is said to be an overdraft. The credit balance in the cash in bank account results from the issuance of checks in excess of the deposits. A bank overdraft is classified as a current liability and should not be offset against other bank accounts with debit balances. For example; an entity maintains two' bank accounts: a.. Cash in bank-First Bank, which is overdrawn by Pl0,000. b. Cash in bank-Second Bank, with a debit balance of Pl00,000. The net cash balance is P90,000 Proper Statement Classification is: Current asset:. _. Cash in bank- Second Bank 100,000 Current liability  Bank overdraft- First Bank 10,000 Exception to the rule on overdraft When an entity maintains two or more accounts in one bank and one account results in an overdraft, such overdraft can be offset against the other bank account with a debit balance in order to show "cash, net of bank overdraft" or "bank overdraft, net of other bank account." Compensating Balance A compensating balance 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. For example, an. entity borrows P5,000,000 from a bank and agrees to maintain a 10% or P500,000 minimum compensating balance in a demand deposit account. Classification of Compensating Balance If the deposit is not legally restricted as to withdrawal by the borrower because of an informal compensating balance agreement, the compensating balance is part of cash. If the deposit is legally restricted because of a formal compensating balance agreement, the compensating balance is classified separately as "cash held as compensating balance" under current assets if the related loan is short-term If the related loan is long-term., the compensating balance is classified as non-current investment Undelivered or unreleased check An undelivered or unreleased check is one that is merely drawn and recorded but not given to the payee before the end of reporting period. There is no payment when the check is pending delivery to the payee at the end of reporting period. Accordingly, an adjusting entry is required to restore the cash balance and set up the liability as follows: Recording of the check (example: payment for accounts payable)  Accounts payable xxx Cash xxx Adjusting entry for undelivered or unreleased checks Cash xxx Accounts payable xxx Postdated check delivered A postdated check delivered is a check drawn, recorded and already given to the payee but it bears a date subsequent to the end of reporting period. The original entry recording a delivered postdated check shall also be reversed and therefore restored to the cash balance as follows: Cash xx Accounts payable or appropriate account xx Stale check or check long outstanding A stale check is a check not encashed by the payee within a relatively long period of time (insert animation- iclick lang pagtapos nila masagot yung tanong) The Negotiable Instruments Law provides that where the instrµment is payable on demand. and this includes checks, presentment must he made within a "reasonable time” after its issue. In banking practice, a check becomes· stale if not encashed within six months from the time of issuance. Thus, even after three months only, the entity may issue a "stop payment order" to the bank for the cancelation of a previously issued check · If the amount of stale check is immaterial, it is simply accounted for A MISCELLANEOUS INCOME AS FOLLOWS: CASH XXX MISCELLANEOUS INCOME XXX  · IF THE AMOUNT IS MATERIAL AND LIABILITY IS EXPECTED TO CONTINUE, THE CASH AND THE LIABILITY ARE RESTORED. THE JOURNAL ENTRY IS AS FOLLOWS: CASH XXX ACCOUNTS PAYABLE XXX Accounting for Cash Shortage · Where the cash count shows cash which is less than the balance per book, there is a cash shortage to be recorded as follows: cash shortage or over xx cash xx · When the financial statements are prepared, the “cash shortage or over” should be adjusted as follows: · Cash shortage is due to the error of the cashier/custodian Due from cashier (receivable) xx cash shortage or over xx · Unknown cause loss from cash shortage xx cash shortage or over xx · Amount is immaterial Miscellaneous expense xx cash shortage or over xx Accounting for Cash Overage Where the cash count shows cash which is more than the balance per book, there is a cash shortage to be recorded as follows: cash xx cash shortage or over xx When the financial statements are prepared, the “cash shortage or over” should be adjusted as follows: · Cash overage is money of the cashier/custodian cash shortage or over xx payable to the cashier xx · No claim cash shortage or over xx miscellaneous income xx Imprest system The imprest system is 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. Window Dressing WINDOW DRESSING IS A PRACTICE OF OPENING THE BOOKS OF ACCOUNTS BEYOND THE CLOSE OF THE REPORTING PERIOD FOR THE PURPOSE OF SHOWING A BETTER FINANCIAL POSITION AND PERFORMANCE. Window dressing is any deliberate misstatement of the assets, liabilities, equity, income and expenses.  Lapping · Lapping is a practice used for concealing a cash shortage. · Lapping consists of misappropriating a collection from one customer and concealing the defalcation by applying a subsequent collection made from another customer. · Lapping involves a series of postponements of the entries for the collection of receivables. Kitting Kiting is possible when an entity maintains current accounts in different banks. Kiting is usually employed at the end of the month. Kiting occurs when a check is drawn against a first bank and depositing the same check in a second bank to cover the shortage in the latter bank. No entry is made for both the drawing and deposit of the check. PROOF OF CASH Computation of Book Balance Balance per book- beginning of month xxx Add: Book debits during the month xxx Total xxx Less: Book credits during the month xxx Balance per book-end of month xxx In aT-account form, the cash in bank may appear as follows: PETTY CASH FUND Petty cash fund - Used for small expenses/disbursements Petty cash custodian - where the custodian is given the custody of the fund. Two methods a.) Imprest fund system GR: Petty cash balance is fixed (hindi nagbabago, hindi napapalitan) EXC: Replenishment Incurrence of Expenses without Replenishment b.) Flunctuating fund system GR: Petty cash balance is not fixed. JOURNAL ENTRIES OF PETTY CASH FUND 1. To set-up petty cash fund. IMPREST FUND SYSTEM FLUNCTUATING FUND SYSTEM Dr. Cr. Dr. Cr. Petty cash fund xx Petty cash fund xx Cash in xx Cash in xx bank bank 2. To record disbursements/payments FLUNCTUATING FUND SYSTEM Dr. Cr. Expenses xx Petty xx cash fund IMPREST FUND SYSTEM NO ENTRY / Memorandum entry only 3. To record replenishment IMPREST FUND SYSTEM FLUNCTUATING FUND SYSTEM Dr. Cr. Dr. Cr. Expenses xx Petty cash fund xx Cash in xx Cash in xx bank bank 4. To adjust year-end balance of petty cash fund FLUNCTUATING FUND SYSTEM IMPREST FUND SYSTEM No adjusting entry Dr. Cr. Expenses xx Petty cash fund xx 5. To reverse adjustments made on year-end IMPREST FUND SYSTEM FLUCTUATING FUND SYSTEM Dr. Cr. No entry Petty cash fund xx Expenses xx 6. To record increase/decrease petty cash fund Increased FLUCTUATING FUND SYSTEM IMPREST FUND SYSTEM Dr. Cr. Dr. Cr. Petty cash fund xx Petty cash fund xx Cash in xx Cash in xx bank bank Decreased IMPREST FUND SYSTEM Dr. Cr. Cash in bank xx Petty xx cash fund FLUNCTUATING FUND SYSTEM Dr. Cr. Cash in bank xx Petty cash xx fund ____________________________________________________________________________ PROOF OF CASH: COMPUTATION OF BANK BALANCE Balance per bank – beginning of month xx Add: Bank credits during the month xx Total xx Less: Bank debits during the month (xx) Balance per bank – end of month xx ____________________________________________________________________________ PROOF OF CASH: COMPUTATION OF OUTSTANDING CHECKS Outstanding checks – beginning of month xx Add: Checks drawn by depositor during the month xx Total checks to be paid by bank xx Less: Checks paid by bank during the month (xx) Outstanding checks – end of month xx ____________________________________________________________________________ Bank Reconciliation A bank reconciliation is a statement which brings into agreement cash balance per book and cash balance per bank Reconciliation is usually prepared monthly because bank provide a bank statement at every end of the month A bank statement is a monthly report of the bank to the depositor showing: a. The cash balance per bank at the beginning b. The deposits made by the depositor and acknowledge by the bank c. The checks drawn by the depositor and paid by the bank d. The daily cash balance per bank during the month. There are three kinds of bank deposits, namely demand deposit, saving deposit and time deposit: Demand Deposit- is a current account, checking account or commercial account it is covered by deposit slips for funds that are withdrawable on demand against by the check of bank. Demand deposit is noniterest bearing. Saving Deposit- The depositor will be given a passbook upon initial deposit. The passbook is required when making deposits or withdrawals this is made anytime but some bank may provide notice of withdrawal. Saving deposit is interest bearing Time Deposit- Similar with saving deposit in sense of interest bearing. It is a formal agreement or evidenced embodied in the instrument called certificate of deposit. Predetermined or withdrawn on demand after a certain period that agreed upon. The nature of the cash book and bank statement Balance of cash book of cash book is an asset to the company. A debit will represent and increase A credit represents an decrease The balance as per bank statement is liability to the bank. Dr. Cr. Balance Represent decrease Represent increase Represent the amount owed to the clients. Reconciling items: ❖ At every end of the month, comparison between the cash of depositor and the bank statement received from bank. Book Reconciling item  Credit Memo- Refer to items not representing deposits credited by the bank to the account of depositor that is not yet recorded. Credit memo has an effect on increasing bank balance Typical Ex of Credit Memo Notes receivable that are collected by bank in favor Proceeds of bank loan credited to the account of depositor. Matured time deposits Debit memos- Refers to items not presenting checks paid by bank which is charged or debited by the bank to the account of depositor but not yet recorded of depositor as cash disbursement. Has an effect of decreasing the bank balance Typical Ex of Debit Memo NSF checks or no sufficient fund checks- These are checks deposited but returned by the bank because of insufficient fund. Technical defective checks- These are checks deposited but returned by the bank because of technical defects Bank service charges- This includes bank charges interest, collection, checkbook and penalty. Reduction of loan- Pertain for the amount deducted from the current account of the depositor of payment for loan. ○ Errors Bank reconciling item Deposits in transit- collections already forwarded to the bank for deposit but too late to appear in the bank statement. Deposits in transit include: Undeposited collections or those still in the hands of the depositor. Outstanding Checks- checks already recorded by the depositor as cash disbursement but not yet reflected on the bank statement. Outstanding checks include: Checks drawn and already given to payees but not yet presented for payment. Certified checks- where banks has stamped on its face the word “accepted” or “certified” Indicating the sufficient fund. Errors. Forms of bank reconciliation The following formats may be used in reconciling the book balance and the bank balance: a. Adjusted balance method- The book balance and bank balance are brought to correct cash balance that must appear on balance sheet. b. Book to bank method- 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- The bank balance is reconciled with the book balance or the bank balance is adjusted to equal the book balance. Proforma reconciliation Adjusted balance method Book balance xx Add: Credit memos xx Total xx Less: Debit memos xx Adjusted book balance xx Bank balance xx Add: Deposits in transit xx Total xx Less: Outstanding checks xx Adjusted bank balance xx Book to bank method Bank to book method Book balance xx Bank balance xx Add: Credit memos xx Add: Deposits in transit xx Outstanding checks xx xx Debit memos xx xx Total xx Total xx Less: Debit memos xx Less: Outstanding checks x x Deposits in transit xx xx Credit memos xx xx Bank balance xx Book balance xx The following data are gathered in connection with the CM and DM appearing on the bank statement: a. The CM of P15,000 on January 26 represents proceeds of note collected by the bank in favor of the company b. The RT of P5,000 represents checks of customer deposited previously but returned by the bank because of “no sufficient fund” or NSF c. ADJUSTED BALANCE METHOD General procedures in preparing the reconciliation a. Determine the balance per book and the balance per bank b. Trace the cash receipts to the bank statement to ascertain whether there are deposits not yet acknowledge by the bank. c. Trace the checks issued to the bank statement to ascertain whether there are checks not yet presented for payments. d. The bank statement should be examined to determine whether there are bank credits or bank debits not yet recorded by the depositor. e. Watch out for errors, again, errors are reconciling items of the party which committed them. Some errors and their correction a. Understatement of cash receipts on the book of depositor. b. Understatement of checks drawn by depositor. c. Deposit of another entity is credited by the bank to the account of the depositor. d. Check of another entity charged to the account of the depositor. PROOF OF CASH A proof of cash is an expanded reconciliation in that it includes proof receipts and disbursement. This approach may be useful in the discovering possible discrepancies in handling cash particularly when cash receipts have been recorded but have not been deposited. There are 3 forms of proof of cash, namely: a.Adjusted balance method b. Book to bank method c.Bank to book method Two-date bank reconciliation Bank reconciliation is so called “two-date” because it is literally involved two dates A two-date reconciliation becomes complicated only when certain facts or Data are omitted, hence necessity of computing Among others, the omitted information may be any one or a combination of the following: a. Book balance - beginning and ending b. Bank balance - beginning and ending c. Deposits in transit - beginning and ending d. Outstanding checks - beginning and ending Computation of deposits in transit Deposits in transit - beginning month xx Add: Cash receipts deposited during the month xx Total deposits to be acknowledged by the bank xx Less: Deposits acknowledged by bank during month xx Deposits in transit - end of month xx