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Lesson 1 Cash and Cash Equivalents
Lesson 1 Cash and Cash Equivalents
P.M.G. Clamor
August 24, 2011
to settle a liability for at least twelve months after the end of the
reporting period.
Included in cash:
Coins and bills in legal tender by BSP
Checks (subject to certain conditions)
Bank drafts
Money orders
Types of checks:
Post-dated checks (checks dated on future date) not part
of cash and cash equivalents because they are not yet
accepted by the bank for deposit and immediate
encashment.
Not sufficient fund (NSF) checks not part of cash and
cash equivalents because the check has insufficient
balance not enough for the amount written in the check.
Certified checks part of cash and cash equivalents
because it is certified and insured by the bank to have
sufficiency of fund backed in the check. Examples of
certified checks include:
o Managers check certified by the manager of
the bank
o Cashiers check certified by the teller or cashier
of the bank
o Travelers check certified for travel purposes of
the depositor
Antedated checks (checks dated on past date) part of
cash and cash equivalents provided that they are to be
encashed or deposited to the bank six months following
the date of the check.
Stale checks (checks long outstanding) not part of cash
and cash equivalents because it is deemed to be expired.
Checks must be deposited or encashed six months
following the date of the check.
Example Analysis of a Check
The date of the check is on October 15, 2011 and has an amount of
P15,000. The check is not certified by the bank. Therefore:
Before October 15, 2011, the check is post-dated and the
maker should have at least P15,000 in his account.
On October 15, 2011, if the maker has failed to have at
least P15,000 in his account, the check would bounce or
marked as NSF check. Once the check is deposited to the
bank, the drawer will receive a notice of DAIF (drawn
against insufficient funds)
After October 15, 2011, assuming the check has sufficient
funds, it will be an antedated check.
On April 15, 2012 (six months after the check date),
assuming the check has not been deposited nor encashed,
it is deemed as expired and it will become a stale check.
Unrestricted cash
PAS 1 (Presentation of Financial Statements) provides that an
entity shall classify an asset as current when the asset is cash or a
cash equivalent unless it is restricted from being exchanged or used
Review Module 1
Cash and Cash Equivalents
P.M.G. Clamor
August 24, 2011
aside for use within one year after the reporting period, it
will be reclassified as current asset.
Bank overdraft happens when there is a credit balance in the
cash in bank account.
Bank overdrafts should not be offset against other bank
accounts with debit balances, except:
o The entity maintains two or more accounts in one
bank (account title: cash, net of bank overdraft)
o The entity maintains accounts in other banks if
the amount is immaterial
Compensating balance minimum account balance that must be
maintained in connection with borrowing arrangement with bank
If not legally restricted, compensating balance is part of
cash
If legally restricted, compensating balance is reclassified
as cash held as compensating balance. It can be current or
non-current depending on the term of the loan
Undelivered checks checks that is drawn and recorded but is not
given to payees; it is still cash of the company.
Pro-forma Entry
Cash
Accounts payable
xxx
xxx
xxx
xxx (if immaterial)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx (if material)
Issues in cash:
Window dressing opening the accounts even after the reporting
period
Lapping practice used for concealing cash shortage, where it
consists of misappropriating collections in customers.
Kitting practice used for concealing cash shortage through bank
reconciliation.
Accounting for cash shortage/overage
Pro-forma entries for shortage:
Cash short or over
xxx
Cash
xxx
Discovery of shortage
#
Due from cashier
xxx
Cash short or over
xxx
Assuming cashier is responsible for shortage
#
xxx
xxx (increase)
xxx
xxx (decrease)
THE END