FINANCIAL ASSETS

Financial instrument – any contract that gives rise to both a financial asset of one entity and a financial
liability or equity instrument of another entity

Financial Assets
a. Cash
b. Equity instrument of another entity
c. Contractual right to receive cash or another financial asset from another entity
d. Contractual right to exchange financial instrument with another entity under conditions that are
potentially favorable
e. Contract that will or may be settled in the entity’s own equity instruments

Financial Liability
a. Contractual obligation to deliver cash or another financial asset from another entity
b. Contractual obligation to exchange financial instrument with another entity under conditions
that are potentially unfavourable to the entity
c. Contract that will or may be settled in the entity’s own equity instruments

Equity Instrument – any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities

Initial Recognition
FA – recognized when an entity becomes party to the contractual provisions of the instrument

Initial Measurement
 FV plus transaction costs
 Except for Financial Assets at FV through surplus or deficit, transaction costs are expensed
 Transaction costs – incremental costs that are directly attributable to the acquisition, issue, or
disposal of a financial instrument
o Fees and commissions paid to agents, advisers, brokers and dealers
o Levies by regulatory agencies and securities exchanges
o Transfer taxes

Cash and Cash Equivalents

Cash comprises:
 Cash on hand
 Cash in bank
 Cash treasury accounts

Adjustment for Unreleased Commercial Checks

Cash in Bank, Local Currency – current xx

Accounts Payable or other liability account xx

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Accounting for Cancelled Checks
 Checks are cancelled when:
o Stale – outstanding for 6 months
o Voided
o Spoiled
Current Year:
Cash – Modified Disbursement System (MDS) Regular xx
Accounts Payable xx

Prior Year:
Accumulated Surplus/Deficit xx
Accounts Payable xx

Petty Cash Fund

Guidelines:
a. Head of Agency shall approve the amount of PCF to be established, which shall be sufficient to
defray recurring petty expenses for 1 month
b. PCF custodian shall be properly bonded whenever the established amount of PCF exceeds P5,000
c. Maintained using imprest system
d. PCF shall be kept separately from other advance collections and shall not be used to pay for
regular expenses
e. Payments should not exceed P15,000 per transaction except otherwise authorized by law
f. Canvass from at least 3 suppliers is required for purchases amounting to P1,000 and above,
except for purchases made while on official travel
g. Disbursements shall be supported by properly accomplished and approved PC vouchers,
invoices, ORs or other evidence of disbursement
h. Replenishment shall be made as soon as disbursements reach at least 75% or as needed
i. At the end of the year, PCF custodian shall submit all unreplenished PC vouchers to the
accounting unit for recording in the books of accounts
j. Unused balance of the PCF shall not be closed at the end of the year. It shall be closed only upon
the termination, separation, retirement or dismissal of the PCF Custodian, who in turn shall refund
any balance to close his/her cash accountability
Establishment of PCF
Petty Cash xx
Cash – Modified Disbursement System (MDS) Regular xx

PCF is replenished
Various Expenses xx
Cash – Modified Disbursement System (MDS) Regular xx

PCF is not replenished

Various Expenses xx
Petty Cash xx

PCF Custodian retires and PCF is closed

Cash- Collecting Officer xx
Petty Cash xx

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Accounting for cash shortage/overage of Disbursing officer
Disbursing officer – liable for cash shortage, while cash overage is forfeited in favour of the government

CASH SHORTAGE
Recognition
Due from officers and employees xx
Advances for/to... appropriate account xx

Restitution
Cash- Collecting Officer xx
Due from officers and employees xx

Remittance
Cash- Treasury/Agency Deposit, Regular xx
Cash- Collecting Officer xx

CASH OVERAGE
Recognition
Cash- Collecting Officer xx
Miscellaneous Income xx

Remittance
Cash- Treasury/Agency Deposit, Regular xx
Cash- Collecting Officer xx

Dishonored Checks
– Check that is not accepted when presented for payment, e.g., a check returned by the bank
because of lack of sufficient funds – ‘bounced’ check
Collections remitted to BTr
Other Receivables xx
Cash-Treasury/Agency Deposit, Regular Accumulated Surplus/ (Deficit) xx
(Current Year) (Prior Year)

Collections remitted to Authorized Gov’t Depository Bank

Other Receivables xx
Cash in bank- Local xx
(Current & Prior Year)

Bank Reconciliation
Bank Reconciliation Statement – report that is prepared for the purpose of bringing the balances of cash
(a) per records and (b) per bank statement into agreement
 Report issued by a bank which shows the credits and debits
to the depositor’s account during a period, as well as the
cumulative balance

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Guidelines:
a. Shall be prepared as internal control to ensure the correctness of cash records and as deterrent
to fraud
b. The chief accountant or designated staff shall prepare separate bank reconciliations for each
bank account maintained by the entity within 10 days from receipt of the monthly bank
statement
c. Adjusted Balance Method shall be used.
i. Unadjusted book and bank balances are brought to an adjusted balance that is
reported on the statement of Financial Position
d. Shall be prepared in 4 copies to be submitted within 20 days from receipt of bank statement to
the following:
i. COA Auditor
ii. Head of Agency
iii. Accounting Division
iv. Bank
e. Journal Entry Voucher (JEV) shall be prepared to record any reconciling items

Cash Equivalents
– Short-term, highly liquid investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
– Only debt instruments acquired within 3 months before their scheduled maturity date can
qualify as cash equivalents

Receivables
– Claims for cash or other assets from other entities
– Initially measured at FV plus transaction costs
– Subsequently measured at amortized costs

a. Accounts Receivable
 Amounts due from customers arising from regular trade and business transactions
b. Notes Receivable
 Claims, usually with interest, for which a formal instrument of credit is issued as evidence
for debt, such as promissory notes
c. Loans Receivable
 Used in the BTr-NG book to recognize loans extended by the National Government to
the Government Financial Institutions “GFIs” or GOCCs, covered by loan agreements
d. Other Receivables
 Interest Receivable
 Due from Employees/Officers/other NGAs
 Lease Receivables
 Dividends Receivable

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Investments

Type of
Initial Subsequent
Financial Definition Examples measurement measurement
Asset
Either:  Investment in  Fair Value;
 Held for trading quoted stocks or  Changes in FV
FA at FV
 Designated as at FVTSD bonds recognized in
through
on initial recognition Fair Value surplus/deficit
Surplus or
Deficit (Classified to this
category if FV is
measured reliably)
 Non-derivative FA with  Investment in  Amortized
fixed or determinable bonds and other Cost
Fair Value
Held-to- payments and fixed debt securities to (Effective
Plus interest
Maturity maturity that an entity be held until
Investments Transaction method)
has the positive maturity
costs
intention and ability to
hold until maturity
 Non-derivative FA with  Accounts Receivable  Amortized
Fair Value
fixed or determinable  Notes Receivable Cost
Loans and Plus
payments and are not  Loans Receivable  (Effective
Receivables Transaction interest
quoted in an active
costs method)
market
 Non-derivative FA that  Investment in  Fair Value;
Fair Value
are designated as stocks or bonds  Changes in FV
Available- Plus
available for sale or are not classified recognized in
for-sale FA Transaction
not classifiable under under other equity
costs
the other categories categories

Impairment of Financial Asset

– if any such evidence exists, the entity shall measure the amount of loss as the difference
between CA of the asset and the PV of the estimated future cash flows discounted at the FA’s original
effective interest rate
– CA of the asset shall be reduced either directly or through the use of an allowance account

Derecognition of Financial Asset

Derecognition – process of removing previously recognized asset, liability or equity from the statement
of financial position

Derecognized when:
a. Contractual rights to the cash flows from the financial asset expire or are waived
b. FA is transferred and the transfer qualifies for Derecognition
 When risk and rewards of the ownership and control are relinquished

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 Recognition of Impairment
Impairment loss – FA xx
Allowance for Impairment – FA xx

Derecognition
Allowance for Impairment – FA xx
FA xx

Derivatives
– Financial instrument or other contract that derives its value from the changes in value of some
other underlying asset
 Specified price, rate, or other variable (e.g., interest rate, security or commodity
price, foreign exchange rate, index of prices or rates) including a scheduled event (a payment under contract)
that may or may not occur
– Purpose is risk management
Characteristics:
a. Value changes in response to the change in an underlying
b. Requires no initial net investment (or only very minimal)
c. Settled at a future date

Hedging
– Method of offsetting a potential financial loss or the structuring of a transaction to reduce risk
involving financial instruments
– Recognized offsetting effects on surplus/deficit of changes in the FV

Hedging Relationships:

a. Fair Value Hedge

Exposure to changes in the FV of a recognized asset or liability or an
unrecognized firm commitment, or an identified portion of such an asset, liability or firm
commitment, that is attributable to a particular risk and could affect surplus or deficit
b. Cash Flow Hedge
Exposure to variability in cash flows that is:
i. Attributable to a particular risk associated with a
recognized asset or liability or a highly probable
forecast transaction
ii. Could affect surplus or deficit
c. Hedge of a net investment in a foreign operation

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