ACCO 20053 Lecture 1

2020-10-05

PFRS 9 “Financial Instruments” classifies financial assets as:

“Those arising from a contractual right to receive cash or another financial instrument
in the future.”

Cash: must be unrestricted for use in the normal operations of the business.

The normal operations of the business: the purchase of inventories, conversion of

inventories into cash, etc.

Cash and Cash Equivalents

Note that in making your journal entries, cash must be indicated if it is derived from cash on
hand (C.O.H.) or cash in bank (CIB).

1. Working funds: these are part of cash and are funds segregated for current use or for a
particular purpose.
a. Payroll fund, which are used for payroll disbursements and is restricted only
for disbursement of payroll for executive employees.
b. Dividend fund, which is used when declaring cash dividends.
c. Change fund, which is a fund used for change.
d. Petty cash fund, which is only used for small amounts of disbursements and for
internal control purposes.
2. Undeposited receipts
a. Cash collections.
b. Checks:
i. Customers’ checks (checks received)
 Dated Checks: these are checks dated today or within six months.
 Post-dated checks: are checks dated ahead and should be
classified as receivables.
 NSF Checks (NSF), Drawn Against Insufficient Funds (DAIF), or
Drawn Against Unclear Deposits (DAUD): these are checks that are
returned by the bank itself and should be treated as
receivables. It indicates either a lack in amount or no amount
at all.
 `Stale checks: are checks that have not been encashed within six
months and should be treated as a receivable.
ACCO 20053 Lecture 2
2020-10-09

ii. Company’s checks (checks issued)

 Undelivered or unreleased checks: are part of cash and should be
reversed if the company has recorded them as already disbursed.
 Company’s postdated check: should be reverted to cash.
 Company’s stale check (not withdrawn for six months) = reverted
to cash.
For the company’s postdated checks and stale checks, they
may be adjusted/reverted with a dr. to cash and cr. to
payables.
3. Cash in Bank = demand deposits
a. Savings account
b. Checking account

Maintaining Balance/Compensating Balance = restricted by nature.

 Restricted for withdrawal = not reported as cash

i. Short-term investment if the restriction is 1 year or
less.
ii. Long-term investment if the restriction is more than one
year.
 Not restricted for withdrawal = reported as cash in bank.
If the restriction is restricted for an available loan facility,
then it is considered unrestricted (PAS 7).

Bank Overdrafts = generally reported as current liability unless there is an agreement for a
right of offset provided that the company shall have more than one account in the same branch.

Unreleased/undelivered check = reverted to cash (dr. cash, cr. A.P.)

Manager’s check/certified check = reported as cash.

Traveler’s check = used whenever an individual accompanies a representative in another country

with a different monetary unit. (the traveler’s check is converted by the bank)

Money orders = cash in bank (postal money orders = taken from the post office and part of
cash)

Working funds (funds for operations) = used in other daily operations. They are either on hand
or in the bank and reported as cash.

a. Petty cash fund (PCF) in support with the imprest system is where all disbursements are
made through checks. Every time a petty cash fund is issued, a voucher is used.
b. Change fund = used in stores for change when bills are used as payment (change)
c. Dividend fund = CIB
d. Tax funds = CIB

e. Payroll funds = CIB