PSBA -MANILA

ACCOUNTING 3 V. R. ESPIRITU
TOPIC: CASH & CASH EQUIVALENTS

TERMINOLOGIES:
Cash - includes money and other negotiable instrument that is payable in money and acceptable by the
bank for deposit and immediate credit.
Cash Equivalents - are 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 date of purchase should be three months or less before maturity.
Cash: Measured at face value
Shown as the first item among the current assets
Normal balance is Debit

Bank overdraft - refers to the credit balance in cash in bank account. It is classified as current liability,
except when there are two accounts in the same bank. When there are 2 accounts in the same bank, the
negative balance may be offset.

Cash fund - is a fund set aside

A. For use in current operations or for payment of current obligation - is classified as current
assets.
B. For noncurrent purposes - is classified as long term investment.
Compensating balance - is the minimum checking account balance that must be maintained in connection
with a borrowing arrangement with a bank.
A. No restriction as to withdrawal - it is classified as cash
B. Legally restricted as to withdrawal (with formal compensating balance agreement) - it is
classified as current asset under the caption Cash held as compensating balance
C. Legally restricted as to withdrawal (the loan is long term ) - it is classified as long term investment.

Undelivered/Unreleased checks - are checks drawn and recorded but not given to payees.
Postdated checks - checks which bears a future date
Stale checks - checks not encashed by payees for a long period of time.
Window dressing - is a practice of a company wherein they open their books beyond the accounting
period for the purpose of showing a better financial highlights and profit activities of the business.
Methods of concealing cash shortage:
1. Lapping is done by misappropriating a collection from one customer and concealing this by applying
a subsequent collection made from another customer. This is possible when the cashier and the
bookkeeper is the same.
2. Kiting - is possible when there are two checking accounts in different banks. It is done at the end
of the month.

Imprest System -is an internal control over cash which requires that all cash receipts should be deposited
intact and all disbursements are paid by checks.

Petty cash fund - is a fund set aside to pay petty or small expenditures.
2 Methods of accounting for petty cash fund
1. Imprest Fund system / Non-Fluctuating fund system
2. Non-imprest fund system / Fluctuating fund system

Transactions:
1. Establish a petty cash fund, P30,000.
2. Paid the following expenses from the petty cash fund:
Supplies 15,000
Travel 9,000
3. The fund was replenished, P24,000.
The fund contained the following:
Currencies and coins 6,000
Petty cash vouchers:
Supplies 15,000
Travel 9,000
4. Increase the fund to P35,000.