Far 4203 - Cash and Cash Equivalents

Friday, June 18, 2021
- good as cash with same nature of

FAR 4203 - CASH AND
bank drafts, but this item of cash is
CASH EQUIVALENTS drawn from authorised institution like
post o ces.
CASH 3). Undeposited checks

- In terms of presentation, presented as - collection mostly from customers not
a single line statement.
yet deposited.
- Considered as cash if it is acceptable - Checks payable to the entity but are

by bank or other nancial institutions not yet presented in the bank for
for deposit at face value.
encasement or for direct deposit in the
- Must be immediately available for use account.
in current operations.
NOTE:
- Ex.
• customer’s dated check

• For payment of operating expenses
- reported as part of cash
• For payment of current liability
• Customer’s post dated check

• For acquisition of current asset
- Not reported as part of cash

- Comprises cash on hand and cash in (reverted to accounts receivable)
bank (demand deposits)
~ an adjusting entry is required for

- Measured at face value and classi ed customer’s postdated check reported as
as current asset.
part of cash:
Accounts receivable xx
Cash xx
CASH ON HAND
4). Unreleased or Undelivered check
1). Bills and coins

- In case of check issued by the
- Actual bank notes, currencies and company and held at the end of the
coins that can be used for purchase of reporting period
goods , services or for payment of

operating expenses.
Unreleased check
2). Money orders - check issued by the company payable

to a supplier.
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- If recorded at the end of the reporting ~ the actual amount used from PCF is
period, it shall be reverse back to entered in a voucher.
cash.
An adjusting entry is required for

Assuming that Kirk used the PCF as
company’s unreleased check recorded
follows:
as reduction in cash:
DATE AMOUNT DESCRIPTIO
Cash xx
N
Accounts Payable xx
12/22/21 1,500 Advance
5). Petty Cash Fund 12/26/21 1,200 Meals
- cash on hand maintained in di erent 12/27/21 1,000 Repairs
department or business locations for 12/29/21 800 Postage

small amount of disbursements and
12/30/21 500 Transportation
expenditures such as repairs, supplies,
and other miscellaneous items.
12/31/21 300 Snacks
Note: these amounts shall be supported

Transactions to PCF:
by a pre-numbered vouchers and will be
used as attachment when the fund is
1). Establishment of PCF
replenished.
~ assume that Kirk Company established 3). When the fund is replenished at
10,000 petty cash fund.
year-end or before year-end
Entry:
- w h e n t h e f u n d i s re p l e n i s h e d ,
Petty cash fund 10,000
transactions in the vouchers are
recorded (normally as expense or any
cash in bank 10,000
appropriate account) and check is
E ect:
issued amounting to something of
replenishment.
Cash on hand - increase
Assuming that Kirk replenished the

Cash in bank - decrease
fund at year end:
Total cash - no e ect

N
2). PCF is used
12/22/21 1,500 Advance
~ when PCF is used, no entry is made.
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12/26/21 1,200 Meals - when the PCF is not replenished as of
year-end, an adjusting entry is
12/27/21 1,000 Repairs
required:
12/29/21 800 Postage

Assuming that Kirk failed to replenish
the fund at year-end:
12/31/21 300 Snacks

N
A journal entry is made upon
12/22/21 1,500 Advance
replenishment:
12/26/21 1,200 Meals

Advances to employees 1,500
12/27/21 1,000 Repairs

Various expenses 3,800
12/29/21 800 Postage

cash in bank 5,300

Note: you may use a separate expense
12/31/21 300 Snacks
account for each voucher.
E ect: An adjusting entry is made at year-

end:
PCF - no e ect
Advances to employee 1,500
Cash in bank - decrease

Various expenses 3,800
Total cash - decrease
Petty Cash Fund 5,300
Observations:
E ect:
1). Cash in bank account is credits when
the fund is replenished.
Petty Cash Fund - decrease
2). The amount of PCF in the statement Cash in bank - no e ect

of nancial position shall be the imprest
Total cash - decreased
balance (established amount).
Observations:
3). The purpose of replenishment is to
bring the balance of PCF to its imprest 1). Petty cash fund is credited when
balance.
unreplenished at year-end.
4). If the PCF is not replenished at 2). The amount of PCF in the statement
year-end of nancial position shall be decreased
b y t h e a m o u n t o f u n re p l e n i s h e d
vouchers.
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5). Cash shortage or overage in PCF: 12/29/21 1,000 Repairs
- a count of petty cash fund may be 12/31/21 800 Postage

done to determine whether it is 01/01/22 500 Transportation
accounted for correctly.
01/02/22 300 Snacks

- It may indicate also that control over
cash is either strong or weak.
Envelope representing collection for
an employee who was hospitalised
(actual amount inside the envelope is
Step 1: determine the total
900) - 1,000
accountability
~ 900 is not included in 4,300 but the
A). Petty cash fund (at imprest balance)
100 is already included in 4,300.
B). Any collection of petty cash

Go back to 45:00
custodian on behalf of third party (ex.
Employee contribution)
Step 2: determine the accounted for
A). Bills and coins
B). Replenished check (if replenished)
C). Unreplenished vouchers at date of

count (if any)
D). Accommodation check (if any)

Note: No entry is required if there is no
Assuming that Kirk made a petty cash cash shortage or overage.
fund count (10,000 imprest balance) General cash fund - pertains to

and other items on a custodian on undeposited receipt.
January 3, 2022:
Why is Petty cash vouchers not
Bills and coins - 4,300 included in balance of PCF?
Unreplenished vouchers: - already used and not actual bills and

coins.

N Accommodation Check
12/26/21 1,500 Advance

- imprest balance ng PCF galing, so
12/27/21 1,200 Meals included na sa PCF, so di na need
ilagay sa accountability.
4

Cash shortage is a loss; expense b). If held against long term borrowings,
account. it should be separately classi ed as non-
current asset either in the Investments or
Other Assets sections of the balance
CASH IN BANK
sheet.
1). Checking account

Not Legally restricted
- account at a bank against which - should be included as part of the cash
checks can be drawn by the account
items on deposit.
depositor.
2). Savings account

~ Compensating balance is part of
- a basic type of bank account that loaning balance.
allows someone to deposit money,

keep it safe, and withdraw funds, all
while earning interest.
2). Bank Overdraft
a). Generally reported as current liability.
Items that may a ect the balance of b). Overdrafts which are repayable on
cash in bank: demand form an integral part of an
1). Compensating balance entity’s cash management. In these
circumstances, bank overdrafts are
- a speci ed amount of cash that should included as a component of cash and
be maintained in the borrowing entity’s cash equivalents.
account(s), and the minimum or

average cash to be maintained in the - how to know if integral: ex. When
bank during the period of loan.
check issued is still outstanding.
Legally restricted compensating c) right of o set

balance: - if the company maintained more than
a). If held as compensating balance one bank account in the same bank
against short-term borrowing (the same branch), then the overdraft
arrangements, it should be stated maybe o set on the account with
separately under current assets but positive balance.
under no circumstances should it be - Positive balance in other bank

included in the caption “Cash and Cash account cannot be o set with another
Equivalents”
bank accounts overdraft.
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3). Checks issued and recorded - The issuance of a replacement check
will give rise to a new outstanding
a). Unreleased check
check.
- checks recorded as disbursement but

e). Certi ed check
not in the hands of the payee.
- checks that have been certi ed by the

- Cannot be deposited not encashed by
drawee bank with su cient balance.
the payee, therefore, not outstanding

(part of cash).
- Upon certi cation of the check, the
bank balance will already be debited/
b). Company’s post dated check
disbursed even if the payee has not
- checks recorded as disbursement but presented the check for deposit/
not yet a valid disbursement even if encashment.
already released.
- This is no longer treated as an
- Cannot be deposited nor encashed by outstanding check.
the payee, therefore, not outstanding - Already good as cash.
(part of cash).
f). Cancelled check

c). Outstanding check
- checks issued by the drawer with
- checks recorded as valid
payment made to the payee by the
disbursement (not post dated) and in
drawee bank.
the hands of the payee (released)
- The check will no longer be valid/

- A reconciling item in the balance per
outstanding since it has served its
bank.
purpose.
d). Stale check

- checks recorded as valid Ex: Kirk company has two bank
disbursement (not post dated) and in accounts maintained in
the hands of the payee (released) but Binaluyo Bank of Asia. Details
have been long outstanding (>180
of the two accounts are as
days), hence, validity is lost.
follows:
- Should be removed as a reconciling
item and reverted back to cash and
a). Checking account No. 162761 an
liability since the obligations was
overdraft of 100,00.
extinguished.
b). Checking account no. 241772.

2,450,000 on which the following checks
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were drawn and recorded as WORKING FUNDS
disbursements:
- are funds separated for a speci c

1). Check number 2345 payable to a
purpose, normally for operating
supplier dated December 28,2021,
purposes.
released to payee on January 3, 2022 for

180,000.
- Cash in these funds are reported as
cash which includes:

supplier dated January 5, 2022, released a). Petty cash fund
on December 28, 2021 for 240,000.
b). Dividend fund

c). Payroll fund
supplier dated December 23, 2021,

released on December 27, 2021 for d). Tax fund
160,000.
e). Change fund.

Other items that maybe encountered
supplier dated April 1, 2021, released on
when solving problems in cash:
July 2, 2021 for 110,000.
1). Cash in bank in foreign currency

How much is the correct cash balance
denomination
as of December 31, 2021 reported in
its statement of nancial position? - reported as part of cash provided it is
not restricted for use in operation.
- The cash in foreign currency

denomination is translated using the
“closing rate”.
- If restricted, short term investment or

long term depends on the term.
2). Cash in bank experiencing nancial

di culty or had led bankruptcy
- shall not be reported as cash but as a

receivable which is reported at its net
realizable value.
3). Cash restricted for purchase of

non-current asset
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of their maturity and with a speci ed
redemption date (redeemable
preference shares)
- common examples: time deposit,

money market placement/commercial
papers, treasury bills/bonds.
- shall not be reported as cash.
- This is reported commonly as long

term investment (non-current asset).
CASH EQUIVALENTS
- are short-term, highly liquid BANK RECONCILIATION
investments that are
- a statement which brings into

1). Readily convertible to known amounts agreement the cash balance per
of cash and
ledger and cash balance per bank.
2) subject to an insigni cant risk of - Ideally, cash balance per ledger and cash
balance per bank statement are the same.
changes in value.
In case of non-agreement, a reconciliation
is made.
- are held for the purpose of meeting

short-term commitments rather than
RECONCILING ITEMS
for investment or other purposes.
- Book balance and bank balance are

- An investment normally quali es as a
not equal.
cash equivalent only when it has a

short maturity of three months or
BOOK RECONCILING ITEMS
less from the date of acquisition (90
days). 1). Credit memorandum (credit memo)
- Equity investments are excluded from - amounts already added by the bank
cash equivalents unless they are, in (credited) but not yet by the book.
substance, cash equivalents, for

- This is normally recorded when the
example in the case of preferred
credit memo was received which is
shares acquired within a short period
normally the following month.
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- Adjusting entry is necessary to - Adjusting entry is necessary for debit
increase the cash balance per book.
memo to decrease cash balance per
book.
Example:
Example:
Notes collected by the bank including
interest on the notes collected. Bank service charges during the
month.
Cash xx
Bank service charge xx
notes receivable xx
cash xx
interest income xx
Cash returned by bank marked NSF

Interest earned on bank deposit
(NSF check).
credited by the bank.
Accounts receivable xx
Cash xx
cash xx
interest income xx
Note: NSF check when returned shall be

Proceeds of loan with auto-credit
disbursed in the book, while the re-
arrangement with the bank.
deposit of NSF check is recorded as
Cash xx
regular cash receipts.
loan payable xx
Payment of loans with auto-debit
arrangement with the bank.
Note: those items already added in the
bank (re ected in bank statement as Loan payable xx
credits) but not yet recorded in the book.
cash xx
Note: those items already deducted in

2). Debit memorandum (debit memo) the bank (re ected in bank statement as
- amounts already deducted by the debits) but not yet recorded in the book.
bank (debited) but not yet by the book.

3). Book errors
- This is normally recorded when the - error(s) in recording cash transactions
debit memo was received which is (either cash receipts or cash
normally the following month. Hence disbursements) during the period
the balance per book is overstated.
covered.
- These errors may overstate or

understate cash balance per book.
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- Adjusting entry is necessary to - This was normally added (credited) by
increase or decrease cash balance per the bank the following period. Hence,
book with these errors.
balance per bank is understated.
Examples: - DIT is added to unadjusted balance

per bank.
Customer collection on account for

25,000 was recorded in the book at 2). Undeposited receipts (UDR)
52,000. - amount collected and recorded by the
Account receivable 27,000
book (debited) by undeposited at the
end of the reporting period.
cash 27,000
- This is normally deposited in the bank

Check disbursement for the month the following period and hence, the
amounting to 12,000 was recorded at balance per bank is lower than the
120,000. This check was for payment balance per book.
amounts due to supplier.

- UDR is added to unadjusted balance
Cash 108,000
per bank.
accounts receivable 108,000

3). Outstanding check (OC)
Reconciliation of cash balance per - checks issued and recorded by the
book: book, check is dated and then handed
to the payee.
Unadjusted book balance xx
- However, as of end of the reporting

Credit memo’s xx
period, the payee failed to present the

Debit memo’s xx
check to the bank for encashment.
Book errors xx
- This is normally encashed by the
Adjusted cash balance per book xx
payee the following month.
- O C ’s a r e d e d u c t e d f r o m t h e
unadjusted balance per bank.
BANK RECONCILING ITEMS
1). Deposit in transit (DIT)

- amounts already recorded by the book
(debited) but not yet by the bank
because the deposit was made at cut-
o time of the bank.
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COMPUTATION OF DIT, END AND
OC’S, END:
In case that after reconciliation,

balance per book and balance per
bank are not equal:
1). Adjusted cash balance per bank is

more reliable.
Correction: note 1 on outstanding check

refers to OC, end and not DIT, end.
2). The reported cash should be the
adjusted cash balance per bank.
4). Bank Errors

3). Adjustment is made in the balance
- error(s) in recording cash transactions per book.
(either cash receipts or cash

disbursements) during the period a). Balance per book > balance per
covered.
bank = shortage
- These errors may overstate or cash shortage xx
understate cash balance per bank.
cash xx
- The bank shall make necessary

b). Balance per book < balance per
adjustment in the depositary account
bank = overage
to increase or decrease cash balance
per book with these errors.
cash xx
NOTE: deposit in transit, undeposited misc. income xx
receipts, outstanding checks and bank

Note: book is the one being adjusted.
errors do not require adjustments in the

book.
11
bank are adjusted in proof of cash of the
bank only.
2). Timing di erences in recording:
a). Book
- credit memos and debit memos

are recorded in the book on the
following month.
b). Bank
- deposit in transit,
undeposited receipts and
o u t s t a n d i n g c h e c k s a re
recorded by the bank the
following month.
PROOF OF CASH
- an expanded reconciliation in that it
includes proof of receipts and
disbursements.
- This approach may be useful in

discovering possible discrepancies in
handling cash particularly when cash
receipts have been recorded but have

not been deposited.
Basic assumptions in preparing the

proof of cash:
1). Errors are adjusted in proof of cash of

whoever committed the errors. Errors of
the books are adjusted in the proof of
cash of book only while errors of the
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Friday, June 18, 2021

- good as cash with same nature of

CASH 3). Undeposited checks

- Considered as cash if it is acceptable - Checks payable to the entity but are

• customer’s dated check

• For payment of current liability

• Customer’s post dated check

- Not reported as part of cash

bank (demand deposits)

~ an adjusting entry is required for

1). Bills and coins

goods , services or for payment of

2). Money orders - check issued by the company payable

An adjusting entry is required for

5). Petty Cash Fund 12/26/21 1,200 Meals

- cash on hand maintained in di erent 12/27/21 1,000 Repairs

department or business locations for 12/29/21 800 Postage

Note: these amounts shall be supported

Cash on hand - increase

Assuming that Kirk replenished the

Total cash - no e ect

DATE AMOUNT DESCRIPTIO

12/29/21 800 Postage

12/31/21 300 Snacks

12/26/21 1,200 Meals

12/27/21 1,000 Repairs

12/29/21 800 Postage

12/30/21 500 Transportation

E ect: An adjusting entry is made at year-

Cash in bank - decrease

Total cash - decrease

Petty Cash Fund 5,300

2). The amount of PCF in the statement Cash in bank - no e ect

- a count of petty cash fund may be 12/31/21 800 Postage

01/02/22 300 Snacks

100 is already included in 4,300.

B). Any collection of petty cash

Step 2: determine the accounted for

A). Bills and coins

B). Replenished check (if replenished)

C). Unreplenished vouchers at date of

D). Accommodation check (if any)

fund count (10,000 imprest balance) General cash fund - pertains to

Unreplenished vouchers: - already used and not actual bills and

DATE AMOUNT DESCRIPTIO

12/26/21 1,500 Advance

1). Checking account

2). Savings account

allows someone to deposit money,

2). Bank Overdraft

a). Generally reported as current liability.

account(s), and the minimum or

Legally restricted compensating c) right of o set

under no circumstances should it be - Positive balance in other bank

- checks recorded as disbursement but

- checks that have been certi ed by the

the payee, therefore, not outstanding

the payee, therefore, not outstanding - Already good as cash.

f). Cancelled check

the hands of the payee (released)

- The check will no longer be valid/

d). Stale check

b). Checking account no. 241772.