Jazmine Arianne D.

Dalay ACT1104
Sec 1 – EXT Sir Ansel Giron
Intermediate Accounting 1
CASH & CASH EQUIVALENTS

Cash Petty Cash Fund

Includes money and other negotiable instrument that is Money set aside to pay small expenses which cannot be paid
payable in money and acceptable by the bank for deposit conveniently by means of check.
and immediate credit.
Two methods
Must be unrestricted in use (readily available). ❖ Imprest Fund System
- A system of control of cash which requires that
Presented as current asset. Measured at face value. all cash receipts should be deposited intact and
all cash disbursements should be made by
If cash in foreign currency, it should be translated to means of check.
Philippine peso, and measured at current exchange rate. Procedures:
• A check drawn to establish the fund
Cash Items Dr. Petty cash fund
Cr. Cash in bank
❖ Cash on hand
• Payment of expenses out of the fund
- Held by the company, within an entity
No journal entry.
Includes:
• Replenishment of petty cash payments
• Undeposited cash collections
Dr. Expense
• Items awaiting deposit: Cr. Cash in bank
o customer’s checks
• Adjust the replenished expenses to correct petty
o cashier’s checks
cash balance
o manager’s checks
Dr. Expense
o bank drafts
Cr. Petty cash fund
o money orders (remittance)
• To record an increase in the fund
Dr. Petty cash fund
❖ Cash in Bank Cr. Cash in bank
- Held by the bank, within the bank • To record a decrease in the fund
Includes: Dr. Cash in bank
• Unrestricted as to withdrawal: Cr. Petty cash fund
o demand/commercial deposit or • Cash Short/Over
current/checking account Dr. Cash Short/Over
o saving deposit Cr. Cash in bank

❖ Cash Fund ❖ FLUCTUATING Fund System

- set aside for current purposes - A check drawn to replenish the fund do not
• Change fund necessarily equal the petty cash
• Tax fund disbursements. Petty cash disbursements are
• Travel fund immediately recorded.
• Payroll fund Procedures:
• Interest fund • Establishment of the fund
• Dividend fund Dr. Petty cash fund
• Petty cash fund (for miscellaneous Cr. Cash in bank
disbursements) • Payment of expenses out of the petty cash fund
• Purchasing fund (for inventories) Dr. Expenses
• Revolving fund (used for specific purpose set by Cr. Petty cash fund
management) • Replenishment of petty cash payments
Dr. Petty cash fund
Cr. Cash in bank
Cash Equivalents
• End of the reporting period
Short-term and highly liquid investments that are readily
No adjustment because petty cash
convertible into cash and so near their maturity that they
expenses are recorded outright.
present insignificant risk of changes in value because of
• Decrease of the fund is reverted to the general cash
changes in interest rates.
Dr. Cash in bank
Cr. Petty cash fund
Only highly liquid investments that are acquired three
• To record an increase in the fund
months before maturity.
Dr. Petty cash fund
Cr. Cash in bank
Includes: • To record a decrease in the fund
• Three-month BSP treasury bill Dr. Cash in bank
• Three-month time deposit Cr. Petty cash fund
• Three-month money market instrument or • Cash Short/Over
commercial paper Dr. Cash Short/Over
• Redeemable preference shares with mandatory Cr. Cash in bank
redemption period and acquired three months
before maturity
Jazmine Arianne D. Dalay ACT1104
Sec 1 – EXT Sir Ansel Giron
Book balance
Bank Reconciliation Add: Credit Memos
Less: Debit Memos
A schedule explaining any differences between the bank’s
Errors (+/-)
and the company’s record of cash
Adjusted book balance

A statement which brings into agreement the cash balance

Bank balance
per book and cash balance per bank.
Add: Deposit in transit
Less: Outstanding checks
Three kinds of Bank Deposits Errors (+/-)
1. Demand deposit (current, checking, or Adjusted bank balance
commercial) – funds are withdrawable on demand
by drawing checks against the bank. 2. Book to bank method – book balance is adjusted
2. Saving deposit – a passbook is given to the to equal the bank balance
depositor to make deposits and withdrawals. This 3. Bank to book method – bank balance is adjusted
is interest bearing. to equal the book balance.
3. Time deposit – evidenced by a certificate of
deposit and is interest bearing.
Proof of Cash
An expanded reconciliation in that it includes proof of
RECONCILING ITEMS receipts and disbursements.
❖ BOOK Reconciling ITEMS
• Credit Memos – deposits credited by the bank; not 2-month bank recon (Beg, End)
yet recorded as cash receipts in books 4-column bank recon
o Notes receivable collected by bank in favor (Beg. Bal + Receipts – Disbursements + End. Bal)
of the depositor and credited to the
account of the depositor
o Proceeds of the bank loan credited to the COMPUTATION OF BOOK BALANCE
account of the depositor
o Matured time deposits transferred by the Balance per book – beginning of month xxx
bank to the current account of the Add: Book debits during the month xxx
depositor. Total xxx
• Debit Memos – checks debited by the bank; not yet Less: Book credits during the month xxx
recorded as cash disbursements in books Balance per book – end of month xxx
o NSF or no sufficient fund checks – checks
deposited but returned by the bank COMPUTATION OF BANK BALANCE
because of insufficiency of fund.
o Technically defective checks – checks
Balance per bank – beginning of month xxx
deposited but returned by the bank
Add: Bank credits during the month xxx
because of technical defects.
Total xxx
o Bank service charges – bank charges for
interest, collection, checkbook, and Less: Bank debits during the month xxx
penalty. Balance per bank – end of month xxx
o Reduction of loan – amount deducted from
the current account of the depositor in COMPUTATION OF DEPOSITS IN TRANSIT
payment for loan.
Deposits in transit – beginning of month xxx
❖ BANK RECONCILING ITEMS Add: Cash receipts deposited xxx
• Deposits in transit – already recorded as cash Total xxx
receipts in books; not yet credited by the bank Less: Deposits xxx
o Collection already forwarded to the bank Deposit in transit – end of month xxx
for deposit but too late to appear in the
bank statement.
o Undeposited collections or those still in COMPUTATION OF OUTSTANDING CHECKS
the hands of the depositor.
• Outstanding checks – already recorded as cash Outstanding checks – beginning of month xxx
disbursements in books; not yet debited by the Add: Checks drawn by depositor xxx
bank Total checks to be paid xxx
o Checks drawn and already given to payees Less: Checks paid by bank xxx
but not yet presented for payments Outstanding checks – end of month xxx
o Certified checks – where the bank has
stamped on its face the word “accepted” or
“certified indicating sufficiency of fund.” Assumptions
• All unrecorded reconciling items will be recorded
FORMS OF BANK RECONCILIATION the following month.
1. Adjusted balance method – book and bank • All errors are corrected the following month.
balance correct cash balance • Bank statement are given each month.
Commonly used method
Both book and bank balance are adjusted
Jazmine Arianne D. Dalay ACT1104
Sec 1 – EXT Sir Ansel Giron
Standards for Cash and Cash Equivalents

PFRS/pas AND ifrs/IAS

CASH
PFRS/pas Ifrs/IAS
Cash comprises cash on hand and demand deposits (PAS 7.6) No difference. (IAS 7.6)
It must be restricted and readily available for use or payment No differenc.
for current obligations to be considered as cash.
PAS 7 does not provide a definition of demand deposit. No difference. (IAS 7)
Sometimes, cash deposits are described as “restricted” No difference.
because they are set aside for a specific purpose and are
either notionally or legally “ring-fenced.”
It categorizes its cash items as cash on hand, cash in bank, and No difference.
cash fund.

CASH EQUIVALENTS
PFRS/pas Ifrs/IAS
Cash equivalents are short-term, highly liquid investments No difference. (IAS 7.6)
that are readily convertible to known amounts of cash and
that are subject to an insignificant risk of changes in value
(PAS 7.6)
Cash equivalents are held for the purpose of meeting short- No difference. (IAS 7.7)
term cash commitments rather than for investment or other
purposes (PAS 7.7)
PAS 7 does not define “short-term” but does state that an No difference. (IAS 7)
investment normally qualifies as a cash equivalent only when
it has a short maturity of, say, three-months or less from the
date of acquisition (PAS 7.7)
Bank overdrafts are generally classified as borrowings but No difference. (IAS 7.8)
PAS 7.8 notes that if bank overdrafts which are repayable on
demand form an integral part of an entity’s cash
management, then it is included as a component of cash and
cash equivalents.
Other types of deposit accounts need to be considered No difference. (IAS 7)
carefully to assess whether they are classified as cash
equivalents. (PAS 7)
Money market funds are investment vehicles that invest in No difference.
relatively short-term (usually between one day and one year)
debt instruments such as treasury bills, certificates of
deposit, or commercial papers.