Professional Documents
Culture Documents
Cash - (in accounting) includes money and any other negotiable instrument that is payable in
money and acceptable by the bank for deposit and immediate credit. It also includes checks,
bank drafts and money orders because these are acceptable by the bank for deposit or
immediate encashment.
Money - a standard medium of exchange in business transactions. It refers to the currency and
coins which are in circulation and legal tender.
Postdated Checks - cannot be considered as cash yet because these checks are
unacceptable by the bank for deposit and immediate credit or outright encashment.
PAS 1 – An entity shall classify an asset as current when the asset is cash or cash equivalent
unless it is restricted to settle a liability for more than 12 months after the end of the reporting
period. Accordingly, to be reported as CASH, an item must be UNRESTRICTED in use.
CASH ITEMS
CASH ON HAND – undeposited cash collections, other cash items awaiting deposit (customer’s
checks, cashier’s/ manager’s checks, traveler’s checks, bank drafts and money orders.)
CASH IN BANK – demand deposit/ checking account and saving deposit which are
unrestricted as to withdrawal.
CASH FUND –set aside for current purposes such as petty cash fund, payroll fund and dividend
fund.
CASH EQUIVALENT
PAS 7, par. 6 – 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. Only highly liquid investments that are acquired 3 months before
maturity can qualify as cash equivalents.
Equity Securities - cannot qualify as cash equivalents because shares do not have a maturity
date.
Preference shares - with specified redemption date and acquired 3 months before redemption
date can qualify as cash equivalents.
Note: It is important that the date of purchase should be 3 months or less before maturity.
Note: The caption cash and cash equivalents should be shown as the first line item under
current assets. However, the details comprising the cash and cash equivalents should be
disclosed in the notes financial statements.
Bank Overdraft – this happens when the cash in bank has a credit balance. The credit balance
in the cash in bank account results from the issuance of checks in excess of the deposits. A
bank overdraft is classified as a current liability and should not be offset against other bank
accounts with debit balance. It is not necessary to adjust and open a bank overdraft account in
the ledger. Overdrafts are not permitted in the Philippines.
Exception to the rule on overdraft – when an entity maintains two or more accounts in one
bank and one account results in an overdraft, such overdraft can be offset against the other
bank account with a debit balance in order to show cash, net of bank overdraft or bank
overdraft, net of other bank account.
Compensating Balance – generally takes the form of minimum checking or demand deposit
account balance that must be maintained in connection with a borrowing arrangement with
bank. In effect, this arrangement results in the reduction of the amount borrowed because the
compensating balance provides a source of fund to the bank as partial compensation for the
loan extended.
Undelivered or Unreleased Check - merely drawn and recorded but not given to the payee
before the end of reporting period. There is no payment when the check is pending delivery to
the payee at the end of reporting period.
Postdated Check Delivered – is a check drawn, recorded and already given to the payee but it
bears a date subsequent to the end of reporting period. There is no payment until the check can
be presented to the bank for encashment or deposit.
Stale Check or Check Long Outstanding – a check not encashed by the payee within a
relatively long period of time. The question is how long a time must the check remain
outstanding?
The Negotiable Instruments Law provides that where the instrument is payable on demand,
presentment must be made within a reasonable after the issue. Clearly, the law does not specify
a definite period within checks must be presented for encashment.
CASH SHORTAGE/OVERAGE
= Where the cash count shows which is less than the balance per book, there is a cash
shortage to be recorded as follows:
Cash Short or Over xx
Cash xx
= The Cash Short or Over account is only temporary or suspense account. When financial
statements prepared the same should be adjusted. Hence, if the cashier or cash custodian is
held responsible for the cash shortage, the adjustment should be:
Due from Cashier xx
Cash Short or Over xx
= However, if the reasonable efforts fail to disclose the cause of the shortage, the adjustment is
Loss from Cash Shortage xx
Cash Short or Over xx
= Where the cash count shows which is more than the balance per book, there is a cash
overage to be recorded as follows:
Cash xx
Cash Short or Over xx
Note: Whether it is a cash shortage or cash overage, the offsetting account is cash short or over
account. Such account should be adjusted when statements are made. The cash overage is
treated as miscellaneous income if there is no claim on the same.
Cash Short or Over xx
Miscellaneous Income xx
=But where the cash overage is properly found to be the money of the cashier, the journal entry
is”
Cash Short or Over xx
Payable to Cashier xx
Imprest System - a system of control of cash which requires that all cash receipts should be
deposited intact and all cash disbursement should be made by means of check.
Accounting Procedures
a. A Check is drawn to establish the fund
b. Payment of expenses out of the fund
c. Replenish of petty cash payments
d. At the end of accounting period, it is necessary to adjust the unreplenished expenses in
order to state the correct petty cash balance
e. An increase in the fund is recorded normally
f. A decrease in the fund is recorded normally
BANK DEPOSITS
= Demand Deposit – current/ checking account/ commercial deposit where deposits are
covered by deposit slips and where funds are withdrawable on demand by drawing checks
against the bank. noninterest bearing
= Saving Deposit – the depositor is given a passbook upon the initial deposit. interest bearing
= Time Deposit – similar to saving deposit in the sense that it is interest bearing and evidenced
by a formal agreement called certificate of deposit. May be withdrawn on demand or after a
certain period of time agreed upon.
Bank Reconciliation - is a statement which brings into agreement the cash balance per book
and cash balance per bank which is usually prepared monthly since bank statements are
provided to the depositor every end of month.