INTERMEDIATE ACCOUNTING 1

Cash and Cash Equivalents

Cash
 Cash includes money and any other negotiable instruments that is
payable in money and accepted by the bank for deposit and immediate
credit.
 Presentation  Current asset
 Measurement  Face Value or Estimated recoverable amount
 Requirement:
1. Unrestricted
2. Immediately available for use
 Cash Items:
1. Cash on Hand – includes undeposited collections, customer’s
check, manager’s check, cashier’s check, traveler’s check, bank
draft and money order.
2. Cash in Bank – includes checking account and savings deposit
(unrestricted as to withdrawal)
 Other Checks:
 Undelivered Checks – already prepared but not delivered
Journal Entry: Cash in Bank xxx
Various Credits xxx
 Post-dated Checks – date in the check is later than today
Journal Entry: Cash in Bank xxx
Various Credits xxx
 Stale Checks – checks na nasira na or napanis na (not
cashed in 6 months)
3. Cash Fund – set aside for current purposes. Includes change
fund, tax fund, payroll fund, dividend fund
 Bank Overdraft  check drawn is more than the deposited amount
 Presented as current liability
 Restriction:
No Restriction  Cash
Current operation  Cash Fund
 Compensating Balance (maintaining balance)
1. Formal Restriction  not included as cash
2. Informal Restriction  included as cash

NOTES:

o Post-dated checks are not included as cash.

o Sinking fund is for long-term purposes thus it is not included
as cash.
o Time deposit has a certain restriction and may be included as
CE, short-term investment or long-term investment.
o There is no offsetting allowed in bank overdraft
Except:
1. If the same bank
2. Immaterial
o If the problem is silent, informal restriction for compensating
balance is assumed.
o If the problem is silent, emergency fund is assumed to be
long-term and not included as cash.

Cash Equivalents
 These are short-term and highly-liquid investments that are readily
convertible to cash or their maturity is so near that they present
 insignificant risk of changes in value because of changes in interest
rates.
 They must be acquired 3 months before maturity.
 Classification of Investment:
3 months  Cash Equivalent
3 months < Period < 12 months  Short-term investment
More than 12 months  Long-term investment
 Examples:
a. Three-month BSP Treasury Bill
b. Three-month time deposit
c. Three-month money market instrument or commercial paper
d. Xxx-year BSP Treasury Bills/ Commercial Paper/ Redeemable
Preference Shares purchased three-months before maturity date

NOTES:

o Commercial Paper is just like T-bills but issued by

businesses.
o Commercial Paper that issued by big companies are the only
ones included as cash equivalent.
o No reclassification allowed in long-term investments.
o Reclassification from non-current to current is only available
for liabilities and not for assets.
o Redeemable Preference Shares are liabilities in substance
that’s why it is classified as liability and may be included as
CE if purchased 3-months before maturity date or if it is a

Summary:

1. Cash in Foreign Currency  if silent, assumed to be unrestricted and

included as part of cash
2. Cash Fund for a certain purpose  included if for current operation
Redeemable PS and Sinking Fund are included if it relates to CL
3. Bank Overdraft  not included with exception if same bank
4. Compensating Balance  included if not legally restricted
5. Undelivered/Unreleased checks  included
6. Post-dated check delivered  included
7. Post-dated check received  not included
8. NSF or DAIF Check received  not included but included if redeposited on
the same period
9. IOUs from Employees/ Advances from Employees  not included
10. Stale Check Delivered  included
11. Stale Check received  not included
12. Cash in Close Banks  not included
13. Postage Stamps  not included

current liability.

A. Petty Cash Fund

 Petty Cash Fund is money set aside to pay small expenses which cannot be
paid conveniently by means of check.
 Imprest System means that all cash collections are kept intact and deposited
in the bank and all cash disbursements are made through checks.
 Petty Cash Custodian  one manages petty cash fund
 Petty Cash Memorandum Book  maintains by the petty cash custodian

Imprest Fund System Fluctuating Fund

System
1. Establishment PCF xx PCF xx
Cash in Bank xx Cash in Bank xx
2. Expenses NO ENTRY Expenses xx
 PCF xx
3. Replenishment Expenses xx PCF xx
Cash in Bank xx Cash in Bank xx
4. Increase/decrease PCF xx PCF xx
of PCF Cash in Bank xx Cash in Bank xx

Cash in Bank xx Cash in Bank xx

PCF xx PCF xx
5. End of Reporting Expenses xx NO ENTRY
Period PCF xx
6. Cash Short/Over Cash Shortage xx Cash Shortage xx
Cash in Bank xx PCF xx

Cash in Bank xx PCF xx

Cash Overage xx Cash Overage xx

Note: Short and Over

are reversed and the
entry depends on the
investigation

B. Bank Reconciliation
 Bank Reconciliation is a statement which bring into agreement the cash
balance per book and cash balance per bank.
 Book Reconciling Items:
1. Credit Memos – memos from the bank signaling a credit to the company’s
account and therefore debits the cash account
Examples:
o Proceeds of a Loan
Cash xx
Loans Payable xx
o Matured Time Deposit
Cash xx
Time Deposit xx
o Collection of Notes
Cash xx
Notes Receivable xx

2. Debit Memos – memos from the bank signaling a debit to the company’s
account and therefore credits the cash account
Example:
o Service Charge
Service Charge xx
Cash xx
o Payment of Loans
Loans Payable xx
Interest Expense xx
Cash xx
o NSF or DAIF Checks
Accounts Receivable xx
Cash xx
o Technically Defective Checks
Accounts Receivable xx
Cash xx
3. Errors

 Bank Reconciling Items:

1. Outstanding Checks – checks issued to customers but not yet encashed to
the bank
 2. Deposit in Transit or Outstanding Deposit – checks already deposited but
not yet credited by the bank.
3. Errors
 Forms of Bank Reconciliation:

Adjusted Balance Method

Unadjusted Book Balance xx Unadjusted Bank Balance xx
Add: Credit Memos xx Add: Deposits in Transit xx
Total xx Total xx
Less: Debit Memos xx Less: Outstanding Checks xx
Adjusted Book Balance xx Adjusted Bank Balance xx
Book to Bank Method Bank to Book Method

Unadjusted Book Balance xx Unadjusted Bank Balance xx

Add: Credit Memos xx Add: Deposits in Transit xx
Outstanding Checks xx Debit Memos xx
Total xx Total xx
Less: Debit Memos xx Less: Outstanding Checks xx
Deposit in Transit xx Credit Memos xx
Unadjusted Bank Balance xx Unadjusted Book Balance xx

C. Proof of Cash
 Proof of Cash is an expanded reconciliation in that it includes proof of
receipts and disbursements.

This month
Jan. 31 Receipts Disburse Feb. 28
Unadjusted Book Balance xxx + xxx - xxx xxx
Credit Memos:
Last Month (Jan) xxx (xxx)
This Month (Feb) xxx xxx
Debit Memos:
Last Month (Jan) (xxx) (xxx)
This Month (Feb) xxx (xxx)
Adjusted Book Balance xxx xxx xxx xxx

This month
Jan. 31 Receipts Disburse Feb. 28
Unadjusted Bank Balance xxx + xxx - xxx xxx
Deposit in Transit:
Last Month (Jan) xxx (xxx)
This Month (Feb) xxx xxx
Outstanding Checks:
Last Month (Jan) (xxx) (xxx)
This Month (Feb) xxx (xxx)
Adjusted Bank Balance xxx xxx xxx xxx

D. Computation of Deposit in Transit and Outstanding Checks

Computation of Deposit in Transit Amount

Deposit in Transit, beginning xxx
Add: Cash Receipts deposited, this month
Book Debits xxx
Less: Credit Memos, last month (xxx) xxx (Bo Deposit)
Total Deposits to be acknowledge by bank xxx
Less: Deposits acknowledge by bank, this month
Bank Credit xxx
Less: Credit Memos, this month (xxx) xxx (Ba Deposit)
Deposit in Transit, ending xxx

Computation of Outstanding Checks Amount

Outstanding Checks, beginning xxx
Add: Check Disbursements, this month
Book Credits xxx
Less: Debit Memos, last month (xxx) xxx (C Issued)
Total Checks to be paid by bank xxx
Less: Checks paid by bank, this month
Bank Debit xxx
Less: Debit Memos, this month (xxx) xxx (C cleared)
Outstanding Checks, ending xxx