Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
OVERVIEW
1. Cash and Cash Equivalents
2. Bank Reconciliation
3. Proof of Cash
4. Accounts Receivable
5. Notes Receivable
6. Loan Receivable
7. Receivable Financing
CASH AND CASH EQUIVALENTS
Cash
• includes money and any other negotiable
instrument that is payable in money
• not just currency and coins but also those
that are acceptable by bank for deposit or
immediate encashment such as checks,
bank drafts and money orders
• measured at face value
• if in foreign currency, measured at current
exchange rate
• any excess should be invested in revenue-
earning investment
• deposits in foreign investment which are
subject to foreign exchange restriction, if
material, should be classified separately
among non-current assets and the
restriction clearly indicated
Three Cash Items
• Cash on hand – undeposited cash
• Cash in bank – cash deposited in banks
• Cash fund – cash set aside for current
purposes such as petty cash fund, payroll
fund, etc.
Petty Cash Fund
• money set aside to pay small expenses
which cannot be paid conveniently by
means of check
Two methods of handling:
a) Imprest fund system - the one usually
followed in handling petty cash
transactions
b) Fluctuating fund system - the checks
drawn to replenish the fund do not
necessarily equal the petty cash
disbursements
Cash Equivalents
• short-term and highly liquid investments
that are readily convertible into cash and
so near their maturity that they present
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insignificant risk of changes in value
because of changes in interest rate (PAS 7,
Paragraph 6)
• only high liquid investments acquired
three months before maturity can qualify
as cash equivalents
• includes treasury bills, money market, and
time deposit with maturity of three
months or less from the date of purchase
Note: The keywords are acquired and
purchased because the date of purchase is the
basis and it should be three months or less
before maturity.
Examples of Cash Equivalents
a) three-month BSP treasury bill
b) three-year BSP treasury bill purchased
three months before date of maturity
c) three-month time deposit
d) three-month money market instrument or
commercial paper
e) preference shares with specified
redemption date and acquired three
months before maturity
Classification of T-bills, Money Market, and
Time Deposit:
➢ Cash equivalent – if maturity is three
months
➢ Current Asset (Separate Line Item) - if
maturity is more than three months but
not exceeding a year
➢ Non-Current Asset - if maturity is more
than one year
BANK RECONCILIATION
Bank Reconciliation
• is necessary only for a demand deposit or
checking account
• a statement which brings into agreement
the cash balance per book and cash
balance per bank
Bank Statement
- is a monthly report of the bank to the
depositor showing:
o cash balance per bank, beginning
o deposits
o checks drawn by depositor and
paid by the bank
o daily cash balance per bank
 Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
Forms of Bank Reconciliation
a) Adjusted balance method - book balance
and bank balance are brought to a correct
cash balance that must appear in the
balance sheet
b) Book to bank method - the book balance
is reconciled with the bank balance, or the
book balance is adjusted to equal the bank
balance
c) Bank to book method - the bank balance
is reconciled with the book balance, or the
bank balance is adjusted to equal the book
balance

PROOF OF CASH
Proof of Cash
Note: Errors vary. In an event where the • an expanded reconciliation in that it
company has extraordinary policies (e.g. includes proof of receipts and
combining cash fund and cash in bank in a disbursements
single account), items must be carefully • this approach may be useful in discovering
scrutinized whether or not they are part of possible discrepancies in handling cash
Cash in Bank or not. particularly when cash receipts have

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 Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
• been recorded but have not been
deposited.
Guides and Assumptions in Proof of Cash
a) CMs and DMs of last month will be
received in the following month,
thus will only be recorded as
receipts/disbursements in the
following month.
b) DITs and OCs of last month will be
cleared or paid by the bank in the
following month, thus will only be
recorded as
receipts/disbursements in the
following month.
c) Errors of last month will be
corrected by either book or bank in
the following month.
d) The correcting entries (in either
books of depositor and the bank)
will produce an overstatement or
understatement of the receipts or
disbursements.
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ACCOUNTS RECEIVABLE
Accounts Receivable
• are financial assets that represent a
contractual right to receive cash or
another financial asset from another entity
• is an open account not supported by a
promissory note
Trade and Non-trade Receivables
Trade Receivables
• claims arising from sale of merchandise or
services in the ordinary course of business
• includes:
o Accounts Receivable – open
accounts arising from the sale of
goods and services in the ordinary
course of business and not
supported by promissory notes.
o Notes receivable – supported by
formal promises to pay in the form
of notes
Non-trade Receivables
• claims arising from sources other than the
sales of merchandise or services in the
ordinary course of business
Customers’ Credit Balances
• results from overpayment, returns and
allowances, and advance payments from
customers. These are treated as current
liabilities
Measurement:
• Initial: Fair value plus transaction costs
that are directly attributable to the
acquisition
• Subsequent: Net realizable value or
estimated recoverable amount
 Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
Methods of Estimating Doubtful Accounts
1. Aging of accounts receivable – the
accounts are classified into not due or
past due
2. Percent of accounts receivable –
certain rate is multiplied by the open
accounts at the end of the period to get
the required allowance balance
3. Percent of sales – amount of sales for
the year is multiplied by a certain rate
to get the doubtful accounts expense
NOTES RECEIVABLE
Notes Receivable
• are claims supported by formal promises
to pay usually in the form of notes
• represents only claims arising from sale of
merchandise or service arising from the
ordinary course of business
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Measurement
• Initial: present value, except for short-
term notes receivable which should be
measured at face value
• Subsequent: measured at amortized cost
LOAN RECEIVABLE
Loan Receivable
• financial asset arising from a loan
granted by a bank or other financial
institution to a borrower or client
Measurement
• Initial: at fair value plus transaction cost
that are directly attributable to the
acquisition of financial asset
• Subsequent: measured at amortized cost
Notes:
*Initial amount recognized < principal amount =
difference is added to carrying amount
*Initial amount recognized > principal amount =
difference is deducted from the carrying amount
Origination Fees
• recognized as unearned interest
income and amortized over the term of
the loan
Direct Origination Costs
• deferred and amortized over the term
of the loan
Impairment of Loan
• an entity shall recognize a loss allowance
for expected credit losses on financial
assets measured at amortized cost
• credit losses are the present value of all
cash shortfalls
 Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
Credit Risk
• the risk that one party will cause a
financial loss for the other party by failing
to discharge an obligation

RECEIVABLE FINANCING
Receivable Financing
• the financial flexibility or capability of an
entity to raise money out of its receivables

Forms of Receivable Financing

a) Pledge of Accounts Receivable –
c) Factoring of Accounts Receivable -
accounts receivables are pledged as
factoring is a sale of AR on a without
collateral security for the payment of the
recourse, notification basis; factor
loan
assumes responsibility for uncollectible
factored accounts. In assignment, assignor
retains ownership of the accounts
assigned.
i. Casual Factoring - normal sale of
accounts receivable, without other
deductions

ii. Factoring as a continuing

b) Assignment of Accounts Receivable –
the assignor (borrower) transfers rights to
some of the rights in AR to a lender called
the assignee in consideration for a loan;
evidenced by a financing agreement and a
promissory note both of which the
assignor assigns
Agreement – finance entity
purchases all of the accounts
receivable of a certain entity.
d) Discounting of Notes Receivable – to
discount the note the payee must endorse
it; It may be with
i. With recourse – the payee must
pay the bank if the maker (one
liable) dishonors the note
ii. Without recourse – the payee
avoids future liability even if the
maker refuses to pay the bank on
the date of maturity

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 Junior Philippine Institute of Accountants and Auditors – United
Conceptual Framework, Accounting Standards, and Financial Accounting
and Reporting
FORMATS

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