Cash and Cash Equivalents Examples:

a) Three month BSP Treasury bills -

Cash – includes money and any other
negotiable instruments that is payable
in money and accepted by the bank for
deposit and immediate credit.
 Is the standard medium of exchange.
 Currency and coins that is circulating
and is legal tender.
b) Three-month time deposit
c) Three-month money market
instrument or commercial paper
d) Xxx-year BSP treasury bills/
Commercial paper/ Redeemable
preference share purchased three
months before maturity date

Presentation  Current Asset Petty Cash Fund – Is money set aside to pay
(Cash is normally a current asset. It will only be small expenses which cannot be paid
considered as non-current asset when it is conveniently by means of check.
restricted for more than 12 months.)

Measurement  Face Value

(Cash is initially and subsequently measured at
face value. Unless faced with bankruptcy, cash
will be measured at estimated realizable value.)

CASH ITEMS
1. Cash on Hand
 Undeposited collections -
 Customer’s check – checks
received from customers
 Manager’s check – checks
signed by managers
 Cashier’s check – checks signed
by cashiers
 Traveler’s check – checks made
for travelling
 Bank draft – payment
guaranteed by the bank
 Money order- like e moneys
2. Cash in Bank – checking account and
saving deposit.
3. Cash Fund – change fund, tax fund.
Payroll fund, dividend fund.

Cash Equivalents – short term and highly- liquid

investments that are readily convertible
into cash and so near their maturity
they present insignificant risk of
changes in value because of changes in
interest rates.
(Cash Equivalents are considered as
current asset when the term is not
more than three months.)
BANK RECONCILIATION
 Is statement which bring into
agreement the cash balance per book
and cash balance per bank
Book Reconciling Items
1. Credit Memos – transactions
credited by bank which the book
does not know yet which results to
the book debiting the transaction.
Examples:
 Notes receivable collected
by the bank in favor of the
depositor and credited to
the account of the
depositor.
 Proceeds of bank loan
credited to the account of
the depositor.
 Matured time deposits
transferred by the bank to
the current account of the
depositor
2. Debit Memos – transactions
debited by the bank which the book
does not know yet which results to
the book crediting the transaction.
Examples:
 NSF Checks are checks
deposited but returned by
the bank because of
insufficiency of fund.
 Defective Checks are checks
deposited but returned by
the bank because of
technical defects.
 Bank service charges
including charger for
interest, collection,
checkbook and penalty.
 Reduction of Loan pertains
to amount deducted from
the current account of the
depositor in payment for
loan which the depositor
owes to the bank and which
has already matured.
3. Errors
Bank Reconciling Items
1. Outstanding Checks – checks issued
to customer but not yet reflected
on the bank.
Examples:
 Checks drawn already given
to payee but not yet
presented for payment.
 Certified Checks – one
where the bank has
stamped on its face the
word “accepted” or
“certified” indicating
sufficiency of fund.
2. Deposit in Transit – cash deposited
by the depositor but still in transit,
not yet reflected on the bank.
3. Errors
Bank Deposits
1. Demand Deposit – also called as “checking
account” or “current account”.
2. Savings Deposit – for savings.
3. Time Deposit – there is a time restriction.
Forms of Bank Reconciliation
1. Adjusted Balance Method
BOOK
Unadjusted Book Balance xxx
Add: Credit Memos xxx
Total xxx
Less: Debit Memos (xxx)
Adjusted Book Balance xxx
BANK
Unadjusted Bank Balance xxx
Add: Deposit in Transit xxx
Total xxx
Less: Outstanding Checks (xxx)
Adjusted Bank Balance xxx
 2. Book to Bank Method

Unadjusted Book Balance xxx

Add: Credit Memos xxx
Outstanding Checks xxx xxx
Total xxx
Less: Debit Memos xxx
Deposit in Transit xxx (xxx)
Unadjusted Bank Balance xxx

3. Bank to Book Method

Unadjusted Bank Balance xxx

Add: Deposit in Transit xxx
Debit Memos xxx xxx
Total xxx
Less: Outstanding Checks xxx
Credit Memos xxx (xxx)
Unadjusted Book Balance xxx
RECEIVABLES
- Are financial assets that represent a
contractual right to receive cash or
another financial asset from another
entity.
Measurement
Initially = Fair Value + Transaction Cost
Subsequently = Amortized Cost
Trade Receivables – refers to claims arising
from sale of merchandise or services in the
ordinary course of business.
 Accounts Receivable – are open
accounts arising from the sale of goods
and services in the ordinary course of
business and not supported by
promissory notes.
 Notes Receivable – are those
supported by formal promises in the
forms of notes.
Non-Trade Receivables – represent claims
arising from sources other than sale of
merchandise in the ordinary course of business.
 “Advances to” (nag pautang) or
“receivables from” (nangutang)
shareholders, directors, officers or
employees (non-current if silent)
 Advances to affiliates – sister company
(non-current if silent) because it is hard
to collect from affiliates)
 Advances to Suppliers (current)
 Subscription Receivable (non-current)
but the presentation is a deduction in
equity. But if stated addition to asset.
 Creditor’s account with debit balances
(this happens through sales return with
down payment) (current)
 Special Deposits on Contract Bids (non-
current)
 Accrued Income (current)
 Claims Receivable (current)
Classification
Trade – Current (always)
Non Trade – a. 12 months or less
(current)
b. more than 12 months
(non – current)
What is Current Asset?
a. Cash and Cash Equivalents
b. Part of Operating Cycle
c. 12 months or less
d. held for the purpose of being traded
Accounts Receivable xxx
Less: Allow. For sales discount
Allow. For sales return & allow.
Allow for freight
Allow for bad debts
Net Realizable Value xxx
*Trade discount are not recorded. (tawad)*
Freight
FOB (Free on Board) – who will shoulder the
freight
- Destination Point- Seller should
shoulder the
freight
- Shipping Point – buyer will shoulder
the freight
ESTIMATION OF BAD DEBTS
1. Allowance Method
2. Direct Write off Method
Methods of Estimating Bad Debts
1. Percentage of Sales  Income
Statement Approach  Doubtful
Accounts Expense
2. Percentage of Receivable  Financial
Position Approach  Required
Allowance Balance
3. Aging of Receivable  Financial
Position Approach  Required
Allowance Balance / Allowance for
Doubtful Accounts at Year End
*If the problem is silent, the sales you’ll use is
the net. *
Change Now—> Future
Accounting Estimate  Currently and
Prospectively
Accounting Policy  Retrospectively RECEIVABLE FINANCING
NOTES RECEIVABLE
- is the capability or financial flexibility of the
-are claims supported by formal promises to company to generate cash out of its receivable.
pay usually in the form of notes.
Common Forms of Receivable Financing
Negotiable promissory notes – is unconditional
promise in writing by one person to another, 1. Pledging – refers to borrowing of
signed by the maker, engaging to pay on money from the bank or any financial
demand or at a fixed determinable future time institution in which receivables in
a sum certain in money to order or to bearer. general are used in collateral.
- Also called as “general assignment”
Measurement (asking for loan in exchange of a
receivable as collateral) (no change in
Notes Initially Subsequently the entry oof receivables)
Short Interest Face Face Value
term Bearing Value Entry
Non- Face Face Value 1. Interest not deducted in advance
Interest Value Cash xxx
Bearing Loans Payable xxx
Long Interest Face Face Value
term Bearing Value 2. Interest deducted in advance
Non- Present Amortized Cash xxx
Interest Value Cost Discount on LP xxx
Bearing Loans Payable xxx

LOANS RECEIVABLE Payment of Interest

1. Interest Exp. Xxx
- a financial asset arising from a loan granted by Cash xxx
a bank or other financial institution to a
borrower or client. 2. Interest Exp. Xxx
Discount on LP xxx
Origination Fees
a. Evaluating the borrower’s financial 2. Assignment – is a more formal (type of
condition pledging) borrowing arrangement in
b. Evaluating guarantees, collateral and which the specific receivables are
other security identified and used as a security.
c. Negotiating the terms of the loan (just like pledging but refers to specific
d. Preparing and processing the receivables)
documents related to the loan
e. Closing and approving the loan Entry
transaction NON NOTIFICATION
A/R – assigned xxx
Measurement A/R - xxx
Initially  Fair Value + Transaction Cost
Cash xxx
Service Fees xxx
Loans Payable xxx
 Sales Return FORMULAS:
Sales Return xxx
A/R – assigned xxx 1. Net Proceeds =
Maturity Value – Discount
Sales Discount 2. Maturity Value =
Cash xxx Principal + Interest
Sales Discount xxx 3. Interest =
A/R – assigned xxx Principal x Rate x Time
4. Discount =
Bad Debts Maturity Value x Discount Rate
Allow. For Bad Debts xxx x Discount Time
A/R – assigned xxx 5. Carrying Amount =
Principal + Accrued Interest
Payment 6. Accrued Interest =
Interest Exp xxx Principal x Rate x Time
Loans Payable xxx 7. Gain/ Loss on Discount =
Cash xxx Net Proceeds – Carrying
Amount
Fully Paid/ Collection
A/R xxx
A/R – assigned xxx

NOTIFICATION –same entries with non-

notification except;

Payment
Loans Payable xxx
Interest Exp. Xxx
Sales Discount xxx
A/R xxx

3. Factoring – involves the sale of

receivables to a finance company,
which is called a factor. The factor or
buyer assumes the risk of collectivity
and generally handles the billing and
collection function.

(transferring of ownership of the

receivable in exchange of loan) (hold
back for any defective items)
4. Discounting of Notes Receivable – sale
of the note to a 3rd party, usually a
bank.
(just like factoring but transferring of
notes receivable instead of accounts)
INVENTORIES LCNRV = Lower of Cost and Net Realizable Value

- are assets held for sale in the ordinary course
of business in the process of production for
such sale or in the form of materials or supplies
to be consumed in the production process or in
rendering of services.
Trading  Merchandise Inventory
Net Realizable Value – is the estimated selling
price in the ordinary course of business less
estimated cost of completion and the estimated
cost of disposal
NRV = Selling Price – Cost to Complete – Cost
to Sell

Manufacturing – 1. Inventories are damaged.

a. Finished Goods
b. Goods in Process
c. Raw Materials
d. Factory or Manufacturing Supplies
Service – labor and other cost of personnel
directly engaged in providing the service
2. Inventories have become wholly or partially
obsolete.
3. The selling price have declined.
4. Estimated cost of completion/ cost of
disposal has increased.
Rule

Goods includible in the Inventory Cost > NRV = with inventory write down
There is a write down because NRV will be
a. Goods owned and on hand recorded instead of cost. “whichever is lower”
b. Goods in transit and sold FOB Thus the need to write it down.
Destination (I’m the seller) Cost < NRV = no inventory write down
c. Goods in transit and purchase FOB
shipping point (I’m the buyer) Accounting Method
d. Goods out on consignment
e. Goods in the hand of salesmen or Direct (Cost of Goods Sold)
agents Inventory, end xxx
f. Goods held by customers on approval Income Summary xxx
or on a trial
Allowance Method
Loss on inventory write down xxx
Measurement: Inventories Allow. On Inventory write down xxx
Initial: At cost
Subsequent: LCNRV (on item by item basis) Presentation

Cost of Inventories Inventory, beg xxx

1. Cost of Purchase Net Purchases xxx
2. Cost of Inversion Total Good Available for Sale xxx
3. Other cost incurred in bringing the Inventory, end (xxx)
inventories to their present location Cost of Goods Sold xxx
and condition