In accounting parlance, cash includes:

i. Money;
ii. Other negotiable instruments that is payable in money; and
iii. Acceptable by bank for deposit and immediate credit;
iv. Unrestricted for use in current operations.

SUMMARY OF GAAP FOR CASH

CASH ITEMS INCLUDED IN CASH

1. Cash on Hand
A. Customer’s checks awaiting deposit.
B. Undeposited Cash Collections ( currencies such as bills and coins ).
C. Traveler’s Check
D. Cashier / Official / Treasurer’s / Manager’s checks
E. Postal Money Orders ( a demand credit instrument issued and payable by post office ).
F. Bank drafts ( a written order addressed to the bank to pay an amount of money to the
order of the maker ).
G. Undelivered Check drawn
H. Postdated Check drawn
I. Stale Checks not encashed by payee
2. Cash in Bank
A. Current Accounts / Checking Accounts / Demand Deposit / Commercial account.
- generally non-interest bearing
- withdraw-able by checks against the bank
B. Savings Deposits (Savings Accounts)
- generally non-interest bearing
- depositor is issued an ATM card or passbook
- Withdraw-able in ATM station or within the bank.
C. Deposits in foreign countries not subject to any foreign exchange restriction.
3. Cash fund for current operations
A. Change Fund
B. Payroll Fund
C. Purchasing Fund (for purchasing of inventories)
D. Revolving Fund (fund that is used for limited or specific purpose set by management)
E. Interest fund
F. Petty cash fund (for small and miscellaneous disbursements)
Prepared by: Jan Randel C. Cañete, CPA 1
 G. Dividend Fund
H. Travel Fund
I. Tax Fund

CASH FUND FOR NON-CURRENT OPERATIONS

- are part of non-current assets an should not be included as part of cash

Pension Fund Generally non-current investment but if the related liability is current, the fund
is included in cash.
Preferred Non-current investment unless the preference share has a mandatory
redemption fund redemption and if redeemable.
 Within one year from the reporting period - current investment
 Within three months from the reporting period-current investment
Acquisition of Always non-current even if expected to be disbursed next year.
PPEs
Contingent Fund Non-current investment
Insurance Fund Non-current investment
Sinking Fund Non-current investment, if the related bonds payable is current, the fund is
included as part of cash.

Note: Classification of cash fund should parallel to the classification applied to the related liability
(current is to current, non-current is to non-current). Thus, an entity should reclassify such non-current
asset if the related liability becomes current.

ITEMS EXCLUDED FROM CASH

A. Postdated checks received - receivable only until date of encashment.
Adjusting entry subsequent to initial recording of postdated checks received:
Accounts Receivable xx
Cash xx
B. IOUs or advances to employees - receivables
C. Cash funds not available for use in current operations - related item is non-current
D. Postage Stamps - prepaid supplies
E. Deposits in foreign bank subjected to foreign exchange restriction - non-current with
restriction indicated
F. NSF/DAIF/DAUD Checks

Postdated Checks received Excluded from Cash

Cash xx A/R xx
A/R xx Cash xx
Undelivered Checks drawn Included in Cash
A/P xx Cash xx
Cash xx A/P xx
Postdated checks drawn Included in Cash
A/P xx Cash xx
Cash xx A/P xx
Stale Checks drawn to payee Included in Cash
A/P xx Cash xx
Cash xx Miscellaneous Income xx

Prepared by: Jan Randel C. Cañete, CPA 2

CASH EQUIVALENTS
PAS 7.6, defines cash equivalents as:
i. Short-term; and
ii. Highly liquid investments;
iii. That are readily convertible into cash; and
iv. Near maturity that they present insignificant (immaterial) risk in changes in value because
of changes in interest rates.

Note: Only highly liquid investments acquired three months before maturity can qualify as cash
equivalents. Thus, the term of the investment is ignored.

ITEMS THAT QUALIFY AS CASH EQUIVALENTS

These include:
A. Time Deposit
B. Money Market Instrument or Commercial paper
C. Treasury bills, treasury notes and bonds
D. Redeemable preference shares with mandatory redemption period.
If the above items are:
1. Originally invested / acquired for more than three months before
maturity date Short-term
a) Remaining term is within one year investment
b) Remaining terms is more than one year Long-term investment
2. Originally invested / acquired for three months before maturity date Cash Equivalents

Note: Equity securities cannot qualify as cash equivalents because shares do not have a maturity date.

If the problem is silent with regards to:

1. Treasury note and bonds - assumed non-current investment.
2. Cash in Money market - cash and cash equivalent
3. Time deposit - cash and cash equivalents
4. Treasury Bills - cash and cash equivalents

MEASUREMENT OF CASH
- Cash is measured at face value.
- Cash in foreign currency is measured at the current exchange rate.
- Bank under bankruptcy; cash should be written down to estimated realizable value if the
amount recoverable is estimated to be lower than the face value.

BANK OVERDRAFTS
- cash in bank account has a credit balance.
- resulted from the issuance of checks in excess of the deposits.
- classified as current liability and should not be offset against other bank accounts with
debit balances.

Prepared by: Jan Randel C. Cañete, CPA 3

EXCEPTION TO THE RULE OF OVERDRAFTS
When the entity maintains:
A. Two or more accounts in the same bank with an overdraft, such overdraft can be offset
against those accounts with debit (positive) balance. Only if the amount is immaterial.

Note: If the overdraft is offset against other bank accounts not in the same bank, the amount
should be added back to reflect proper cash balance, and the overdraft is then classified as a
current liability or offset to another account in the same bank with a debit balance.

COMPENSATING BALANCE
Minimum checking or demand deposit account balance that must be maintained in
connection with a borrowing agreement with a bank.

If the compensating balance is: Treatment

A. Not legally restricted Included as Cash
B. Legally restricted Excluded from Cash
 Short-term Separately reported as ‘ cash held as
compensating balance ‘ under current assets.
 Long-term Separately reported as ‘ cash held as
compensating balance ‘ under non-current
assets.

Note: If the problem is silent with regard to compensating balance, it is assumed not legally restricted.

ACCOUNTING FOR CASH SHORTAGE AND OVERAGE

Cash count is less than the balance per book:
Cash short or over xx
Cash xx

A. Subsequent journal entry when the cash custodian is held liable:

Due from Cashier xx
Cash short or over xx
B. Subsequent journal entry when the cause of the shortage is not determined:
Loss from cash shortage xx
Cash short or over xx

Cash count is more than the balance per book:

Cash xx
Cash short or over xx

A. Subsequent entry when the cash is from the cash custodian:

Cash short or over xx
Payable to cashier xx

B. Subsequent entry when there is no claim for the excess cash:

Cash short or over xx
Miscellaneous Income xx

Prepared by: Jan Randel C. Cañete, CPA 4

PETTY CASH FUND
Imprest systen us a system of control which requires that all cash receipts should be
deposited intact and all cash disbursement should be made by means of check. However, it is
impractical for the company to make all payments thru check. Therefore, a petty cash fund is
established to cover small and miscellaneous expenses.

Petty Cash fund may be accounted for using two methods:

1. Imprest Fund System
2. Fluctuating Fund System

Comparison of journal entries:

COMPUTATION OF PETTY CASH SHORTAGE OR OVERAGE

Petty Cash Accounted xx

Less: Petty Cash Accountabilities xx
Overage ( Shortage ) xx

Petty cash accounted includes petty cash vouchers for expenses (unreplenished vouchers)
and coins and bills, while Petty Cash accountabilities include the petty cash balance per ledger or
the initial balance of fund if imprest fund system is used. Other items are discussed in higher
accounting subjects.

Prepared by: Jan Randel C. Cañete, CPA 5

 SELF CHECK:

ILLUSTRATION 1:
On December 31, 2023, Sana-ako Nalang Co’s. cash and cash equivalents account balance per ledger
of P5,700,000 includes:

Manager’s Checks P 70,000

Traveler’s Checks 100,000
Treasury Note 50,000
Treasury Shares, purchased on 12/1/2023, to be reissued on 3/1/2024 150,000
Escrow deposit 200,000
Bank Drafts 20,000
Postal Money Orders 20,000
Demand Deposit 100,000
Treasury bills, purchased on 12/16/2023 due 3/15/2024 50,000
160-day treasury bill 30,000
Time deposit - PCIB, one year, due 3/31/2024 180,000
Time deposit - PNB - 90 days 170,000
Time deposit - BPI - 120 days 45,000
Money market instrument - due 2/28/2024 40,000
Money market instrument - due 6/1/2024 70,000
Cash in bank - Metrobank, which includes a compensating balance of
p50,000 for short-term borrowing arrangement. The compensating balance
is not legally restricted as to withdrawal 1,0500,00
Cash in bank - Metrobank (100,000)
Cash in bank - Firstbank, which includes a compensating balance of p50,000
for long-term borrowing arrangement. The compensating balance is legally
restricted as to withdrawal 450,000
Cash in bank - Secondbank (60,000)
Cash in bank - Secondlybank, which includes a compensating balance of
p40,000 for short-term borrowing arrangement. The compensating balance
is legally restricted as to withdrawal 150,000
Cash in bank - Secondarybank, which includes a compensating balance of 250,00
p40,000 for short-term borrowing arrangement.
Petty cash fund, which includes an unreplenished voucher for P4,000 10,000
Payroll fund 100,000
Travel fund 20,000
Interest fund 40,000
Tax fund 30,000
Sinking fund, of which P20,000 is for payment of bonds payable on 420,000
6/25/2024
Preferred redemption fund 100,000
Contingent fund 200,000
Insurance fund 500,000
Fund for acquisition of PPE to be disbursed in early 2024 800,000

Prepared by: Jan Randel C. Cañete, CPA 6

IOUs from officers 20,000
Customer’s postdated checks 70,000
Customer’s checks returned by bank marked ‘NSF’ 20,000
Redeemable preference shares - acquired 3 months before maturity date 15,000
Unused credit line 200,000
Revolving fund 100,000
Visa Card-credit limit 20,000
TOTAL P 5,700,000

Required: Compute the cash and cash equivalents that should be shown in the statement of
financial position.

SOLUTION:
Manager’s Checks P 70,000
Traveler’s Checks 100,000
Bank Drafts 20,000
Postal Money Orders 20,000
Demand deposit 100,000
Treasury bills, purchased on 12/16/2023 due 3/15/2024 50,000
Time deposit-PNB-90 days 170,000
Money market instrument - due 2/28/2024 40,000
Cash in bank - Metrobank, including compensating balance 1,050,000
Cash in bank - Metrobank (overdraft) (100,000)
Cash in bank - Firstbank, net of compensating balance 400,000
Cash in bank - Secondlybank, net of compensating balance 110,000
Cash in bank - Secondarybank, including compensating balance 250,000
Petty cash fund, net of expense vouchers 6,000
Payroll fund 100,000
Travel fund 20,000
Interest fund 40,000
Tax fund 30,000
Sinking fund for bonds payable due on 6/25/2024 20,000
Redeemable preferrence shares - acquired three months before maturity
date 15,000
Revolving fund 100,000
TOTAL CASH AND CASH EQUIVALENTS P2,611,000

CLASSIFICATION OF OTHER ITEMS

Treasury note Assumed investment
Treasury shares Dedcution to Shareholder's Equity
Escrow deposit Other non-current investment
160-day Treasury bill P30,000 - short term investment
Time deposit - PCIB, one-year, due 3/31/2024 P180,000 - short term investment
Time deposit - BPI - 120 days P45,000 - short term investment
Money market instrument - due 6/1/2024 P70,000 - short term investment
Cash in bank - Secondank (P60,000) - current liability
Sinking fund P400,000 - non-current investment
Preferred redemption fund P100,000 - non-current investment
Contingent fund P200,000 - non-current investment
Insurance fund P500,000 - non-current investment
Prepared by: Jan Randel C. Cañete, CPA 7
Fund for acquisition of PPE in 2023 P800,000 - non-current investment
IOUs from officers P20,000 - advancces to officers
Customer’s postdated checks P70,000 - accounts receivables
‘NSF’ customer's checks P20,000 - accounts receivables
Visa Card-credit limit P20,000 - ( not yet cash, should the company
withdraw money from the bank then there will
be a debit to cash and credit to accounts
payable-bank ).

ILLUSTRATION 2:
On December 31, 2023, G KA NABA Co’s cash and cash equivalents account balance per ledger of
P4,000,000 includes:

Demand Deposit P 2,200,000

Undeposited collections 300,000
Time deposit - 30 days 500,000
NSF check from customer 20,000
35 - day money market placement due 1/28/2024 300,000
45 - day commercial papers due 2/4/2024 80,000
Savings deposit in closed bank 50,000
IOU from an employee 150,000
Preferred redemption fund 400,000
Metrobank current account 1 500,000
Metrobank current account 2 (50,000)
Petty cash fund, unreplenished vouchers of P10,000 40,000
BDO account 1 350,000
TOTAL P 4,840,000

Additional Information:
A. Included in the demand deposit was a customer check amounting to P50,000 dated January 10,
2024.
B. Also included in the demand deposit is a customer check amounting to P90,000 dated December
28, 2022. The company did not encash the check. On December 31, 2023 , the customer was
informed and was then willing to replace the check with a new one to be received the next month.
C. Check of p60,000 dated January 25, 2024 in payment of account was recorded and mailed as of
cut-off date.
D. Check of P70,000 in payment of account was recorded as of cut-off date but mailed to creditors
on in January 2024.
E. The company uses the calendar year. The cash receipts journal was held open until January 15,
2024, during which time P80,000 was collected and recorded on December 31, 2023.
F. The BDO account is set aside for acquisition of a Building to be used by the company. Expected to
be disbursed next year.

Required:
1. Prepared adjusting entries to correct the cash account.
2. Compute the amount of cash and cash equivalents to be shown on the December 31, 2023
statement of financial position.

Prepared by: Jan Randel C. Cañete, CPA 8

SOLUTION:

Requirement No.1:

Adjustment for the non-cash and cash equivalents items included in the balance:

A. Accounts Receivable 50,000

Cash in Bank 50,000
B. Accounts Receivable 90,000
Cash in Bank 90,000
C. Cash in Bank 60,000
Accounts Payable 60,000
D. Cash in Bank 70,000
Accounts Payable 70,000
E. Accounts Receivable 80,000
Cash in Bank 80,000
F.
Accounts Receivable 20,000
Cash in closed bank 50,000
Advances to employees 150,000
Preferred redemption fund 400,000
Cash Fund for PPE 350,000
Cash in Bank 970,000

Requirement N0.2:

Unadjusted Balance P4,840,000

Adjustment A (50,000)
Adjustment B (90,000)
Adjustment C 60,000
Adjustment D 70,000
Adjustment E (80,000)
Adjustment F (970,000)
Adjusted Balance P3,780,000

ILLUSTRATION 3:
HHJ Company provided the following transactions in order in relation to the petty cash account:

1. Established a petty cash fund of P50,000

2. Petty cash disbursements were:
Coins and Bills 15,000
Postage 10,000
Supplies 15,000
Transportation 5,000
Miscellaneous 5,000
3. The fund was replenished

Prepared by: Jan Randel C. Cañete, CPA 9

 4. Petty cash disbursements were:
Coins and bills 8,000
Supplies 20,000
Transportation 5,000
Miscellaneous 5,000
Accounts Payable 10,000
5. Issued a check for an amount to replenish the fund and increase it to P60,000

Required:
1. Prepare journal entries to record the transactions under imprest fund and fluctuating fund
systems.
2. How much was the cash shortage or overage, if any?

SOLUTION:

Requirement No. 1:

IMPREST FUND SYSTEM FLUCTUATING FUND SYSTEM

1. Petty Cash Fund 50,000 1. Petty Cash Fund 50,000
Cash in bank 50,000 Cash in bank 50,000
2. Postage 10,000
Supplies 15,000
2. No entry ( Memo entry only ) Transportation 5,000
Miscellaneous 5,000
Petty Cash Fund 35,000
3. Postage 10,000
Supplies 15,000
3. Petty Cash Fund 35,000
Transportation 5,000
Cash in bank 35,000
Miscellaneous 5,000
Cash in bank 35,000
4. Supplies 20,000
Transportation 5,000
Miscellaneous 5,000
4. No entry ( Memo entry only )
Accounts Payable 10,000
Cash short or over 2,000
Petty Cash Fund 42,000
5. Petty Cash fund 10,000
Supplies 20,000
Transportation 5,000
6. Petty Cash Fund 52,000
Miscellaneous 5,000
Cash in bank 52,000
Accounts Payable 10,000
Cash short or over 2,000
Cash in bank 52,000

Requirement no.2:

Petty cash accounted P48,000

Less: Petty Cash Accountabilities 50,000
Shortage before fund increase (2,000)

Prepared by: Jan Randel C. Cañete, CPA 10