MODULE

in

ACCOUNTING 4
(INTERMEDIATE ACCOUNTING I)

(For Non-Accountants)
 TABLE OF CONTENTS

MODULE I
CHAPTER I : Cash and Cash Equivalents

Learning Objectives :
 To understand
o the concept of cash
o the concept of cash equivalents

 To identify what items are considered as cash

 To be able to identify what items are considered as cash equivalents
 To be able to know the accounting for petty cash fund

Lesson I : Definition and Identification of items of Cash and Cash Equivalents

I.I Meaning of Cash

“Cash “ simply means money.

Money is the standard medium of exchange in business transactions. It refers to the currency and coins
which are in circulation and legal tender.

Cash includes money (currency and coins ) and any other negotiable instrument that is payable in
money and acceptable by the bank for deposit and immediate credit.

The following items are included as part of Cash :

1. Cash on Hand – This includes undeposited cash collections and other cash items awaiting
deposit such as customer’s checks, cashier’s/manager’s checks, traveler’s
checks, bank drafts and money orders.
2. Cash in Bank – This includes demand deposit or checking account, savings deposit which are
unrestricted as to withdrawal.
3. Cash fund set aside for current purposes such as petty cash fund, payroll fund and dividend
fund.

Accordingly, to be reported as cash, an item must be unrestricted in use (meaning no restriction). This
means that the cash must be readily available in the payment of current obligations and not be subject to
any restrictions, contractual or otherwise.

-
Currency and Coins

Cash is money in the form of currency (peso, dollar, etc), which includes all bills, coins, and currency notes.

Exhibit I.I-A

Exhibit I.I-B
Customer’s Check

Exhibit I.I-C

Manager’s check

A manager's check (MC) is a check issued by the bank's manager upon the bank itself promising to pay
to the payee or its order an amount certain in money at a certain date. By its very nature it is the bank's
order to pay drawn upon itself, committing in effect its total resources, integrity and honor behind the
check.(Google, 6 Nov 2019)

Exhibit I.I-D1

Exhibit I.I-D2
 Exhibit I.I-D3

Travelers check

A traveler's check is a way to replace money so you don't need to travel with cash, and hail from a time
when ATMs were nonexistent. Basically, you go to your bank and get checks issued for a predetermined
monetary amount that you can then — technically — exchange anywhere for cash.28 Jul 2015

Exhibit I.I-E
Bank draft

A banker's draft, also known as a banker's cheque, is like asking a bank to write a cheque for you. You
give them your money and they give you a cheque for that amount, to give to the person you're paying.
For this reason, they do not bounce because of a lack of funds.
A Banker’s cheque is a type of demand draft issued by a bank branch on behalf of its customers for local
use. While demand drafts are issued by a bank branch on a specific outstation branch to facilitate
payment at the place where payee is located, a banker’s cheque is meant for a payments in the same
city where the bank branch is located.

Exhibit I.I-F
Money order

A money order is a document used for payment of a bill or debt, or even a means to transfer or send
money through the mail. In this way, it can be similar to a check. However, because money orders are
paid for in advance, they are considered a better guarantee of payment than a check.

Exhibit I.I-G

I.2 Meaning of Cash Equivalents

“Cash Equivalents” are 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 (PAS 7, par. 7)
Examples of Cash Equivalents
a. Three-month Bangko Sentral ng Pilipinas (BSP) treasury bill
b. Three-year Bangko Sentral ng Pilipinas treasury bill purchased three months before date of
maturity
c. Three-month time deposit
d. Three-month money market instrument or commercial paper

What are treasury bills?

 Treasury Bills or popularly known as T-Bills are peso-denominated short-term fixed income
securities issued by the Republic of the Philippines through its Bureau of Treasury. Why invest
in Treasury Bills? You get the interest in advance. With a minimum of Php 500,000 you can
already enjoy high yields (Google)

Exhibit I.2A

Classification of investment of excess cash

Investments in time deposit , money market instruments and treasury bills should be classified as
follows:

Term Classification Financial Statement

Presentation
a. 3 months or less Cash Equivalents Cash and Cash
Equivalents
b. More than 3 mos.but Short-term financial assets Presented separately as
within 1 year or temporary investments Current Asset
c. More than 1 year Non-current or long-term
investments

Illustrations/Exercises :

1. Blueseas company showed the following information at year-end Dec. 31, 2018 :
Customer’s checks dated December 29, 2018 350,000
Customer’s checks with date January 15, 2019 75,000
 Cashier’s/manager’s checks 155,000
Traveler’s checks 500,000
Bank drafts 175,000
Money orders 125,000
Demand deposit or checking account 2,750,000
Savings deposit-Great Bank 1,250,000
Savings deposit – Weak Bank (closed last year) 550,000
Petty cash fund 50,000
Payroll fund 250,000
Dividend fund 700,000

What is the correct amount of cash that should be reported at year-end ?

2. Affable Company provided the following information at year-end comprising the cash account :
Cash in bank – demand deposit 5,000,000
Cash on hand 400,000
Postage stamps unused 5,000
Certificate of Time deposit 1,500,000
Money Order 50,000
Manager’s Check 100,000
Traveler’s Check 1,000,000
Postdated customer check 500,000

What amount should be reported as cash at year-end ?

a. 8,050,000
b. 7,050,000
c. 6,550,000
d. 6,450,000

3. Toktak Company disclosed the following information on December 31, 2020 :

Checcking Account –Metrobank 2,375,000

Savings account - China bank 3,000,000
90-days Bangko Sentral ng Pilipinas (BSP) treasury bill 1,325,000

Three-year BSP treasury bill purchased 3 months before date of maturity 1,250,000
90-days time deposit 2,500,000
Three-month money market instrument or commercial paper 1,100,000
Cash Fund – sinking fund 2,000,000
Petty cash fund 75,000

How much cash and cash equivalents should be reported at year-end ?

4. Tranvia company revealed the following information on December 31, 2020 :

Cash in checking account 350,000

Cash in money market account (temporary investment) 750,000
Treasury bill, purchased Nov1, 2020 maturing Jan 31, 2021 3,500,000
Time deposit purchased Dec 1, 2020 maturing Mar 31, 2021 4,000,000
What amount should be reported as cash and cash equivalent on Dec 31, 2020 ?

Theories
5. Which of the following is not considered as cash ?
a.Petty cash fund
b. Money Order
c. Coin and currency
d. Bank overdraft

6. Which of the following is usually considered cash ?

a.Certificate of Deposit
b. Checking Account
c. Money market certificate
d.Postdated Check

7. Restricted deposits in foreign bank are classified as

a. Current Asset with appropriate disclosure
b. Noncurrent asset with appropriate disclosure
c. Be written off as a loss
d. As part of cash and cash equivalents

Assessments :

 Homeworks/Assignments

- Please answer the assignments to be given to you (through LMS, Messenger/GC,

Google Classroom)
- Download a blank check, and prepare one properly filled-up. Please send via
google classroom.

 Quizzes
Your quizzes will given through LMS, Messenger, and Google Classroom
Lesson 2 : Cash Measurement and other Essential Cash Matters

Measurement of Cash
 Cash is measured at face value.
 Cash in foreign currency is measured at the current exchange rate.

Exhibit 2-A
Foreign Currency
 Cash in foreign currency should be translated to Philippine pesos using the current exchange
rate.
 Deposits in foreign countries which are not subject to any foreign exchange restriction are
included in “cash”
Deposits in foreign bank which are subject to foreign exchange restriction should be classified
separately among noncurrent assets and the restriction clearly indicated.

Cash Fund for a Certain purpose

 Cash fund set aside for use in current operations or for the payment of current obligation is
classified as current asset The cash fund is included as part of Cash and Cash Equivalents.
( Examples: petty cash fund, payroll fund, travel fund, interest fund, etc.)

 Cash fund set aside for noncurrent purpose or payment of noncurrent obligation is shown as
long-term investment.
(Examples: sinking fund, contingent fund, insurance fund, fund for acquisition of PPE)

Example:

Petty cash fund 50,000

Payroll fund 150,000
Travel fund 75,000
Interest fund 100,000
Sinking fund 250,000
Contingent fund 300,000
Insurance fund 500,000
Fund set aside to purchase 1,000,000
machinery

How much is the amount to be presented as Cash ?

How much is the amount to be presented as Long-term investment ?
Bank Overdraft
 When the cash in bank account has a credit balance, it is said to be an overdraft. 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. It should not be offset against other bank
accounts with debit balances . However, there is an exception to that rule. An overdraft can be
offset against other bank accounts if the amount is not material.

Example:
Dalipe Company has two bank accounts , namely :
Cash in Bank:
Metrobank (overdrawn by ) -- (10,000)
Landbank of the Phils. (debit bal) 100,000

The proper presentation or classification of the 2 accounts are as follows:

ASSETS LIABILITY EQUITY

Current Asset: Current liability:

Cash in Bank- LBP - Bank overdraft-Metrobank Equity
100,000 10,000 90,000

Compensating balance
 A 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 a
bank. (For example an entity borrows P5,000,000 from a bank and agrees to maintain a 10% of P500,000 minimum
compensating balance in a demand deposit account. Because of a formal compensating balance agreement

In this case, the amount to be declared as cash should be P4,500,000.

If loan is shortterm, the 500,000 is classified as “cash held as compensating balance”, a current asswet
If the loan is long-term, it is classified as noncurrent investment.

Undelivered or Unreleased Check

 An undelivered or unreleased check is one that is merely drawn and recorded but not given to
the payee before the end of the accounting period.
Assuming the end of the accounting period is at December 31 of the year, and there are
unreleased checks on hand, an adjustment is to be made with such checks reverted back to
cash and the liability account to be set up.

Stale check or Check long outstanding

 A stale check is a check not encashed by the payee within a relatively long period of time. In
banking practice, a check becomes stale if not encashed within six months from the time of
issuance.

 Financial treatment :
If the amount of stale check is small or immaterial, it is treated as Miscellaneous income.
 Cash xx
Miscellaneous income xx

If the amount of the stale check is large or material and the liability is expected to continue, the
cash is restored and the liability is again set up

Cash xx
Accounts payable xx

Accounting for Cash Shortage and Cash Overage

Determining the cash shortages or cash overages are common important practices in businesses be it in
service or merchandising business.

Where the cash count shows cash which is less than the balance per book, a cash shortage is to be
recorded.

Cash balance per book 5,000 Journal Entry:

Cash balance per count 4,500 Cash short or over 500
Cash shortage (500) Cash 500

The cash short or over is only a temporary account or suspense account. If the proper person held responsible for the
cash shortage is identified , the adjustment should be :
Due from cashier 500
Cash short or over 500

Where the cash count shows cash which is more than the balance per book, a cash overage is to be
recorded.

Cash balance per book 4,000 Journal Entry:

Cash balance per count 5,000 Cash 1,000
Cash overage (1,000) Cash short or over 1,000

 If the cause of the cash overage is not known or there is no claim to it , then it is treated as a miscellaneous
income. The adjustment should be :
Cash short or over 1,000
Miscellaneous income 1,000
 If the cash overage is properly found to be the money of the cashier, the adjustment should be :
Cash short or over 1,000

Payable to cashier 1,000

Exercises:

1. Cash in foreign currency is valued at

a. Face value
b. Present value
c. Future value
d. Current exchange rate

2. Which of the following is not part of Cash ?

a. Payroll fund
b. Travel fund
c. Contingency fund
d. Petty cash fund

3. What is a compensating balance ?

a. Savings account balance
b. Demand deposit account balance
c. Minimum deposit required to be maintained in connection with a borrowing
arrangement
d. Temporary investment as collateral for loan

4. The cash balance per book of XYZ company at a certain date was P25,000. An actual
cash count was conducted to verify the true balance, and as per count the cash was
P24,750. Based on this, there was a
a. Cash overage of P250
b. Cash shortage of P250
c. Neither cash overage nor cash shortage of P250
d. None of the above

5. True/False. Cash in a closed bank is part of cash.

6. True/False. A bank draft is not cash while a bank overdraft is part of current asset.

7. Babe company revealed the following information at year end:

Cash in China Bank 555,000
Interest fund 100,000
Sinking fund 350,000
Contingent fund 300,000
Petty cash fund 50,000

Compute the amount of cash to be presented on the financial report.

Assessments :

 Homeworks/Assignments

- Please answer the assignments to be given to you (through LMS,

Messenger/GC, Google Classroom)
  Quizzes
Your quizzes will given through LMS, Messenger, and Google Classroom

Lesson 3 : Petty Cash Fund

The petty cash fund is money set aside to pay small expenses which cannot be paid conveniently by
means of check.

Two Methods of Handling the Petty Cash Fund

1. Imprest Fund System
2. Fluctuating Fund System
The imprest fund system is the most common method used the handling the petty cash transactions.

Illustrations
1.
2020 Particulars Debit Credit
Nov 10 The entity established an imprest fund of P10,000

Petty cash fund 10,000

Cash in bank 10,000

Nov 29 The petty cash items include the following :

Currency and coins 2,000
Supplies 5,000
Telephone 1,800
Postage 1,200

Replenished the fund.

The journal entry to record the replenishment is:

Supplies 5000
Telephone 1800
Postage 1200
Cash in bank 8000

Dec 31 The fund is composed of the following

: Currency and coin 7,000
Supplies 1,500
Postage 500
Miscellaneous expense 1,000

The fund was not replenished. The journal entry is

Supplies 1500
Postage 500
Misc expense 1000
Petty cash fund 3000
2021
Jan 1 Reversal of of adjustment made on Dec 31 2020
Petty cash fund 3000
Supplies 1500
Postage 500
 Miscellaneous expense 1000

Feb1 The composition of the fund

Currency and coins 1000
Supplies 4500
Postage 3000
Miscellaneous expense 1000
Total 10000

The journal entry to record the replenishment is

Supplies 4500
Postage 3000
Miscellaneous expense 1500
Cash in bank 9000

2. Admirable Company had a petty cash fund which includes the following details :
Coins and currency 2,000
Paid vouchers
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Employee’s check returned by bank marked “NSF” 1,000
Check drawn to the order of petty cash custodian 4,000
What amount of petty cash fund should be reported?

3. What is the major purpose of an imprest petty cash fund ?

a. To effectively plan cash inflows and outflows
b. To determine the honesty of the petty cash cashier
c. To ease the payment of cash to vendor
d. To effectively control cash disbursements

Assessments :

 Homeworks/Assignments

- Please answer the assignments to be given to you (through LMS, Messenger/GC,

Google Classroom)

 Quizzes
Your quizzes will given through LMS, Messenger, and Google Classroom