 In layman’s term, money

◦ Standard medium of exchange in business

transaction
◦ Refers to the currency and coins

 In accounting, it connotes more than money

◦ Money and any other negotiable instrument that is
payable in money and acceptable by the bank for
deposit and immediate credit
Currency and coins

Checks

Bank drafts

Money orders
 No specific standard dealing with cash

 The only guidance is in PAS 1:

◦ An entity shall classify an asset as current when the
asset is cash or a cash equivalent unless it is
restricted from being exchanged or used to settle a
liability for at least twelve months after the end of
the reporting period.
 Does not include postdated checks
(unacceptable by the bank for deposit and
immediate credit or outright encashment)

 Unrestricted in use (readily available in the

payment of current obligations and not
subject to any restriction, contractual or
otherwise)
 Petty Cash
Cash on Hand
Fund

Other Cash
Cash in Bank Fund
(for current purposes)
 “short-term, highly liquid
investments that are readily
convertible into known amount of
cash which are subject to an
insignificant risk of changes
in value”
----------------------
maturity of 3 months or less
from date of acquisition
(purchase date)
 Equity securities not qualified because shares
have no maturity date

 However, preference shares with specified

redemption date and acquired three months
before redemption date can qualify
 ITEMS √ OR X

1. 3-month BSP treasury bill

2. checks, bank drafts and money orders

3. 3-month time deposit

4. 3-year BSP treasury bill purchased 5 months before

date of maturity

5. 3-month money market instrument

6. redeemable PS acquired 3 months before redemption

date
7. 3-year BSP treasury bill purchased 2 months before
date of maturity

8. equity securities
 ITEMS √ OR X

1. 3-month BSP treasury bill √

2. checks, bank drafts and money orders X

3. 3-month time deposit √

4. 3-year BSP treasury bill purchased 5 months before X

date of maturity

5. 3-month money market instrument √

6. redeemable PS acquired 3 months before redemption √

date
7. 3-year BSP treasury bill purchased 2 months before √
date of maturity

8. equity securities X
 at FACE VALUE
 Foreign currency at current exchange rate
 If bank or financial institution holding the
funds of an entity is in bankruptcy or
financial difficulty,
◦ cash is written down to net realizable value if
recoverable amount is estimated to be lower than
the face value
 “Cash and Cash Equivalents” shown as the
first item among the current assets
 Details comprising “cash and cash
equivalents” disclosed in the notes to FS
 any cash accumulated in excess of that
needed for current operations should be
invested even temporarily in some type of
revenue earning investment
 Invested in time deposits, money market
instruments and treasury bills for the purpose
of earning interest income
 Investments in time deposits, money market
instruments and treasury bills:
a. If the term is three (3) months or less (cash
equivalent), therefore included in the cash and cash
equivalent
b. If the term is more than three (3) months but within
one year (short-term financial asset), therefore current
asset
c. If the term is more than one (1) year (long-term
investment), therefore noncurrent investment
-------------
If investment becomes due within one (1) year from the end
of the reporting period (current investment), reclassify as
current investment
 Should be translated to Philippine peso using
current exchange rate
 Deposits in foreign countries
a. not subject to any foreign exchange restriction,
cash
b. subject to any foreign exchange restriction, if
material, noncurrent asset (restriction clearly
indicated)
cash and cash equivalent
 for use in current operations or payment of
current obligation,
 petty cash fund, payroll fund, travel fund,
interest fund, dividend fund and tax fund

long-term investment
 set aside for noncurrent purpose or payment of
noncurrent obligation
 sinking fund, preference share redemption fund,
contingent fund, insurance fund, acquisition or
construction of PPE

 classification as current or noncurrent should parallel classification

of related liability
 Cash in bank account has a credit balance
 Results from the issuance of checks in excess
of the deposits
 Classified as current liability
 Should not be offset against other bank
accounts with debit balances
 Not necessary to adjust and open a bank
overdraft account in the ledger
 CIB-First Bank account maintained in the
ledger with a credit balance (see example)
 generally not permitted in the Philippines
 General Rule:
◦ Not be offset against other bank accounts with
debit balances
 Exception:
◦ When there are two or more accounts in one bank
and one account results in an overdraft, overdraft
can be offset against the other bank accounts with
a debit balance in order to show
cash, net of bank overdraft or
bank overdraft, net of other bank account/s
◦ Overdraft can also be offset against other bank
account/s if the amount is not material
 Minimum checking or demand deposit
account balance that must be maintained in
connection with a borrowing arrangement
with a bank
 Ex. An entity borrows P5M from a bank and
agrees to maintain a 10% or P500,000
minimum compensating balance in a demand
deposit account
 Results in the reduction of the amount
borrowed (partial compensation for the loan
extended)
Classification
a. cash - If not legally restricted as to
withdrawal by the borrower because of an
informal compensating balance agreement
b. “cash held as compensating balance” under
current asset – if legally restricted because
of a formal compensating balance
agreement (if related loan is short-term)
c. noncurrent investment – if legally restricted
because of a formal compensating balance
agreement (if related loan is long-term)
 Merely drawn and recorded but not given to
the payee before the end of reporting period

 Still subject to entity’s control and may thus

be cancelled anytime before delivery at the
discretion of the entity

Adjusting entry:
Cash xx
Accounts payable xx
(or appropriate account)
 a check drawn, recorded and already given to
the payee but bears a date subsequent to the
end of reporting period

 No payment until the check can be presented

to the bank for encashment or deposit

Adjusting entry:
Cash xx
Accounts payable xx
(or appropriate account)
Check long outstanding
 A check not encashed by the payee within a
relatively long period of time
Negotiable Instruments Law:
◦ Where the instrument is payable on demand,
presentment must be made within a “reasonable time”
after its issue
Banking practice, a check becomes stale if not
encashed within six (6) months from the time of
issuance.
A matter of entity policy: may issue a “stop
payment order” to the bank for the cancelation of
a previously issued check (even after less than 6
months)
Adjusting entry:
If amount is immaterial
Cash xx
Miscellaneous income xx

If amount is material (liability expected to

continue)
Cash xx
Accounts payable xx
(or appropriate account)
 Books of an entity should be closed at the
end of every reporting period in order that FS
will show fairly the financial position and
performance of the entity.
 a practice of opening the books of accounts
beyond the close of the reporting period for
the purpose of showing a better financial
position and performance (management
fraud)
 a deliberate misstatement of the assets,
liabilities, equity, income and expenses
Accomplished as follows:
a. By recording as of the last day of the
reporting period collections made
subsequent to the close of the period
b. By recording as of the last day of the
reporting period payments of accounts
made subsequent to the close of the period.
 A practice used for concealing a cash
shortage
 Misappropriation of a collection from one
customer and concealment of this defalcation
by applying a subsequent collection made
from another customer (employee fraud)
 Entity has poor internal control especially
when the bookkeeper and cashier are one
and the same person
 Another device to conceal a cash shortage
 When an entity maintains current accounts in
different banks
 Employed at the end of the month
 A check is drawn against a first bank and
depositing the same check in a second bank
to cover the shortage in the latter bank
 No entry is made for both the drawing and
deposit of the check
Adjusting entry: Where cash count shows
Cash is less than balance per book
Cash short or over xx
Cash xx
If cashier or cash custodian is held responsible
Due from cashier xx
Cash short or over xx
If responsible party cannot be identified
Loss from cash shortage xx
Cash short or over xx
If amount is immaterial,
debit to miscellaneous expense
Adjusting entry: Where cash count shows
Cash is more than balance per book
Cash xx
Cash short or over xx
If money of cashier or cash custodian
Cash short or over xx
Payable to cashier xx
If there is no claim
Cash short or over xx
Miscellaneous income xx
A system of control of cash which requires that
all cash receipts should be deposited intact
and all cash disbursements should be made
by means of check
Money set aside to pay small expenses which
cannot be paid conveniently by means of
check

Two methods of handling petty cash

a. Imprest fund system
b. Fluctuating fund system
 Imprest Fund System Fluctuating Fund System
Establish a petty cash fund of P10,000 on January 2.
Petty cash fund 10,000 Petty cash fund 10,000
Cash in bank 10,000 Cash in bank 10,000
Petty cash expenses – January 2-31
No entry Postage 1,500
Supplies 5,500
Transportation 1,200
Miscellaneous Exp 800
Petty cash fund 9,000
The fund is replenished on February 1 and increased by P5,000
Petty cash fund 5,000 Petty cash fund 14,000
Postage 1,500 Cash in bank 14,000
Supplies 5,500
Transportation 1,200
Miscellaneous Exp 800
Cash in Bank 14,000
 Imprest Fund System Fluctuating Fund System
At the end of the accounting period
Adjust the unreplenished expenses No adjustment is necessary
in order to state the correct petty
cash balance

Expenses xx
Petty cash fund xx

Decrease of fund

Cash in bank xx Cash in bank xx

Petty cash fund xx Petty cash fund xx