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Intermediate
Accounting 1
 How to Study
Intermediate Accounting
Prof. Ernie D. Tano, CPA, MBA
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“The How” – Implementation

- Name of Account

- Recognition
- Measurement
- Transactions
- Presentation
- Disclosure
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“The How” – Implementation

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Cash & Cash

Equivalents
Prof. Ernie D. Tano, CPA, MBA
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Cash & Cash Equivalents

Cash

cash includes money and any other negotiable

instrument that is payable in money and acceptable by
the bank for deposit and immediate credit
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Cash & Cash Equivalents

Cash

It includes checks, bank drafts and money orders

because these are acceptable by the bank for
deposit or immediate encashment
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Cash & Cash Equivalents

Cash
a. Petty Cash d. Time deposits
b. Demand Deposits e. Foreign Currencies
c. Undeposited f. Bank Drafts
Negotiable Checks g. Money orders
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Cash & Cash Equivalents

Cash - unrestricted

Cash must be readily available in the payment of

current obligations and not subject to restrictions
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Cash & Cash Equivalents

Cash – items included in cash

a. Cash on hand
b. Cash in bank

c. Cash fund
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Cash & Cash Equivalents

Cash Equivalents

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
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Cash & Cash Equivalents

Cash Equivalents

“only highly liquid investments that are acquired

three months before maturity can qualify as cash
equivalents”.
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Cash & Cash Equivalents

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
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Cash & Cash Equivalents

Measurement of cash
Cash is measured at face value.

Cash in foreign currency is measured at the current

exchange rate.
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Cash & Cash Equivalents

Measurement of cash

If the bank is under the bankruptcy, cash should be

written down to estimated realized value if the
amount recoverable is estimated to be lower than
the face value
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Cash & Cash Equivalents

Financial statement presentation

“Cash and cash equivalents” should be shown as

the first line item among the current assets
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Cash & Cash Equivalents

Foreign currency
Cash in foreign currency should be translated to Phil.
Pesos using the current exchange rate.

Deposits in foreign countries which are not subject to

restriction are included in “cash”
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Cash & Cash Equivalents

Foreign currency

Deposits in foreign bank which are subject to foreign

exchange restriction, if material, should be classified
separately among noncurrent assets.
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Cash & Cash Equivalents

Cash fund for certain purpose

Cash fund set aside for use in current operations or for
the payment of current asset. It is current assets and
included as part of cash & cash equivalents.

Ex.-petty cash fund, payroll fund, travel fund, interest

fund, dividend fund and tax fund.
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Cash & Cash Equivalents

Cash fund for certain purpose

Cash fund set aside for noncurrent purpose or payment of
noncurrent obligation, it is shown as long-term
investment

Ex.-sinking fund, preference share redemption fund,

contingent fund, insurance fund and fund for acquisition
or construction of fixed asset.
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Cash & Cash Equivalents

Classification of cash fund

The classification of a cash fund as current or noncurrent

should parallel the classification of the related liability
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Cash & Cash Equivalents

Cash fund for certain purpose

Ex.-a sinking fund set aside to pay a bond payable shall
be classified as current asset when the bond payable is
already due within one year after the end of reporting
period.
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Cash & Cash Equivalents

Classification of cash fund

However, a cash fund set aside for the acquisition of a

noncurrent asset should be classified as noncurrent
regardless of the year of disbursement.
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Cash & Cash Equivalents

Bank overdraft
Bank account has credit balance as a result of issuing
checks in excess of the deposits
General rule: Classify as a current liability and should not
be offset against other bank account
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Cash & Cash Equivalents

Bank overdraft – Exception to rule

When an entity maintains two or more accounts in one
bank.
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Cash & Cash Equivalents

Compensating balance

Minimum checking or demand deposit account balance

that must be maintained in connection with a borrowing
arrangement with a bank.
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Cash & Cash Equivalents

Compensating balance - Classification

Cash -if not legally restricted

Current -if legally restricted and related
Asset to short-term loan
Non-Current -if legally restricted and related
Asset to long-term loan
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Cash & Cash Equivalents

Undelivered/unreleased check
There is no payment if check is undelivered or
unreleased.

Adjustment entry is needed because the check may be

cancelled anytime.
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Cash & Cash Equivalents

Postdated check delivered

Check drawn, recorded and given to payee but with date
subsequent to end of reporting period.

Reverse the entry to restore back to the cash balance.

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Cash & Cash Equivalents

Stale check
A check uncashed by the payee for a relatively long
period of time. (more than 6 months)

Reverse the entry to restore back to the cash balance.

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Cash & Cash Equivalents

Imprest system

-control of cash system which requires that all cash

receipts should be deposited intact and all cash
disbursements should be made by means of check
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Cash & Cash Equivalents

Petty Cash Fund

- Money set aside to pay small expenses which cannot be

paid conveniently by means of check.
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Cash & Cash Equivalents

Petty Cash Fund – 2 methods

a. Imprest fund system

b. Fluctuating fund system

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Cash & Cash Equivalents

Petty Cash Fund – Comparative
a. A check is drawn to establish the fund
Imprest System Fluctuating Fund System
Petty Cash Fund xxx Petty Cash Fund xxx
Cash in Bank xxx Cash in Bank xxx

b. Payment of expenses out of fund

Imprest System Fluctuating Fund System
no entry Expenses xxx
Petty Cash Fund xxx
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Cash & Cash Equivalents

Petty Cash Fund – Comparative
c. Replenishment of Petty Cash Fund
Imprest System Fluctuating Fund System
Expenses xxx Petty Cash Fund xxx
Cash in Bank xxx Cash in Bank xxx

d. Unreplenished expenses – end of accounting period

Imprest System Fluctuating Fund System
Expenses xxx no entry
Petty Cash Fund xxx
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Cash & Cash Equivalents

Petty Cash Fund – Comparative
e. Increase in the fund
Imprest System Fluctuating Fund System
Petty Cash Fund xxx Petty Cash Fund xxx
Cash in Bank xxx Cash in Bank xxx

f. Decrease in the fund

Imprest System Fluctuating Fund System
Cash in Bank xxx Cash in Bank xxx
Petty Cash Fund xxx Petty Cash Fund xxx