CASH AND CASH

EQUIVALENT
DEFINITION OF CASH AND CASH EQUIVALENT

• Money or any other negotiable instrument

• Unrestricted
• Short Term
• Highly Liquid
• Acquired 3 months before maturity
INCLUSION IN CASH AND CASH EQUIVALENT

CASH ITEMS:
• Cash on Hand
• Cash in bank
• Cash Fund

CASH EQUIVALENT
• 3 months- Treasury Bill
• 3 months-Time Deposit
• 3 months-Money Markets
• 3 months Redeemable Preference Share
MEASUREMENT

• Cash @FACE VALUE

• Foreign Currency @CURRENT EXCHANGE RATE
• Cash in Bankrupt Bank @ESTIMATED REALIZABLE VALUE
 CLASSIFICATION

INVESTMENT OF EXCESS CASH:

• 3 months or less – Cash and Cash Equivalent
• 3 months -1 Year – Current Asset
• > 1 Year- Non-current Asset
CASH FUND:
• shall PARALLEL to classification of related liabilitY
 CLASSIFICATION

COMPENSATING BALANCE:
• NOT LEGALLY RESTRICTED (INFORMAL) – CASH
• LEGALLY RESTRICTED ( FORMAL) –
* LOAN SHORT TERM- CURRENT ASSET
* LOAN LONG TERM – NON-CURRENT ASSET
PRESENTATION AND DISCLOSURE

• FIRST line item

• Current Asset
• Components- disclosed in the notes to Financial Statement
OTHER ISSUES IN CASH & CASH EQUIVALENT

BANK OVERDRAFT
GENERAL RULE: CURRENT LIABILITY
EXEMPTIONS: DEDUCTED TO CASH IN BANK
• Two or more accounts in one bank
• Amount is immaterial
• Integral part of cash management
 ACCOUNTING FOR CASH SHORTAGE/ OVERAGE

CASH COUNT < BAL. PER BOOK CASH COUNT > BALANCE PER
(SHORTAGE) BOOK ( OVERAGE)
CASH SHORT OR OVER XX CASH XX
CASH XX CASH SHORT OR OVER XX
FAULT OF CASHIER ( AJE) MONEY OF CASHIER (AJE)
DUE FROM CASHIER XX CASH SHORT OR OVER XX
CASH SHORT OR OVER XX PAYABLE TO CASHIER XX
UNKNOWN CAUSE UNKNOWN CAUSE
LOSS FROM CASH SHORTAGE XX CASH SHORT OR OVER XX
CASH SHORT OR OVER XX MISCELLANEOUS INCOME XX
STALE OR CHECK LONG STANDING

• Non encashed within 6 months

IMMATERIAL AMOUNT
CASH XX
MISCELLENEOUS INCOME XX
MATERIAL AMOUNT & EXPECTED TO CONTINUE
CASH XX
A/P or APPROPRIATE ACCOUNT XX
PETTY CASH FUND

IMPREST FUND SYSTEM

FLUCTUATING FUND SYSTEM
Establishment PCF XX
PCF XX
CASH XX
CASH XX
Disbursement NO JE
EXPENSES XX

PCF XX

Replenishment Expenses XX
PCF XX
CIB XX
CIB XX
Increase/Decrease PCF XX
PCF XX
CIB XX
CIB XX
Adjustment Expenses XX
NO ADJUSTMENT
PCF XX
PROBLEM 1
SOLUTION

CASH IN CHECKING ACCOUNT 350,000

CASH IN MONEY MARKET 750,000
TREASURY BILL 3.500,000
TOTAL CASH AND CASH EQUIVALENT 4,600,000
PROBLEM 2
SOLUTION

CASH IN BANK ACCOUNT- CURRENT ACCOUNT 5,000,000

CASH IN BANK- PAYROLL ACCOUNT 1,000,000
CASH ON HAND (500K-200K) 300,000
TIME DEPOSIT 2,000,000
Total cash and cash equivalent 8,300,000
PROBLEM 3
SOLUTION

CHECKBOOK BALANCE 4,000,000

UNDELIVERED CHECK DRAWN ON
THOR’S ACCOUNT 500,000
Adjusted cash balance 4,500,000
PROBLEM 4
SOLUTION

CASH ON HAND 500,000

DEMAND DEPOSIT 4,000,000
PETTY CASH FUND 50,000
TRAVELER’S CHECK 200,000
MANAGER’S CHECK 100,000
MONEY ORDERS 150,000
TOTAL CASH 5,000,000
PROBLEM 5
SOLUTION

CASH 3,400, 000

GOVERNMENT TREASURY BILLS 2,000,000

COMMERCIAL PAPERS 1,500,00
Total Cash Equivalents 3,500,000
PROBLEM 6
SOLUTION

CASH IN BANK 2,250,000

CASH ON HAND 125,000
Total Cash 2,375,000
PROBLEM 7
PROBLEM 8
SOLUTION

CURRENCIES AND COINS 22,000

CHECK REPLENISHMENT 15,000
ADJUSTED PCF 37,000
BANK RECONCILIATION
BANK RECONCILIATION

• DEMAND DEPOSIT- covered by deposit and checks. Interest bearing. Uses the “Bank
Recon”
• SAVINGS DEPOSIT- uses “Passbook”. It is “Interest Bearing”
• TIME DEPOSIT – evidenced by “Certificate of Deposit”
ADJUSTED BALANCE METHOD
-BOTH BANK AND BOOK ARE RECONCILLED

BOOK BANK
BOOK BALANCE XX BANK BALANCE XX
ADD:CREDIT MEMOS XX ADD: DEPOSIT IN TRANSIT XX
TOTAL XX TOTAL
LESS:DEBIT MEMOS (XX) LESS: OUTSTANDING CHECK-
ADJUSTED BOOK BALANCE XX CERTIFIED CHECK (XX)
ADJUSTED BANK BALANCE
XX
BANK TO BOOK BALANCE METHOD
- BANK RECONCILING ITEM IS SAME TREATMENT, WHILE BOOK
RECONCILING ITEMS ARE REVERSED

BANK BALANCE XX
ADD: DEPOSIT IN TRANSIT XX
DEBIT MEMO XX
TOTAL XX
LESS: OUTSTANDING CHECK (XX)
CREDIT MEMO (XX)
UNADJUSTED BOOK BALANCE XX
BOOK TO BANK BALANCE METHOD
- BOOK RECONCILING ITEM IS SAME TREATMENT, WHILE BANK
RECONCILING ITEMS ARE REVERSED

BOOK BALANCE XX
ADD: CREDIT MEMO XX
OUTSTANDING CHECK XX
TOTAL XX
LESS: DEBIT MEMO (XX)
DEPOSIT IN TRANSIT (XX)
UNADJUSTED BANK BALANCE XX
PROBLEM
SOLUTION

BALANCE PER BANK 1,805,000

ADD: DEPOSIT IN TRANSIT 325,000
TOTAL 2,130,000
LESS: OUTSTANDING CHECKS (275,000)
ADJUSTED CASH IN BANK 1,855,000
PROBLEM
SOLUTION

BALANCE PER BANK 2,000,000

ADD: DEPOSIT IN TRANSIT 200,000
TOTAL 2,200,000
LESS: OUTSTANDING CHECKS (400,000) 500K-100K
BANK ERROR (300,000)
ADJUSTED CASH IN BANK 1,500,000
PROBLEM
SOLUTION

BALANCE PER BOOK FEB 28 1,460,000

ADD: NOTE COLLECTED BY BANK 100,000
INTEREST EARNED ON NOTE 10,000
TOTAL 1,570,000
LESS: NSF CHECK (130,000)
BANK SERVICE CHARGE (5,000)
ADJUSTED BOOK BALANCE 1,435,000
• BALANCE PER BANK 1,530,000
• DEPOSIT IN TRANSIT 85,000
• BANK-ERROR 20,000
• OUTSTANDING CHECKS (200,000)
• ADJUSTED BANK BALANCE 1,435,000
ACCOUNTS RECEIVABLE
DEFINITION OF ACCOUNTS RECEIVABLE

• FINANCIAL ASSET
• CONTRACTUAL RIGHT
• TO RECEIVE CASH OR OTHER FINANCIAL ASSET
• A.K.A “Trade Debtors”
INCLUSIONS ON TRADE AND OTHER
RECEIVABLE

TRADE RECEIVABLE NON-TRADE RECEIVABLE

• Trade receivable : Accounts receivable • Advances to or receivable from

or Notes Receivable • Advances to supplier

• Subscription Receivable <1 year
• Loans Receivable – if bank
• Debit balance of A/P
• Special Deposits
• Accrued Income
• Claims Receivable
 MEASUREMENT AND PRESENTATION &
DISCLOSURE
PRESENTATION AND
MEASUREMENT DISCLOSURE
INITIAL MEASUREMENT • One line item called Trade and Other
- @FACE VALUE Receivable
• Details disclosed on Notes to FS
SUBSEQUENT MEASUREMENT
- @NRV OR AMORTIZED COST
CLASSIFICATION: CURRENT OR NON CURRENT?

• TRADE RECEIVABLE – ALWAYS CURRENT

• NON-TRADE
<1 YEAR = CURRENT ASSET
>1 YEAR = NON-CURRENT ASSET
 OTHER ISSUES IN ACCOUNTS RECEIVABLE:
NET REALIZABLE VALUE
• NET REALIZABLE VALUE = AR- ALLOWANCES
ALLOWANCES :
• Allowance for freight charge
• Allowance for Sales Return
• Allowance for Sales Discount
• Allowance for Doubtful Accounts
 OTHER ISSUES IN ACCOUNTS RECEIVABLE:
DOUBTFUL ACCOUNTS
ALLOWANCE METHOD VS DIRECT METHOD

ALLOWANCE METHOD DIRECT WRITE OFF METHOD

Doubtful of collection: Doubtful of collection:
Doubtful Accounts Expense xx NO JOURNAL ENTRY
Allowance for Doubtful Accounts xx
A/R Becomes worthless: A/R Becomes worthless:
ADA XX Doubtful Accounts Expense XX
A/R XX A/R XX
Recovery: Recovery:
CASH XX CASH XX
ADA XX MISCELLANEOUS INCOME XX
ACCOUNTS RECEIVABLE
SOLUTION

ACCOUNTS RECEIVABLE 1,300,000

ADD: CREDIT SALES 5,400,000
TOTAL 6,700,000
LESS: COLLECTIONS FROM CUSTOMERS ( 4,750,000)
ACCOUNTS WRITTEN OFF (125,000)
ACCOUNTS RECEIVABLE – 12/31 1,825,000
PROBLEM
SOLUTION

ACCOUNTS RECEIVABLE 650,000

ADD: CREDIT SALES 2,700,000
TOTAL 3,350,000
LESS: COLLECTIONS FROM CUSTOMERS ( 2,150,000)
ACCOUNTS WRITTEN OFF (40,000)
SALES RETURN (75,000)
A/R DECEMBER 31 1,085,000
LESS: ALLOWANCES (110K+50K) (160,000)
NET REALIZABLE VALUE 925,000
PROBLEM
SOLUTION

TRADE ACCOUNTS RECEIVABLE 3,500,000

TRADE INSTALLMENTS RECEIVABLE
( 850,000-50,000 ) 800,000
TRADE ACCOUNTS RECEIVABLE- OFFICER 150,000
ACCOUNTS FROM POSTDATED CHECK 200,000
TOTAL TRADE ACCOUNTS RECEIVABLE 4,650,000
NOTES RECEIVABLE
DEFINITION OF NOTES RECEIVABLE

• Notes Receivable are claims supported by formal promises to pay usually in the form of
notes.
• Represents only claim arising from sale of merchandise or service in the ordinary course
of business
• Other notes should be designated separately
MEASUREMENT OF NOTES RECEIVABLE

INITIAL MEASUREMENT:
1. INTEREST BEARING (SHORT TERM) - @ FACE AMOUNT
2. INTEREST BEARING (LONG TERM)- @ FACE AMOUNT
3. NON-INTEREST BEARING (LONG TERM) – Cash Price Equivalent or @
PRESENT VALUE
SUBSEQUENT MEASUREMENT:
@ AMORTIZED COST
NOTES RECEIVABLE- PRESENT VALUE

KINDS OF PRESENT VALUE:

1. PRESENT VALUE OF 1= PRINCIPAL ARE PAYABLE AT LUMPSUM AT
MATURITY DATE
2. PRESENT VALUE OF ORDINARY ANNUITY OF 1= PRINCIPAL IS PAYABLE AT
EVERY YEAR END.
3. PRESENT VALUE OF ADVANCE ANNUITY= ADVANCE PAYMENT AT DATE
OF CONTRACT
MEANING OF AMORTIZED COST

The amortized cost is the amount at which the note receivable is measured initially:
a. Minus principal repayment
b. Plus or minus cumulative amortization of any difference between the initial carrying
amount and the principal maturity amount
c. Minus reduction for impairment or uncollectibility
PROBLEM
SOLUTION

1. Notes Receivable, June 30,2023 1,500,000

Payment July 1, 2024 ( 500,000)
Notes Receivable, July 1,2024 1,000,000
2. Accrued interest receivable – June 30,2025 80,000
(1M X 8%)
PROBLEM
SOLUTION

1. First Payment on January 1, 2023 600,000

Present Value of Remaining 6 payments 2,616,000 CA OF NR
(600k x 4.36)
Correct Sales Revenue 3,216,000
2. CA OF NR = 2,616,000
PROBLEM
SOLUTION

1. First Payment on December 31, 2023 1,000,000

2. Present Value of Remaining 9 payments 6,250,000 CA OF NR 12/31/2023
(1,000,000 x 6.25)
Correct Sales Revenue 7,250,000
2. CA OF NR =6,250,000
HOMEWORK ANSWER
INVESTMENT
DEFINITION OF INVESTMENT

• Asset held by an entity

• For Accretion of wealth
• Through distribution such as interest, royalties, dividends, and rentals
• For capital appreciation
PURPOSES OF INVESTMENT

• Accretion of wealth
• Capital Appreciation
• Ownership and control
EXAMPLES OF INVESTMENT

• Financial Asset through Profit or Loss

• Financia Asset through other comprehensive income
• Investment in Bonds or FA at amortized cost
• Investment in Associate
• Investment in Subsidiary
• Investment Property
• Investment in Fund
CLASSIFICATION: CURRENT OR NON-CURRENT?

<1 YEAR EXPECTED OF REALIZATION- CURRENT ASSET

>1 YEAR EXPECTED OF REALIZATION-NON-CURRENT ASSET
DEFINITION OF FINANCIAL ASSET

• CASH
• A CONTRACTUAL RIGHT TO RECEIVE CASH OR ANOTHER FINANCIAL ASSET
OF ANOTHER ENTITY
• A CONTRACTUAL RIGHT TO EXCHANGE FINANCIAL INSTRUMENT WITH
ANOTHER ENTITY UNDER CONDITIONS THAT ARE POTENTIALLY
FAVORABLE
• AN EQUITY INSTRUMENT OF ANOTHER
CLASSIFICATION OF FINANCIAL ASSET

• FINANCIAL ASSET THROUGH P & L- include both Equity Security and Debt Security
• FINANCIAL ASSET THROUGH OTHER COMPREHESIVE INCOME- include both
Equity Security and Debt Security
• FINANCIAL ASSET @AMORTIZED COST- include debt securities only
 CLASSIFICATION DEPENDS ON BUSINESS
MODEL
BM TEST CFC TEST DEBT EQUITY INTIAL SUBSEQUENT
1. AMORTIZE Hold to Solely Payment of FV + TC Amortized Cost
COST Collect principal and
interest
2. FVOCI Hold to Solely Payment of FV + TC @ FV changes are
collect and principal and presented to OCI
sell interest

3. FVPL For Trading For Trading FV @ FV changes

PROBLEM
SOLUTION

The investment is classified as FVPL since it is for trading: So initial measurement is FV

and we do not consider the transaction cost. Subsequent measurement is at FV and the
difference between initial and subsequent measurement is measured in Profit or Loss
Subsequent Measurement 5,500,000
Initial Measurement 5,000,000
Unrealized Gain @p/l 500,000
PROBLEM
SOLUTION

Market Value- December 31,2024 5,000,000

Carrying Amount equal to market value 4,050,000 (4,250,000 – 200,000)
on December 31,2023
Unrealized Gain 2024 950,000
PROBLEM
SOLUTION

• Q1.
TOTAL MARKET VALUE – 12/31/2023 4,800,000
TOTAL COST- 12/31/2023 5,000,000
UNREALIZED LOSS IN 2023 (200,000)
Q2
SALES PRICE 1,500,000
CA OF B SHARE 12/31/2023 (1,600,000)
LOSS ON SALE OF TRADING INVESTMENT (100,000)
PROBLEM
SOLUTION

Q1.
TOTAL COST 3,700,000
UNREALIZED LOSS-2023 (100,000)
MARKET VALUE-12/31/2023 3,600,000
Q2.
MARKET VALUE- 12/31/2024 3,300,000
MARKET VALUE-12/31/2023 (3,600,000)
UNREALIZED LOSS 2024 (300,000)
PROBLEM DEBT INVESTMENT
SOLUTION

DATE INTEREST INTEREST PREMIUM CARRYING

RECEIVED INCOME AMORTIZATIO AMOUNT
N
7/1/2023 1,198,000
12/31/2023 50,000 47,920 2,080 1,195,920
PROBLEM-DEBT INVESTMENT
SOLUTION

DATE INTEREST INTEREST DISCOUNT CARRYING

RECEIVED INCOME AMORTIZATIO AMOUNT
(NOMINAL (EFFECTIVE N
RATE) RATE)
8% 10%
1/1/2023 4,562,000
12/31/2023 400,000 456,200 56,200 4,618,200
12/31/2024 400,000 461,820 61,820 4,680,020
12/31/2025 400,000 468,002 68,002 4,748,022

Interest Received= Face amount x stated rate= 5m x 8%=

400k
Interest Income = Previous Carrying amount x effective rate
=
PROBLEM-DEBT INVESTMENT
SOLUTION

DATE INTEREST INTEREST DISCOUNT INSTALL CARRYING

RECEIVED INCOME AMORTIZATION MENT AMOUNT
(NOMINAL (EFFECTIV PAYMENT
RATE) E RATE)
10% 12%
1/1/2023 7,679,000

12/31/20 800,000 921,480 121,480 2,000,000 5,800,480

23
12/31/20 600,000 696,058 96,058 2,000,000 3,896,538
24
12/31/20 400,000 467,585 67585 2,000,000 1,964,123
5
INVESTMENT IN ASSOCIATE
INVESTMENT IN ASSOCIATE: INCREASE /
DECREASE
INCREASE (DEBIT)
DECREASE (CREDIT)
• PURCHASE PRICE • SHARE IN LOSS
• SHARE IN NET INCOME • AMORTIZATION OF
• SHARE IN OTHER UNDERVALUATION IN
DEPRECIABLE ASSET
COMPREHENSIVE INCOME
• IMPAIRMENT LOSS
• SHARE IN CASH DIVIDEND
PROBLEM
SOLUTION

Q1. SHARE IN NET INCOME (1.8M X 20%) 360,000

AMORTIZATION OF EXCESS COST (1M/10) (100,000)
INVESTMENT IN COME FOR THE YEAR 260,000
Q2. ORIGINAL COST 7,000,000
INVESTMENT INCOME 260,000
SHARE IN CASH DIVIDEND (600K X.20) (120,000)
CA of investment in associate 7,140,000
PROBLEM
SOLUTION

ACQUISITION COST 4,000,000

SHARE IN NET INCOME 500,000 (5M X10%)
SHARE IN CASH DIV (150,000) (1.5M X10%)
CA OF INVESTMENT 4,350,000
PROBLEM
SOLUTION

NET INCOME 5,000,000

PREFERENCE DIVIDENDS (200,000)
NET INCOME TO ORDINARY SHARES 4,800,000

SHARE IN NET INCOME 4,800,000 X 50% = 2,400,000

SOLUTION

Q1
Acquisition Cost 6,400,000
Net Assets Acquired (5,000,000) (12.5m x 40%)
Excess of Cost 1,400,000
Excess attributable to equipment (2m x 40%) 800,000
Excess attributable to building (1.5m x 40%) 600,000
1,400,000
SOLUTION

Q2
Share in net income (40% x 5,000,000) 2,000,000
Amortization of excess:
Equipment (800k/4) (200,000)
Building (600k/12) ( 50,000)
Investment income 1,750,000
SOLUTION

Q3
Acquisition Cost 6,400,000
Investment Income 1,750,000
Cash Dividend (2.5m x 40%) (1,000,000)
Carrying amount of investment 7,150,000