TOPIC OUTLINE  can be a date in the past since it is just the

starting date that matters for it to be in cash

I. Definition of Cash  the check should not exceed 6 months. Within 6
months from the date written on the check is the
II. Definition of Cash Equivalents
only time for you to in cash it.
III. Valuation and statement presentation of cash  6 months expirations date or else it is called a
IV. Investment of excess cash stale check
V. Foreign currency, Cash fund for a certain
purpose, Bank overdraft, and Compensating
Antedated check
balance
 preceding dates from the date today
VI. Undelivered check, Postdated check delivered,
and Stale check What will happen to stale checks?
VII. Imprest System
 It will still remain in the account of the one who
VIII. Petty cash fund – imprest fund system and
gave you the check. As long as you don’t deposit
fluctuating fund system
the check, the cash will not be deducted from the
owner’s accounts

DEFINITION OF CASH UNRESTRICTED CASH

Layman’s term: Cash means money  Hindi pwedeng galawin (will be considered as
non-current asset)
Money  Current liabilities = current assets
 Why restricted? pambayad utang and other
 is the standard medium of exchange in business purpose
transactions.
 currency and coin
PAS 1 PARAGRAPH 66
o Cash is not limited to bills and coins.  An entity shall classify an asset as
current when the asset is cash or a cash
CASH equivalent unless it is restricted to settle a
liability for more than twelve months
 money after the end of the reporting period.
 other negotiable instrument (payable in money
and acceptable by the bank for deposit and
immediate credit)
 checks CASH ITEMS INCLUDED IN CASH
 bank drafts a. Cash on hand
 money orders (acceptable by the bank for  undeposited cash collections
deposit or immediate encashment)  other cash items awaiting deposit
Is money in a bank an asset or liability? - customers’ checks
- cashier’s
 Money in a bank is a liability since they
- manager’s checks
are responsible to it. Hence, it is a credit.
- traveler’s checks
Postdated checks - bank drafts
- money orders
 Future date for future transactions
 Not considered as cash (unacceptable for exemption: postdated check
immediate credit)
 can be one year as long as it is a future date b. Cash in bank
 can only be deposited when the date stated is  demand deposit or checking account
reached  saving deposit

NICOLE ANNE S. SIBULO | BSA-1 1.1

  unrestricted as to withdrawal.  Invested in: (1) time deposits money market
instruments (2) treasury bills
c. Cash fund (set aside for current purposes)
 petty cash fund
 payroll fund CLASSIFICATION OF INVESTMENT OF
 dividend fund EXCESS CASH

CASH EQUIVALENTS Investments in time deposit, money market instruments

and treasury bills should be classified as follows:

PAS 7 PARAGRAPH 6 PERIOD CLASSIFICATION

 Defines cash equivalents as short-terms and
cash equivalents
highly liquid investments that are readily
3 months or less “cash and cash
convertible into cash and so near their
equivalents”
maturity that they present insignificant risk of
changes in value because of changes in
interest rates. short-term financial
more than three months assets or temporary
but within 1 year investments
“current assets”
*Interest rate can change depending in the
economic status of the country. long-term investments
more than one year
“noncurrent assets”
 The standard further states that only highly
liquid investments that are acquired three months MEASUREMENT OF CASH
before maturity can qualify as cash equivalents
 Cash is measured at face value (value seen on the
paper)
Examples of cash equivalents are:  Cash in foreign currency is measured at the
current exchange rate (spot rate on the
a. Three-month BSP treasury bill
reporting date)
b. Three-year BSP treasury bill (purchased three
months before date of maturity)  If the bank or financial institution holding the
c. Three-month time deposit funds of an entity is in bankruptcy or financial
d. Three-month money market instrument or difficulty, cash should be written down as
commercial paper estimated realizable value if the amount
recoverable is estimated to be lower than the face
value.
Treasury Bill – government issued bonds
ERV if the account recoverable is lower than the
*Equity securities (shares of stocks) – cannot qualify as face value.
cash equivalents; do not have a maturity date.
RA < FV = ERV

Redeemable preference share - specific date; acquired

three months before redemption to when it is to be FINANCIAL STATEMENT PRESENTATION
redeemable by the company.
 The caption cash and cash equivalents should be
shown as the first line item under current assets.
!NOTE: it is important that the date of purchase which  However, the details comprising the cash and
cash equivalents should be disclosed in the notes
should be three months or less before the maturity to financial statements.

INVESTMENT OF EXCESS CASH FOREIGN CURRENCY

 The entity must maintain cash for use in current  Cash in foreign currency should be translated to
operations. Philippine pesos using the current exchange rate.
 Deposits in for foreign countries which are not
 Any cash accumulated in excess should be
subject to any foreign exchange restriction
invested
 for the purpose of earning interest income.

NICOLE ANNE S. SIBULO | BSA-1 1.2

 should be classified separately among noncurrent EXCEPTION TO THE RULE OF OVERDRAFT
assets and the restriction clearly indicated.
1. Multiple accounts in one bank
- can be offset against the other bank
CASH FUND FOR A CERTAIN PURPOSE account with a debit balance in order to
show cash, net of bank overdraft or bank
 set aside for use in current operations: current overdraft, net of other bank account.
asset
 The cash fund is included as part of cash and 2. Offset against the other bank account
cash equivalents. - if the amount is not material.
Example: Under IFRS, bank overdraft can be offset
 petty cash fund (fund for small against other bank account when payable on
disbursement ex: fair) demand and often fluctuates from positive to
 payroll fund (ex. wage) negative as an integral part of cash management.
 travel fund
 interest fund (Interest payment) Positive net cash (offset against overdraft)
 dividend fund (dividend to stock holders) = cash net of bank overdraft
 tax fund (for tax)
Negative net cash (bank overdraft)
= net of other bank account
 set aside for noncurrent purpose or payment of
noncurrent obligation: long-term investment.

Example: COMPENSATING BALANCE

 sinking fund (pinagtatabi pambayad ng  A compensating balance generally takes the form
utang) of minimum checking or demand deposit
 preference share redemption fund account balance that must be maintained in
 ontingent fund (lawsuit fee) connection with a borrowing arrangement with a
 insurance fund bank.
 fund for acquisition or construction of
property plant and equipment.  results in the reduction of the amount borrowed
 compensating balance provides a source of fund
to the bank as partial compensation for the loan
CLASSIFICATION OF CASH FUND extended.
 The classification of a cash fund as a current or CLASSIFICATION OF COMPENSATING
noncurrent should be parallel the classification
BALANCE
of the related liability.
 Non-current liability = non-current asset
 Current liability = current asset CONDITION CLASSIFICATION
BANK OVERDRAFT cash
not legally restricted cash and cash
 credited balance: overdraft equivalents”
- The credit balance in the cash in bank
account results from the issuance of checks short-term financial
in excess of the deposits. assets or temporary
legally restricted
investments
Business’ Perspective: “current assets”
Cash in bank account normal balance = Debit
long-term investments
 A bank overdraft is classified as a current long-term
“noncurrent assets”
liability and should not be offset against other
bank accounts with debit balances.
UNDELIVERED OR UNRELEASED CHECK
!Note: It is not necessary to adjust and open a
bank overdraft account in the ledger.  drawn and recorded but not given to the payee
before the end of reporting period
 It is to be stated that generally overdrafts are not
permitted in the Philippines. Check is written. Do you have to make your
journal entry already?

NICOLE ANNE S. SIBULO | BSA-1 1.3

  Yes, because the company has already  The Negotiable Instruments Law provides that
written a check to the company, and if the where the instrument is payable on demand,
check is not delivered within the reporting presentment must be made within a reasonable
period, the entity has to adjust the journal time after issue.
entry to restore the amount.  In determining what is a reasonable time,
 (dr.) accounts payable; (cr.) cash in bank consideration should be made regarding the
 Not within the reporting period: (dr.) nature of the instrument, the usage trade or
cash in bank; (cr.) accounts payable business, if any, with respect to such instrument
and the facts of the particular case.
Undelivered – not yet delivered  Clearly, the law does not specify a definite
period within which checks must be presented
Unreleased – not yet received
for encashment. Reference is made to usage of
 There is no payment when the check is pending trade or business practice.
delivery to the payee at the end of reporting  In banking practice, a check becomes stale if not
period. encashed within six months from the time of
issuance. Of course, this is a matter of entity
 The reason is that undelivered check is still policy.
subject to the entity's control and may thus be  Thus, even after three months only, the entity
canceled any time before delivery at the may issue a stop payment order to bank for the
discretion of the entity. cancelation of a previously issued check.

 Accordingly, an adjusting entry is required to  If the amount of stale check is immaterial,

restore the cash balance and set up the liability. it is simply accounted for as
 In practice, the foregoing adjustment is miscellaneous income.
sometimes ignored because the amount is not
substantial and there is no evidence of actual Cash xx
cancelation of the check in the subsequent
period. Miscellaneous income xx

POSTDATED CHECK DELIVERED

 However, if the amount is material and
 A postdated check delivered is a check drawn, liability is expected to continue, the cash is
recorded and already given to the payee but it restored and the liability is again set up.
bears a date subsequent to the end of reporting
period.
Cash xx
 The original entry recording a delivered
postdated check shall also be reversed and Accounts payable or appropriate
therefore restored to the cash balance. xx
account

Cash xx ACCOUNTING FOR CASH SHORTAGE

 Debit balance
Accounts payable or appropriate  Where the cash count shows cash which is less
xx
account than the balance per book, a cash shortage is to
be recorded.

 The reason is that there is no payment until the Cash short or over xx
check can be presented to the bank for Cash xx
encashment or deposit.
 The cash short or over account is only a
temporary or suspense account. When
STALE CHECK OR CHECK LONG financial statements are prepared the same
OUTSTANDING should be adjusted.

 A stale check is a check not encashed by the  Hence, if the cashier or cash custodian
payee within relatively long period of time. is held responsible for cash shortage,
the adjustment should be:
The question is how long must the check remain
outstanding? Cash from cashier xx

NICOLE ANNE S. SIBULO | BSA-1 1.4

  However, if reasonable efforts fail to  Consequently, in such instances, it may
disclose the cause of the shortage, the be more economical and convenient to
adjustment is: pay in cash rather than issue checks.

Loss cash from shortage xx

PETTY CASH FUND
Cash short or over xx
 The petty cash fund is money set aside to pay
small expenses which cannot be paid
ACCOUNTING FOR CASH OVERAGE conveniently by means of check.

 Credit balance There are two methods of handling the petty

 Where the cash count shows cash which is more cash, namely:
than the balance per book, a cash overage s to a. Imprest fund system
be recorded. b. Fluctuating fund system

Cash xx
Cash short or over xx
IMPREST FUND SYSTEM

Note:  The imprest fund system is the one usually

followed in handling petty cash transactions.
 Whether it is a cash shortage or cash overage, the
offsetting account is cash short over account.
Such amount should be adjusted when ACCOUNTING PROCEDURES
statements are made.
a. A check is drawn to establish the fund as:
 The cash overage is treated as
miscellaneous income if there is no Petty cash fund xx
claim on the same. Cash in bank xx

Cash short or over xx

b. Payment of the expenses out of the fund.
Miscellaneous income xx  No formal journal entries are made.

 But where the cash overage is properly  The petty cashier generally requires a signed
found to be the money of the cashier, the petty cash voucher for such payments are
journal entry is: simply prepares memorandum entries in the
petty cash
Cash short or over xx
c. Replacement of the petty cash payments.
Payable to cashier xx  Whenever the petty cash fund runs low, a
check is drawn to replenish the fund.
 The replenishment check is usually equal
IMPREST SYSTEM to the petty cash disbursements.
 It is at this time that the petty cash
 The imprest system is a system of control of cash disbursements are recorded.
which requires that all cash receipts should be
deposited intact and all cash disbursements Expense xx
should be made by means of check.
 While internal control ideally requires that all Cash in bank xx
payments should be made by means of check,
this is sometimes impossible.
 There are occasions when the issuance  It is to be pointed out that the petty
of checks becomes impractical or cash disbursements should be
inconvenient such as when small replenished only by the means of
amounts are paid or things are hurriedly check and not from undeposited
bought or customers are entertained. collections.

NICOLE ANNE S. SIBULO | BSA-1 1.5

 d. At the end of the accounting period, it is
necessary to adjust the unreplenished Dec 31 The fund was not replenished.
expenses in order to state the correct petty
cash balance. The fund is composed of the following:
currency and coin P7,000, supplies
P1,500, postage P500, miscellaneous
Expense xx expense P1,000.

Petty cash fund xx Supplies 1,500

 The adjustment is to be reversed at the
Postage 500
beginning of the next accounting
period. Misc. expense 1,000
 The reversal is made in order that the
normal replenishment procedures may PCF 3,000
be followed by simply debiting 2021
expenses and crediting cash in bank The adjustment made on December 31,
without distinguishing whether the Jan 1
2020 is reversed.
expenses pertain to the current period
or prior period. Petty cash fund 3,000

e. An increase in the fund is recorded as: Supplies 1,500

Postage 500
Petty cash fund xx Misc 1,000
Cash in bank xx
Feb 1 The fund is replenished and increased to
f. A decrease in the fund is recorded as: P15,000

Cash in bank xx
The composition of the fund:
Petty cash fund xx
Currency and coin 1,000
Supplies 4,500
ILLUSTRATIONS
Postage 3,000
2020 Miscellaneous
Nov 10 The entity established an imprest fund of expense 1,500
P10,000.
TOTAL 10,000
Petty cash fund 10,000
Cash in bank 10,000
JOURNAL ENTRY

29 Replenished the fund. The petty cash Petty cash fund 5,000
fund items include the following: Supplies 4,500
Postage 3,000
Currency and coin 2,000 Miscellaneous
expense 1,500
Supplies 5,000
Cash in bank 14,000
Telephone 1,800
Postage 1,200 The total amount of the check drawn is
P14,000 representing the petty cash
Nov 29 The journal entry to record the disbursements of P9,000 and the fund increase
replenishment is: of P5,000.
Supplies 5,000
Telephone 1,800
Postage 1,200
Cash in bank 8,000

NICOLE ANNE S. SIBULO | BSA-1 1.6