Accounting

• Cash includes money and other negotiable instruments that are payable in money and acceptable by the bank for deposit and immediate credit.
• Money is a standard medium of exchange in business transactions.
• Negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery.
• Cash on hand, cash on bank, checks, bank draft, money orders are examples of cash equivalents.
• Postdated checks cannot be considered as cash yet because these are unacceptable by bank for deposit or immediate credit or outright encashment.
• An entity shall classify an asset as current when the asset is a cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the end of reporting period.
• Cash must be unrestricted in use, readily available in the payment of current obligations and not subject to any restrictions, contractual or otherwise.
• Cash on hand includes undeposited cash collection and other cash items awaiting deposit such as customer’s checks, cashier’s or manager’s checks, travellers’ checks, bank drafts, and other money orders.
• Cash in Bank is a demand deposit or checking account and saving deposit which are unrestricted as to withdrawal.
• Cash Fund is set aside for current purposes.
• 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.
• Highly liquid investments are acquired three months before maturity.
• Examples of cash equivalents include three-month BSP treasury bill, three-year BSP treasury bill purchased three months before maturity date, three-month time deposit, three-month money market instrument or commercial paper, and equity security.
• Preference share with specified redemption date acquired three months before redemption date can qualify as cash equivalent.
• Cash is measured at face value.
• The FIFO retail approach is similar to the average cost approach in that it considers both net markup and net markdown in computing the cost ratio.
• Maintained markup is the difference between cost and sales price after adjustment for all of the above items, sometimes referred to as "markon".
• Cash in foreign currency is measured at the current exchange rate.
• The average cost approach includes both net markup and net markdown in determining cost ratio.
• Net markdown is the difference between cost and sales price after adjustment for all of the above items.
• An average percentage for each retail department is often used in the retail inventory method.
• The FIFO approach is based on the assumption that markup and markdown apply to goods purchased during the year and not to beginning inventory.
• In the FIFO retail approach, a current cost ratio is determined every year considering the net purchases during the year and excluding the beginning inventory.
• The retail inventory method uses three approaches to obtain the appropriate inventory value: the conservative or conventional or lower of cost and net realizable value approach, the average cost approach, and the FIFO approach.
• The average cost approach shall be applied in conjunction with the retail inventory method.
• The retail method takes into consideration inventory that has been marked down to below the original selling price, as stated in PAS 2, paragraph 22.
• Inventories are usually written down to net realizable value on an item by item or individual basis.
• In some circumstances, it may be appropriate to group similar or related items.
• The objection to the FIFO method is that there is improper matching of cost against revenue because the goods sold are stated at earlier or older prices resulting in understatement of cost of sales.
• The weighted average method requires the keeping of inventory stock card in order to monitor the "moving" unit cost after every purchase.
• PAS 2, paragraph 9, provides that inventories shall be measured at the lower of cost and net realizable value.
• It is not appropriate to write down inventories based on a classification of inventory, for example, finished goods or all inventories in a particular industry or geographical segment.
• The FIFO method favors the statement of financial position in that the inventory is stated at current replacement cost.
• The FIFO method is in accordance with the ordinary merchandising procedure that the goods are sold in the order they are purchased, with the inventory expressed in terms of recent or new prices and the cost of goods sold representative of earlier or old prices.
• Net realizable value (NRV) is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost of disposal.
• The total cost of goods available after every purchase and purchase return is divided by the total units available for sale at this time to get a new weighted average unit cost.
• The cost of inventories may not be recoverable under the following circumstances: damaged, obsolete, declined selling prices, or increased estimated cost of completion or disposal.
• According to PAS 2, paragraph 27, the weighted average method can be calculated on a periodic basis or as each additional shipment is received depending upon the circumstances of the entity.
• Sales Discount is a reduction from an invoice price by reason of prompt payment, known as sales discount on the part of the seller and a purchase discount on the part of the buyer.
• Worthless accounts are recorded by debiting bad debts and crediting accounts receivable.