Chapter 6

• Financial instrument - is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.
• Equity instrument - is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
• The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset, a financial liability and an equity instrument
• Cash is the most basic financial instrument because it is the medium of exchange and the basis of measurement of all financial statement elements.
• A financial asset is recognized when an entity becomes a party to the contractual provisions of the instrument. 
• Financial assets are initially measured at fair value plus transaction costs, except for financial assets at fair value through simplus or deficit whose transaction costs are expensed. 
• Transaction costs are incremental costs that are directly atributable to the acquisition, issue, or disposal of a financial instrument. 
• An incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed the financial instrument. Transaction costs include: (a) fees and commissions paid to agents, advisers, brokers and dealers; (b) levies by regulatory agencies and securities exchanges, and (c) transfer taxes and duties.
• Cash - comprises cash on hand, cash in bank and cash treasury accounts.
• Unreleased checks are checks drawn but not yet given to the payees as of the end of the period. 
• Checks are cancelled when they become stale, voided or spoiled.
• A check is considered stale if it has been outstanding for over 6 months from its date.
• Petty Cash Fund refers to the amount granted to duly designated Petty Cash Fund Custodian for payment of authorized petty or miscellaneous expenses which cannot be conveniently paid through checks or ADA. 
• The Head of Agency shall approve the amount of PCF to be established, which shall be sufficient to defray recurring petty expenses for 1 month.
• The PCF Custodian shall be properly bonded (a) whenever the established amount of PCF exceeds P5,000.
•  Bonded means an insurance shall be taken on the custodian. In the event that the custodian misuses the funds, the entity can claim from the insurance company, and the insurance company in turn will go after the custodian.
• The PCF shall be maintained using the Imprest System. At all times, total cash on hand and unreplenished expenses shall be equal to the PCF ledger balance.
• The PCF shall be kept separately from, other advances or collections and shall not be used to pay for regular expenses, such as rentals, electricity, water, and the like.
• PCF payments shall not exceed P15,000 for each transaction, except when otherwise authorized by law or by the COA.
• Splitting of transactions to avoid exceeding the ceiling is prohibited.
• A canvass from at least 3 suppliers is required for purchases amounting to P1,000 and above, except for purchases made while on official travel.
• PCF disbursements shall be supported by properly accomplished and approved Petty Cash Vouchers, invoices, ORs, or other evidence of disbursements.
• Replenishment shall be made as soon as disbursements reach at least 75% or as needed.
• At the end of the year, the PCF Custodian shall submit all unreplenished Petty Cash Vouchers to the Accounting Unit for recording in the books of accounts
• The unused balance of the PCF shall not be closed at year-end. It shall be closed only upon the termination, separation, retirement or dismissal of the PCF Custodian, who in turn shall refund any balance to close his/her cash accountability.
• The disbursing officer is liable for any cash shortage while any cash overage that he cannot satisfactorily explain to the auditor is forfeited in favor of the government.
• A dishonored check is a check that is not accepted when presented for payment, e.g., a check returned by the bank because of lack of sufficient funds - 'bounced' check.
• A bank reconciliation statement is a report that is prepared for the purpose of bringing the balances of cash (a) per records and (b) per bank statement into agreement.
• A bank statement is a report issued by a bank which shows the credits and debits to the depositor's account during a period, as well as the account's cumulative balance.
• Bank reconciliations shall be prepared as internal control to ensure the correctness of cash records and as deterrent to fraud.
• The Chief Accountant or designated staff shall prepare separate bank reconciliations for each bank account maintained by the entity within 10 days from receipt of the monthly bank statement.
• The Adjusted Balance Method shall be used. Under this method, the unndjusted book and bank balances are brought to an adjusted balance that is reported on the Statement of Financial Position.
• Bank reconciliations shall be prepared in 4 copies to be submitted within 20 days from receipt of bank statement to the following: COA Auditor, Head of Agency, Accounting Division, and Bank, if necessary.
• a Journal Entry Voucher shall be prepared to record any reconciling items.
• Cash Equivalents - are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 
• Only debt instruments acquired within 3 months before their scheduled maturity date can qualify as cash equivalents.
• Receivables represent claims for cash or other assets from other entities. 
• Accounts receivable - refers to amounts due from customers arising from régular trade and business transactions.
• Notes receivable - represents claims, usually with interest, for which a formal instrument of credit is issued as evidence of debt, such as promissory notes.
• Loans receivable - used in the BTr-NG books to recognize loans extended by the National Government to Government Financial Institutions 'GFls' or GOCCs, covered by loan agreements.