Cash & CE

• Cash


  Any item that is acceptable by bank or other financial institution for deposit at face value
• Cash Items


  • Cash on Hand
  • Cash in Bank
  • Cash Fund
• Cash on Hand


  Includes undeposited collections such as bills and coins, customer's checks, manager's checks, traveler's checks, cashier's checks, bank drafts and money order
• Cash in Bank


  Includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal
• Cash Fund


  Working funds segregated for current purposes such as petty cash fund, change fund, payroll fund, dividend fund, tax fund, and interest fund
• Cash Equivalents


  Short term highly liquid financial instruments that are so near their maturity and that there is insignificant risk of change in value due to fluctuation of interest rates
• Cash Equivalents


  • 3-month BSP Treasury Bill
  • 3-month Time deposit
  • 3-month money market instrument or commercial paper
• Cash Equivalent


  Matures 3 months or less from the date of acquisition
• Short Term/Temporary Investment


  Matures less than 1 year from the date of acquisition
• Long Term Investment


  Matures more than 1 year from the date of acquisition
• Temporary investments in equity shares are not included as part of cash equivalents because these securities do not have maturity dates. Except for Redeemable Preference share(considered as debt instrument), it can be reported as cash equivalent if purchased within 3 months or less before redemption date
• Presentation and Measurement of Cash

  • Cash is generally measured at face value, which is its fair value
  • The caption "Cash and Cash Equivalents" should be shown as the first item among the current assets
• Considerations in reporting cash balance in the balance sheet


  • Foreign Currency
  • Cash in closed banks or in banks having financial difficulty or in bankruptcy
  • Customer's Post-dated Checks, NSF (No Sufficient Fund checks), IOU's ("I Owe You" notes)
  • Postage Stamps and expense advances
  • Bank Overdraft
  • Undelivered or Unreleased Checks
  • Company's Postdated Check
  • Compensating Balances
  • Cash set aside for long-term specific purpose or acquisition of a non-current asset (Bond Sinking Fund and Plant expansion Fund)
  • Stale Check or Check Long Outstanding
• Foreign Currency


  If it is unrestricted, then it should be translated to Philippine currency using the exchange rate at the end of the reporting period. However, if it is restricted as to withdrawal, then it should be reported as non-current asset
• Cash in closed banks or in banks having financial difficulty or in bankruptcy


  It should be reclassifies as receivable and should be written down to its recoverable amount
• Customer's Post-dated Checks, NSF (No Sufficient Fund checks), IOU's ("I Owe You" notes)


  They should be reported as receivables rather than cash
• Postage Stamps and expense advances


  They are not cash, but they are reported as prepaid expenses
• Bank Overdraft


  When the Cash in Bank account has a credit balance, it is said to be an overdraft. The credit balance in the cash in bank account results from the issuance of checks in excess of deposits (deposits<disbursements). Under PFRS overdraft should be reported as a liability and it may be offset against a positive balance in another bank account with the same bank if a right of offset exists between the bank and the depositor. Moreover, an overdraft can also be offset against the other bank account if the amount is not material. However, overdrafts are not permitted in the Philippines
• Undelivered or Unreleased Checks


  Are the company's checks drawn and recorded as disbursed but are not actually issued or delivered to the payees as of the reporting date. These checks should not be deducted from the company's cash balance until they have been mailed or otherwise delivered. Therefore, these checks should be reverted to the cash balance. As a result, liabilities that the checks are intended to liquidate still exist and should be reported as current payables
• Company's Postdated Check


  Are company's check which has been recorded as issued and delivered to payee before or at the end of the reporting period should be reverted to cash and the corresponding liability shall continue to be recognized, because there is no actual payment yet, as of that date
• Compensating Balances


  Are minimum amounts that a company agrees to maintain in a bank checking account as support or collateral for a loan by the depositor. If not legally restricted, the amount is reported as part of Cash. The nature of the arrangement is disclosed in the notes of the financial statements. If legally restricted, the amount should be classified separately either as current asset or non-current asset depending on the nature of the loan
• Cash set aside for long-term specific purpose or acquisition of a non-current asset (Bond Sinking Fund and Plant expansion Fund)


  Reported as non-current asset
• Stale Check or Check Long Outstanding


  Is a check not encashed by the payee within six months from the time of issuance. Thus, even after three months only, the entity may issue a "stop payment order" to the bank for the cancelation of a previously issued check
• Entries for Stale Check or Check Long Outstanding


  • If the amount of stale check is immaterial: Cash, Miscellaneous Income
  • If the amount is material and liability is expected to continue: Cash, Accounts Payable
• Cash Management


  Effective cash management requires controls to protect cash from loss through theft or fraud. The following are some characteristics of a system of cash control: Segregation of duties for handling cash and recording cash transactions, Imprest System, Voucher System, Internal Audits at irregular intervals, Periodic Bank Reconciliation
• Imprest System


  Characterized by daily deposit of all cash receipt intact to the bank and making disbursements through issuance of checks. Expenditures involving small amounts are made from Petty Cash Fund
• Voucher System


  All disbursements must be supported by properly approved vouchers, which must be recorded in the voucher register
• Window Dressing


  Is a practice of opening the books of accounts beyond the close of the reporting period for the purpose of showing a better financial position and performance. It is usually accomplished by recording as of the last day of the reporting period collections made subsequent to the close of the period. Such practices are unacceptable and undesirable. The entries made to window dress must be reversed to correct the statements
• Lapping


  Is a practice used for concealing cash shortage. Consists of misappropriating a collection from one customer and concealing this defalcation by applying a subsequent collection made from another customer. Involves a series of postponements of the entries for the collection of receivables
• Kiting


  Is another device used to conceal a cash shortage. It is possible when an entity maintains current accounts in different banks. Kiting is usually employed at the end of the month. It occurs when a check is drawn against a first bank and depositing the same check in a second bank to cover the shortage in the latter bank. No entry is made for both the drawing and deposit of the check
• Accounting for Cash Shortage


  Entry when cash count shows cash is less than the balance per book: Cash short or over, Cash

  Adjustment entry if the cashier or cash custodian is held responsible for cash shortage: Due from cashier, Cash short or over

  Adjustment entry if reasonable efforts fail to disclose the cause of the shortage: Loss from cash shortage, Cash short or over
• Accounting for Cash Overage


  Entry when cash count shows cash which is more than the balance per book: Cash, Cash short or over

  Adjusted entry if the cash overage is found to be the money of the cashier: Cash short or over, Payable to cashier

  Adjusted entry if the cash overage has no claim: Cash short or over, Miscellaneous expense
• Imprest System


  A system of cash control which requires all cash receipts should be deposited intact and all cash disbursements should be made by means of check. However, an enterprise considers it impractical to write checks for small items such as taxi fares, postage, express charges, and minor supplies. A company usually pays for these kind of items from a petty cash fund. It provides simple but effective control over small amounts of expenditure
• Petty Cash Fund


  Is money set aside to pay small expenses which cannot be paid conveniently by means of check. Two methods of handling the petty cash: Imprest Fund System and Fluctuating Fund System
• Petty Cash Fund - Imprest Fund System

  Entry for establishment of PCF: Petty Cash Fund, Cash In Bank

  Entry for payment of expenses out of the fund: NO ENTRY

  Entry for replenishment of petty cash payments: Various Expenses, Cash In Bank

  Adjusting entry for the unreplenished expenses at the end of the accounting period: Various Expenses, Petty Cash Fund

  Entry for increase in fund: Petty Cash Fund, Cash in Bank

  Entry for decrease in fund: Cash In Bank, Petty Cash Fund
• Petty Cash Fund - Fluctuating Fund System

  Entry for establishment of PCF: Petty Cash Fund, Cash In Bank

  Entry for payment of expenses out of the fund: Various Expenses, Petty Cash Fund

  Entry for replenishment of petty cash payments: Petty Cash Fund, Cash In Bank

  Adjusting entry for the unreplenished expenses at the end of the accounting period: NO ENTRY

  Entry for increase in fund: Petty Cash Fund, Cash in Bank

  Entry for decrease in fund: Cash In Bank, Petty Cash Fund