module 2 akob 2 notes

• Restricted Cash

  • to settle a liability for more than 12 months after the end of the reporting period
• cash and cash equivalents

  • money and any other negotiable instrument that is payable in money and acceptable by bank for deposit and immediate credit
• If restricted cash, it is going to be a non-current cash
• Certificate of Deposits or Time deposits are not included because they have maturity dates
• Cash and Cash Equivalents allows investments purchased 90 days or less before maturity date
• Allowed investments

  • 2-month BSP T-bill
  • 3-year BSP T-bill purchased 3 months before date of maturity
  • 3-month time deposit
  • 3-month money market instrument or commercial paper
• Not Cash Equivalents

  • equity securities such as shares because they do not have a maturity date
  • redeemable preference shares acquired 3 months before redemption date can qualify as cash equivalents
• Preference Shares

  • For stockholders with no voting rights but priority in distribution of shares
• Ordinary Shares

  • for shareholders with voting rights but no priority in distribution of shares
• Redeemable Preference Shares

  • like preference shares but the redemption date acts as a maturity date
• Deposits in foreign countries which are NOT subject to foreign exchange

  • included in cash
• Cash Fund use for noncurrent purposes/payment of noncurrent obligations

  • long-term investments
• Normal balance of bank overdrafts

  • credit
• An overdraft should be recognized as a current liability, not as a negative balance
• Not legally restricted compensating balance

  • cash
• Legally restricted compensating balance "cash held as compensating balance"

  • under current asset if related to short-term investment
  • under noncurrent asset is related to long-term investment
• The undelivered check is still subject to the company's control and may be cancelled anytime before delivery at its discretion
• Postdated Check should be recorded as payment/collection on the specific date, NOT at the time it was received
• No payment until the postdated check can be presented to the bank for encashment or deposit
• Stale Check or Check Long Outstanding

  • not encashed by the payee within a relatively long period of time
• If check is not negotiated with the bank after 6 months from the written date, it is considered a stale check and bank would no longer accept it
• NSF Check

  • check received by the entity from its customer as collection of payment of the latter
• NSF Check

  • Check will not be honored by the bank and will be returned to the entity (depositor) with a notation NSF
• NSF

  • should not be part of the cash balance of the entity
• Imprest System

  • control measure of cash
  • all cash receipts should be deposited intact
  • all cash disbursements should be made by means of check
• Purpose of Imprest Fund System

  • to match accounts
  • to track accounts that does not match
• Petty Cash Fund

  • money set aside to pay small expenses which cannot be paid by means of check
• When petty cash fund is reduced to a very low balance, custodian requests for replenishments of the fund
• Petty Cash Fund Shortage

  • difference of total amount to the actual bills & coins is less than what the balance should be
• Petty Cash Fund Overage

  • difference of total amount of the actual bills and coins is more than what the balance should be
• If shortage in petty cash is paid by custodian, it is refunded to the custodian
• If cause of overage in petty cash cannot be ascertained, amount is recorded as miscellaneous income
• Fluctuating Fund System

  • Immediately records petty cash disbursements, resulting in a fluctuating balance of petty cash fund
• Bank offers 3 major types of deposit accounts

  1. savings account
  2. time deposit or certificate of time deposit
  3. checking account
• Time deposit

  • earns higher interest than savings account
  • has a maturity date and withdrawal is allowed upon its maturity date
• Checking account

  • allows a minimal rate of interest to encourage depositors to put more funds
  • main focus of bank reconciliation
• Bank Statement

  • all increases and decreases in an entity's checking account are summarized on a monthly basis
• Bank Reconciliation

  • process of matching the balances in an entity's accounting records for cash to the bank statement
• Bank Reconciliation

  • process that shows items or factors which caused the two cash balances to be unequal
  • factors are called reconciling items
• Book Reconciling Items

  1. credit memos
  2. debit memos
  3. book errors