INTACC 1

• Assets


  Economic resource controlled by the entity as a result of past events
• Economic resource


  A right that has the potential to produce economic benefits embodied in:

  1. Used to singly or with other assets in the production of revenues

  2. Used to acquire other assets, or settle a liability, or distribute to the enterprise owners
• Financial assets


  Group of assets evidenced by financial instruments
• Financial instrument


  Any contract that gives rise to a financial asset of one entity and a financial liability or equity to another
• Holder


  Financial asset
• Issuer


  Financial liability or a component of shareholder equity
• Derivative


  A financial instrument that meets all of the following characteristics:

  1. Its value changes in response to change in specified interest rate, commodity price, financial instrument price, foreign exchange rate, price index, credit rating or credit index, or other variables.

  2. It requires no initial net investment, or initial net investment smaller than that required in similar contracts

  3. It is settled at a future date (ex. Options and warrants that enable holders to acquire equity shares of other entities)
• Recognition of financial assets

  Depends on the attributes or relevance and faithful representation. The probability of a flow of economic benefits and existence uncertainty affect the relevance of information. IFRS 9 provides that an entity shall recognize a financial asset in its statement of financial position when and only when the entity becomes a party to the contractual provisions of the instrument.
• Cash


  Most significant because of its ability to settle an obligation, acquire another asset, pay operating costs, or provide returns to enterprise owners. It is used as a medium of exchange, refers to currency and coins that are in circulation, and must be unrestricted and available for use in current operations.
• Cash includes


  • Bills and coins on hand
  • Demand credit instruments (checks, bank drafts, postal money orders and currency demand deposits with banks)
• Cash funds


  During current operations qualify to be reported as cash in the current assets section of the statement of financial position. Examples: payroll fund, working fund, change fund, petty cash fund, interest fund, dividend fund.
• Cash funds not reported as current assets

  Cash funds intended for acquisition of non-current assets, cash funds for settlement of long-term obligations
• Considerations in reporting cash balance

  • Foreign currency
  • Cash in closed banks or in banks having financial difficulty or in bankruptcy
  • Customers' post dated checks, NSF checks and IOUS
  • Postage stamps and expense advances
  • Bank overdraft
  • Undelivered or unreleased checks
  • Company's postdated checks
  • Compensating balances
• Cash management


  Excessive amount of cash indicates that the resources are not efficiently managed and represents unproductive assets
• Characteristics of a system of cash control

  • Segregation of duties for handling cash and recording transactions
  • Imprest system
  • Voucher systems
  • Internal audits at irregular intervals
  • Periodic reconciliation of bank statement balance and cash balance in the company's accounting records
• Petty cash fund


  Allowance for small expenditures in which issuance of checks will be considered impractical
• Cash short or over


  Nominal account that is debited for shortages and credited for overages in the petty cash fund
• Bank reconciliation


  Process of comparing the cash balance per books with the cash balance per bank statement and explaining the differences
• Items that cause differences in bank reconciliation

  • Deposit in transit or undeposited collections
  • Outstanding checks
  • Debit memos
  • Credit memos
  • Errors
• Computation of deposits in transit

  1. Deposits in transit, beginning of the month

  2. Add cash receipts reflected in company records (excluding credit memos issued by bank in the previous month but recorded by the depositor only this month)

  3. Total

  4. Less deposits as reflected in bank statement (excluding credit memorandums from bank statement)

  5. Deposits in transit, end of the month
• Trade receivables


  Generally classified as current assets. When it extends because of credit terms, it is still classified as current, but disclose the amount or estimate not collectible within 12 months
• Non-trade receivables


  Collectible within 12 months are classified as current (regardless of the length of the entity's normal operating cycle. Non-trade receivables not collectible within 12 months are classified as noncurrent.
• Initial recognition of trade receivables

  Based on IFRS 9, an entity shall recognize a financial asset in its balance sheet when the entity becomes a party to the contractual provision of the instrument. Trade receivables are recognized simultaneously to the recognition of related revenue, either from sale of goods or rendering of services. Trade receivables are initially recorded at transaction price.
• Trade discounts


  Also known as volume or quantity discounts. They are deducted from the list price prior to recording the accounts receivable arising from a credit transaction. Both accounts receivable and related revenue are always recorded net of trade discounts.
• Cash discounts


  Reductions from the sales price to prompt payment of an account. Methods of recognition: Gross Price Method - both the accounts receivable and sales are initially recorded at the gross price with no accounting recognition for the available cash discount until it is taken.
• Equity security


  Instrument representing ownership shares and right, warrants or options to acquire or dispose of ownership shares at a fixed or determinable price. Provide highest returns to investors through dividends, gains and losses from disposal, appreciation in value.
• Reasons for investing in equity securities

  • Temporary placements of excess cash; held primarily for sale in the near term, to generate income on short-term price fluctuations
  • Obtain long-term customer, supplier or creditor relationship to secure certain operating or financing arrangements
  • Exercise significant influence or control over the operating policies of another entity
• Classifications of equity investments

  • Trading equity securities (FVPL)
  • Nontrading equity securities (irrevocable choice of FVPL or FVOCI)
• Accounting for changes in fair value of equity investments


  1. Changes in FV at reporting date recorded in OCI in Statement of Comprehensive Income

  2. Upon Sale, adjust investment to FV. To determine actual gain or loss: compare net proceeds from sale and carrying amount. Gain if net proceeds are bigger than carrying amount, to be recognized in OCI as Unrealized Gains or Losses on Equity Investments-OCI

  3. Cumulative balance of unrealized gains or losses in equity shall remain in equity; can be transferred to Retained Earnings (the difference between the selling price and initial cost of the investment)
• Accounting for share split

  1. Memo entry indicates change in number of shares and par value

  2. At year end, adjust shares to FV
• Dividends

  Distributions to shareholders proportionate to the number of shares held. Forms: Cash dividends, Liquidating dividends, Share dividends (bonus issue)
• Share split


  Capital restructure whereby number of shares are changed without capitalizing retained earnings or changing the amount of its legal capital
• Share split


  • Split up: shares are increased with a reduction in par or stated value of each share
  • Split down (reverse share split): shares are decreased with an increase in par or stated value
• Memo entry indicates change in number of shares and par value
• At year end, adjust shares to FV
• Dividends


  Distributions to shareholders proportionate to the number of shares held
• Forms of dividends


  • Cash dividends
  • Liquidating dividends
  • Share dividends (bonus issue)
  • Property (dividends in kind)
  • Scrip
• Date of declaration


  Dividend payment approved by BOD, recognize revenue or dividend income
• Date of record


  When stock and transfer book is closed for registration, determine ownership for entitlement to dividend payments by preparing a list
• Date of payment


  Release or distribution of dividends