Far (final Outline).docx

CASH AND CASH EQUIVALENTS In accounting, cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. (PAS 1) The cash must be unrestricted in use. The following items cash items are included in “cash”: a. Cash on hand b. Cash in bank (demand deposit or checking account and saving deposit) c. Cash fund set aside for current purposes (petty cash fund, payroll fund and dividend fund) Cash Equivalents (PAS 7) It is a short-term and highly liquid investments that are acquired three months before maturity can qualify as cash equivalents.

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Bank overdraft When the cash in bank has a credit balance, it is said to be an overdraft. It is the result from the issuance of checks in excess of the deposits. If it is in the same bank, then it can be offset. Compensating balance is the form of minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank. 

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Measurement of cash  

Cash is measured at face value. Cash in foreign currency is measured at the current exchange rate

Investment of excess cash a. If the term is three months or less, such instruments are classified as cash equivalents. b. If the term is more than three months but within one year, such investments classified as short- term financial assets. c. If the term is more than one year, such investments are classified as noncurrent or long-term investments. Cash fund for a certain purpose The classification of cash fund as current or noncurrent should parallel to the classification of the related liability.

If the cash fund is set aside for use in current operations, it is included as cash and cash equivalents. If the cash fund is set aside for noncurrent purpose or payment, it is shown as long-term investment.

If not legally restricted as to withdrawal, the compensating balance is part of cash. If the deposit is legally restricted, as “cash held as compensating balance” under current assets if short-term. (if long-term loan, then it is long-term investment)

Undelivered or unreleased check is one that is merely drawn and recorded but not given to the payee before the end of reporting period. Postdated check delivered is a check drawn, recorded and already given to the payee but it bears a date subsequent to the end of reporting period. Stale check or check long outstanding is a check not encashed by the payee within a relatively long period of time. 

A check become stale if not encashed within six months from the time of issuance.

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. Lapping is a practice used for concealing a cash shortage. It is a practice where a collection from one customer and concealing the defalcation by applying a subsequent collection made from another customer. Kiting is another device used to conceal a cash shortage. It occurs when a check is drawn against first bank and depositing the same check in the second bank to cover the shortage in the latter bank. Imprest system is a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check. Petty Cash Fund 

It is a money set aside to pay small expenses which cannot be paid conveniently by means of check.

There are two methods: a. Imprest fund system b. Fluctuating fund system

BANK RECONCILIATION It is a statement which brings into agreement the cash balance per book and cash balance per bank. Three kinds of bank deposit: a. Demand deposit or checking account (noninterest bearing) b. Saving deposit (interest bearing) c. Time deposit (interest bearing| certificate of deposit)

Reconciling items Book reconciling items: a. Credit memos (add) b. Debit memos (deduct) c. Errors Bank reconciling items: a. Deposits in transits (add) b. Outstanding checks (deduct) c. Errors Forms of bank reconciliation Adjusted balance method Book balance

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Add: Credit memos

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Total

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Less: Debit memos

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Adjusted book balance

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Bank balance

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Add: Deposit in transit Total

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Less: Outstanding Checks Adjusted bank balance

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Book to bank method Book balance

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Add: Credit memos

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Outstanding checks

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Total

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Less: Debit memos

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Deposits in transit

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Bank balance

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Bank to book method Bank balance

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Add: Deposits in transit

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Debit memos

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Total

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Less: Outstanding checks

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Credit memos

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Total

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