CASH AND CASH EQUIVALENTS

Related Standard PAS 7 Statement of Cash Flows

Cash and Cash Equivalents - Comprise of cash on hand and demand

HINT: Ingat don sa ***Restricted fund for long term Use, dapat
deposits, together with short-term, highly liquid investments that are
gagamitin mo yung fund after 3months and above kahit pa short term
readily convertible to a known amount of cash and that are subject to an
asset yung binili mo considered na sya as HINDI na cash. Pag ginamit
insignificant risk of changes in value.
mo yung fund within 3months kahit pa restricted yun or kahit pa long
term asset yung binili mo considered padin sya as cash. “Period of
Include but not limited to; 1-12 Cash, 13-18 Cash Equivalents:
using”
1. Payroll Fund
2. ***Fund for short term payments / Fund short term liabilities /
Restricted fund as long as for short term use Petty Cash Fund - is a small amount of cash on hand that is used for paying
3. Unrestricted fund small amounts owed, rather than writing a check. Petty cash is also referred
4. Adjusted petty cash fund to as a petty cash fund. The person responsible for the petty cash is known
5. Maintaining balance in the bank as the petty cash custodian. The word petty means small.
6. Undelivered checks
7. Delivered checks but post dated as of the end of the year Include but not limited to
8. Demand Deposit 1. Bills & Coins
9. Money Orders 2. Checks payable to custodian
10. Bank Drafts 3. Acceptance Check
11. Cash in Bank gross of OVER draft / Checking, Savings, Current 4. Certified Checks
account
12. Cash on Hand / Bills & Coins Exclude but not limited to
1. Petty Cash Voucher / Expense Vouchers
13. Commercial Papers 2. Post dated checks
14. Marketable Securities 3. ****IOUs from employees (vale)
15. Money Market Funds 4. ***Birthday/Wedding envelope
16. Short term Government funds 5. *Post Dated Check
17. Treasury Bills 6. NSF
18. Cash equivalents purchase within 3months / 90days before maturity 7. **Postage Stamps

Exclude but not limited to:

1. Not sufficient Fund *NSF
2. **Bank OVER Draft
3. ***Restricted Fund for long term Use
4. Post Dated Checks
5. Stale Checks, 6months for Private, 3months for Government
Agencies See Bureau of Treasury Circular No. 03-2017
6. Cash equivalents purchase 4months / 91days and above before
maturity.
HINT: Ang *NSF ay considered as Accounts Receivable. Ex May
nagbayad sayo ng cheque worth 5,000.00 tapos nung inencash mo sa
bangko 4,000.00 nalang pala laman ng account nung taong nagbayad
sayo, kaya may A.R ka pa sa kanya na 1,000.00, **Bank over draft
naman yun sa part nya or Accounts Payable.
HINT: *Postdated Check – yun ung mga cheke na pinapapalitan sa
petty cash (tigas ng ulo no, bawal nga to eh) na hindi pa due and
demandable so, Receivable parin sya.
**Postage Stamps – syempre Prepaid expense yan. Hindi yan
considered as cash in petty cash na tulad ng bills and coins. Baket, pag
bumili ka ba ng kendi kina aling nena, papayag sya na ibayad mo yung
Stamp? Diba hindi? So, prepaid expenses siya.
***Birthday/Wedding envelope
Empty – ibawas sa bills and coins kasi malamang napahalo yun dun
May laman – ignore mo lang
****IOU – simply stated “I Owe You” or “vale”. Narinig mo na ba yung
“babale muna ako”, or “bumale ka muna”. Yun ung VALE (pronounced
as va-le not veyl). Simply put, umutang ang Empleyado. So, Receivable
sya. Credit to kuyajosephlecture.wordpress.com
Bank Reconciliation Statement - A bank reconciliation statement is a Proof of Cash / 4 Columns Reconciliation - Is essentially a roll forward of
summary of banking and business activity that reconciles an entity’s bank each line item in a bank reconciliation from one accounting period to the
account with its financial records. The statement outlines the deposits, next.
withdrawals, and other activity impacting a bank account for a specific period.
A bank reconciliation statement is a useful financial internal control tool 1stColumn Beginning balance + 2ndColumn Cash receipts in the period –
used to thwart fraud. 3rdColumn Cash disbursements in the period = 4thColumn Ending
balance
Book Reconciling Items (Mga transaction sa banko na hindi pa narerecord
kay company book) *KEY TERMS:
1. Cash Collection / Credit Memo (Ito yung payment from customer na BANK
deniretso nya deposit sa banko ng company kaya hindi pa to naka A. **DIT Last Month, deduct in the 2ndcolumn then add in the 1stcolumn
record sa company book, net of discount dapat ang cash collection) B. DIT Current Month, add in the 2ndcolumn then add in the 4thcolumn
2. NSF (Accounts Receivable to, alisin sa cash dr. AR cr Cash) C. **OC Last Month, deduct in the 3rdcolumn then deduct in the
3. Interest Income from Bank Deposit (Namunga na yung pera mo sa 1stcolumn
banko syempre considered sya additional cash) D. OC Current Month, add in the 3rdcolumn then deduct in the 4thcolumn
4. Bank Charges / Debit Memo (Payment to sa passbook kadalasan, 1st 2nd 3rd 4th
and other necessary expenses) A. xxx (xxx)
5. *Book Errors (Pag debit error deduction to, pag credit error addback) B. xxx xxx
C. (xxx) (xxx)
Bank Reconciling Items (Mga transaction sa company book na hindi pa na D. xxx (xxx)
rerecord banko) BOOK
1. Deposit In Transit (Ang kwento nito month end na ngayon pupunta A. NSF Last Month, deduct in the 3rd column then deduct in the 1st
ka ng bangko kasi mag dedeposit ka, i naabutan ka ng cut off kasi column
traffic di mo tuloy na deposit, kaya recorded na sya as additional B. NSF Current Month, add in the 3rd column then deduct in the 4th
cash in bank sa company book sa bank not yet pa) column
2. Outstanding Check (Ito naman nag issue ka ng cheque as payment C. Credit Memo Last Month, deduct in the 2nd column then add in the 1st
sa isang tao eh month end nadin, tapos yung taong pinagbayaran column
mo ng cheque next week nya pa daw i encash kaya yun recorded na D. Credit Memo Current Month, add in the 2 nd column then add in the
sya as deduction sa cash in bank sa company book sa bank hindi 4th column
pa) E. Debit Memo Last Month, deduct in the 3rd column then deduct in the
3. *Bank Errors (Pag debit error addback to, pag credit error deduction) 1st column
F. Debit Memo Current Month, add in the 3rdcolumn then deduct in the
4thcolumn
HINT: *Bakit baliktad ang treatment ng errors ng book at bank?
1st 2nd 3rd 4th
Debit error ng book - deduct to kasi mali yung pag kaka add nya, ang
A. (xxx) (xxx)
wrong entry nya nag debit sya ng cash so to correct credit mo yung
B. xxx (xxx)
cash.
C. xxx (xxx)
Credit error ng book - addback to kasi mali yung pag kaka deduct nya,
D. xxx xxx
ang wrong entry nya nag credit sya ng cash so to correct debit mo yung
E. (xxx) (xxx)
cash.
F. xxx (xxx)
Baliktarin mo lang pag dating sa bank.
HINT: *Simple analysis ang proof of cash ay bank recon lang din naman
Kasi pag may papasok na cash sa company book ang normal balance dalawang buwan nga lang, kaya 4columns. Ang tandaan mo timing
nun ay DEBIT pag naman may mag dedeposit ng cash or cheque sa difference lang naman yan so kung para yan kay current month ilagay
banko ang normal balance nun ay CREDIT dahil LIABILITY ng banko mo sa current month, yung para kay last month ibalik mo sa last month.
yun sa depositor.

HINT: **Ang best example ng timing difference ay DIT at OC.
Ang DIT ay receipt na tumatalon sa current month from previous month
dahil sa cut off kaya na papahalo sya sa receipt ng current month kaya
tanggalin sya sa receipt ng current month at ilipat sa last month as a
addition.
Ang OC ay disbursement na tumatalon sa current month from previous
month dahil din sa cut off kaya napapahalo sya sa disbursement ng
current month so tanggalin sa disbursement ng current month at ilipat sa
previous month as a deduction.
RECEIVABLES
Related Standard PAS 39 and PFRS 9
*Accounts Receivable - Refers to the outstanding invoices a company has
or the money the company is owed from its clients. The phrase refers to
accounts a business has a right to receive because it has delivered a
product or service. Receivables essentially represent a line of
credit extended by a company and due within a relatively short time
period, ranging from a few days to a year.
Types of / accounts considered as receivables:
1. Trade Receivable – arising from the ordinary course of business
(Current Asset)
2. Non – Trade Receivable – not arising from the ordinary course of
business (either current or non - current asset based on the terms)
3. Post Dated Checks
4. NSF
5. IOU
6. Notes Receivable (nature is current asset, should be net of
discount)
7. Loans Receivable (nature is non - current asset)
8. Claims Receivable – usually arising from goods lost in transit
(current asset)
9. Debit Balance from creditors – generic term for trade accounts
receivables (current asset)
10. Charge / credit sales
Accounts receivable should not be net of “credit balance account” credit
balance is recognized separately in the current liability section as accounts
payable.
Account payable should not be net of “debit balance account” debit
balance is recognized separately in the current asset section as accounts
receivable.
Bad Debts Expense - is the loss that occurred from extending credit during
the period of time indicated in the heading of the income statement,
normal balance is debit.
Allowance for Doubtful Accounts - is the estimated amount of the accounts
receivable that will not be collected. The Allowance for Doubtful Accounts is
a contra asset account or valuation account associated with the balance in
Accounts Receivable, normal balance is credit.
Under the allowance method, if a specific customer's accounts receivable is
identified as uncollectible, it is written off by removing the amount from
Accounts Receivable. The entry to write off a bad account affects
only balance sheet accounts: a debit to Allowance for Doubtful
Accounts and a credit to Accounts Receivable. No expense or loss is
reported on the income statement because this write-off is "covered" under
the earlier adjusting entries for estimated bad debts expense.
After a seller has written off an accounts receivable, it is possible that the
seller is paid part or all of the account balance that was written off.
Under the allowance method, if such a payment is received (whether
directly from the customer or as a result of a court action) the seller will take
the following two entries:
1. Accounts Receivable
Allowance for Doubtful Accounts
2. Cash
Accounts Receivable
HINT: *Accounts Receivable End – beginning balance Plus credit
sales Less collections, sales discounts, sales returns and
allowances, and writeoff.
Recovery of accounts – ignore in computing accounts receivables,
unless included in collections in which case deduct from
collections
Aging – Required Allowance
Percentage of Accounts Receivable – Required Allowance
Percentage of Sales – Doubtful accounts expense
Allowance for doubtful accounts End – Allowance beginning Plus
recovery of previous writtenoff and Doubtful accounts expense Less
writtenoff.
Writeoff – has no effect in the NET account receivable but if.
INVENTORIES
Applicable Standard PAS 2 Inventories

Inventories - are assets (a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or (c) in the form of materials
or supplies to be consumed in the production process or in the rendering of
services.

Inventories encompass goods purchased and held for resale including, for
example, merchandise purchased by a retailer and held for resale, or land
and other property held for resale. Inventories also encompass finished
goods produced, or work in progress being produced, by the entity and
include materials and supplies awaiting use in the production process.
In the case of a service provider, inventories include the costs of the
service, as described in paragraph 19, for which the entity has not yet
recognised the related revenue (see IAS 18 Revenue).

Net realisable value - is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
Fair value - is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm’s length
transaction.

Net realisable value refers to the net amount that an entity expects to
realise from the sale of inventory in the ordinary course of business. Fair
value reflects the amount for which the same inventory could be
exchanged between knowledgeable and willing buyers and sellers in
the marketplace. The former is an entity-specific value; the latter is not. Net
realisable value for inventories may not equal fair value less costs to
sell.

PAS 2 applies to all inventories, except:

1. Construction contracts (see IAS 11 Construction Contracts)
2. Financial instruments (see IAS 32 Financial Instruments)
3. Biological assets related to agricultural activity and agricultural
produce at the point of harvest (see IAS 41 Agriculture)

Inventories shall be measured at the lower of cost and net realisable

value.

Inventoriable Cost - refer to all costs incurred to obtain or produce the end-
products. Apply these costs to the products the company produces and
sells.

Examples of inventoriable cost / product cost:

1. Net cost of purchase
2. Import duties / freight in
3. Taxes but not subsequently
4. Transport cost
5. Handling / directly attributable to the acquisition
6. Finished goods
7. Factory Supplies
8. Storage cost of WIP
9. Direct materials
10. Direct labour
11. Manufacturing overhead both fixed and variable
12. Depreciation of factory building and equipment