FAR - Cash and Cash Equivalents

Assets

Economic resources controlled by the entity as a result of past events.

Economic resource

A right that has the potential to produce economic benefits embodied in any of the following ways: (a) used singly or with other assets in the production of revenues; (b) used to acquire other assets, or settle a liability, or distribute to the enterprise owners.

Financial instrument

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

IFRS 9 Financial Instruments

Financial assets and financial liabilities are within the scope of what standard?

Financial asset

Arises from a contract that entitles the holder to receive cash or another financial asset.

Financial assets

Cash and cash equivalents, investments in equity instruments of other entities, trade receivables, loans and other receivables, derivatives held by an entity, and investments in debt instruments of another entity classified by the latter entity as financial liabilities are examples of ________.

Derivative

A financial instrument that meets all of the following characteristics:

a.) 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

b.) it requires no initial net investment, or initial net investment smaller than that required in similar contracts; and

c.) it is settled at a future date.

Derivative assets

Options and warrants that enable holders to acquire equity shares of other entities are examples of ______.

Cash

A ____ item is unrestricted and immediately available for use in current operations.

Classify as current asset other than cash

What if a cash item is not restricted and is for use in current operations?

Cash

Cash funds (payroll fund, working fund, charge fund, petty cash fund, interest fund and dividend fund) that are intended foor current operations qualify to be reported as ____ in the current assets section of the SFP.

Cash Items

1. Cash on hand

   a.) Undeposited cash collections - currencies such as bills and coins, customers’ checks, traveler’s checks, manager’s checks, cashier’s checks, bank drafts, money orders.

   b.) Working funds - cash funds segregated for current use in the ordinary conduct of business

   • petty cash fund

   • change fund

   • payroll fund

   • dividend fund

   • tax fund

   • interest fund

2. Cash in bank

   • unrestricted funds deposited in a bank that can be withdrawn upon demand such as amounts in checking and savings account.

   • includes demand deposits

Cash equivalents

Highly liquid financial instruments that are so near the maturity and that there is insignificant risk of change in value due to fluctuation of interest rates.

Face value

Cash is generally measured at __________, which is its amortized cost and fair value at the same time.

reclassified as receivable, recoverable amount

Cash in closed banks or in banks having difficulty or in bankruptcy should be ______ and should be written down to its ___________.

As receivables

Are customers’ post-dated checks, NSF checks and IOUs reported as cash or as other line item?

As prepaid expenses

Are postage stamps and expense advances (such as advances for employees’ travel reported as cash or other line item?

Bank overdraft

It occurs when a depositor has written checks for a sum greater than the amount in the depositor’s bank account, resulting in a credit balance in that cash account.

Undelivered or unreleased checks

These 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.

Treatment of undelivered or unreleased checks

Should not be deducted from the company’s cash balance until they have been mailed or otherwise delivered

Treatment of postdated check

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

Minimum accounts that a company agrees to maintain in a bank checking account as support or collateral for a loan by the depositor.

Imprest system

Characterized by daily deposit of all cash receipts intact to the bank and making disbursements through issuance of checks.

Cash short and over

A nominal account that is debited for shortages and credited for overages in the petty cash fund.

miscellaneous expense, miscellaneous revenue

A debit balance in Cash Short and Over account at the end of the period should be reported as a ______________, while a credit balance is reported as a _______________.

Journal entry for the establishment pf the petty cash fund

Dr. Petty Cash Fund xx

Cr. Cash in Bank xx

Journal entry for the replenishment of the petty cash fund

Dr. Expenses (various) xx

Cr. Cash in Bank xx

Deposit in transit or undeposited collection

This is a cash receipt that has been added to the company’s cash balance but has not been added to the balance reported on the bank statement, either because it is not yet received by the bank as of cut-off time or it has not yet been deposited as of the end of the month.

Understate

Deposits in transit or undeposited collections ______ the bank balance. (Understate or Overstate)

Outstanding checks

These are checks that were written by the company, issued to the payees, and deducted from the company’s cash balance but they have not yet been reflected in the bank statement since they have not been presented yet to the bank for payment.

Debit memos

These are charges to the depositor’s account made directly by the bank.

Credit memos

These are deposits made directly by the bank to the company’s account.

Single-date bank reconciliation

Type of bank reconciliation where the ending balances per bank and per the company’s records are reconciled as of the end of a period.

Proof of cash

A type of bank reconciliation in which there is a reconciliation of beginning cash balances, receipts and disbursements during the period, and ending cash balances. This is also known as the four-column reconciliation or reconciliation of receipts, disbursements and bank balances.