ACYFARP: Accounting for Cash and Cash Equivalents

Cash

Refers to money or its equivalent that is readily available for unrestricted use.

Cash

Includes money and any other negotiable instruments that is payable in money acceptable by bank for deposit and immediate credit. It does not only pertain to money itself, it may also include checks, bank drafts and money orders because these are acceptable by the bank for deposit or available for immediate encashment.

Checks

Refers to a form of negotiable instrument that is written, signed and dated which enables the bearer to receive a sum of money from a bank.

Bank Drafts

Pertain to payment on behalf of the payor; which is guaranteed by the issuing bank. It is used when the payee demands for a highly secured form of payment. On the part of the bank, it has no risk since it immediately debits the amount involved in the payor's account.

Money Order

Is in the form of certificate commonly issued by the government or banking institution that allows the stated payee to receive cash on demand.

Undeposited Collections

Currencies such as bills and coins not deposited by an entity. This may also include other cash items like checks received from customers awaiting deposit, manager's checks, cashier's checks, bank drafts, traveler's checks and money orders.

Working Fund

Part of cash set aside for short-term purposes such as petty cash fund, interest fund, dividend, and payroll fund.

Cash in Bank

This includes unrestricted funds deposited in a bank that can be withdrawn upon the demand of an entity such as demand deposits, savings account and checking account.

Post-Dated Checks

Checks written and dated in a future date.

Postdated Checks Received by an Entity

Do not qualify as cash yet because are not yet presently available for immediate use.

Postdated Checks Issued

Must be reverted back to cash because the payee cannot yet encash the said check.

Undelivered or Unreleased Check

A company's check that was merely drawn and recorded but is not actually delivered or given to the payee as of the reporting date.

Undelivered or Unreleased Check

There is no actual payment since the undelivered check remains in the hands of the company even if they already recorded the transaction, therefore, an adjusting entry should be made.

Stale Checks

When a company already issued and recorded a check to the payee but the latter is not yet presenting this check to the bank for encashment for a relatively long period of time.

6 months

Number of months based on banking practice a check becomes stale.

Bank Overdraft

A negative balance in a bank account caused by overpayment of checks in excess of the deposit amount.

Bank Overdrafts

Occur only in checking accounts.

Bank Overdrafts

These are payable on demand. As a result, they are included in current liabilities unless offsetting is authorized.

True

(True or False) When an entity maintains different bank accounts in one bank and overdraft occurs in one of the bank accounts, the overdraft can be offset with other bank accounts with positive balances.

Compensating Balance

An amount that a borrower must maintain in a bank.

Compensating Balance

It also pertains to the portion of the amount borrowed by an entity from a bank. This portion should be maintained and cannot be part of the proceeds from the loan and will serve as a security of the creditor once the borrower cannot fully pay the obligation.

Unrestricted Compensating Balance

Included as part of cash

Restricted Compensating Balance

Not part of cash.

Restricted Compensating Balance Related to Short-term Loan

A compensating balance that is restricted, but is part of current assets.

Restricted Compensating Balance Related to Long-Term Loan

A compensating balance that is restricted, but is part of non-current assets.

Window Dressing

A form of fraud that includes an intentional manipulation done by one or more individuals within an entity to enhance the financial statements to produce a more favorable picture of the company before the shareholders.

Check Kiting

A form of fraud that includes floating funds between bank accounts using checks to inflate cash balance.

Check Kiting

An entity would issue a check from a bank balance that has inadequate funds to another bank that has insufficient funds. The entity maximizes the clearing period which, usually takes three days, hoping that within that specified period, the entity would come up with necessary amount to settle the deficiency. This is an illegal activity since the check could possibly bounce once clearing period lapses.

Lapping

A form of fraud wherein an employee alters accounts receivable records as a result of the concealment of cash.

Lapping

Is the illegal activity that is done by diverting a payment from one customer, and hiding the theft by diverting cash from another customer to offset the receivables from the first customer.

Lapping

This type of fraud can be conducted in perpetuity, since newer payments are continually being used to pay for older debts, so that no receivable involved in the fraud ever appears to be that old.

NSF Check Recorded as Cash Receipts

These items must be removed from cash and reverted back to receivables.

NSF Checks Issued

If initially recorded as cash disbursements, these items must be reverted back to cash.

IOUs or Advances from Employees

Exclude from Cash. These are treated as receivables.

Unused Credit LIne

The difference between the amount of line of credit and the amount that was actually borrowed. Not included as cash but rather disclosed in the notes.

Cash Set Aside for Long-Term Purpose or for Acquisition of a Non-Current Asset

Not included as cash. Classified as Non-Current Asset.

Cash Set Aside for Payment of Long-Term Liabilities

Excluded from cash. But when the related long-term liability is due within 12 months from the balance sheet date, cash set aside for payment of long-term liabilities will currently mature and as such, must be included in cash.

Cash Denominated in Foreign Currency

Must be translated to PHP using the closing rate or the exchange rate as of the reporting date.

Unrestricted Cash in Foreign Currency

Included as part of cash.

Restricted Cash in Foreign Currency (Short-Term Restriction)

Not part of cash, but part of current assets.

Restricted Cash in Foreign Currency (Long-Term Restriction)

Not part of cash, but part of non-current assets.

Cash in Closed Banks

Reclassified to receivables and should be written down to its receivable amount.

Postage Stamps and Expense Advances

Exclude from cash. These items are treated as office supplies.

Cash Overage (Payable to Employee)

It will be recorded as a payable to employee using a suspense account.

Cash Overage (Misc. Income)

If based on investigation, due to the nature of the transaction wherein nobody owns that money, such amount is considered to be an additional income by the company entered into miscellaneous income account by using a suspense account.

Cash Shortage (Cashier's Fault)

It will be recorded as a receivable from employee by using a suspense account.

Cash Shortage (Loss)

If based on investigation that due to the nature of transaction wherein nobody's at fault, such amount is considered as a loss by using a suspense account.

Petty Cash Fund

A type of cash fund set aside to cover relatively small expenditures.

Imprest Fund System

All cash receipts must be deposited intact, and all cash disbursements must be done through checks.

PCF per Count

Coins and Currencies + Petty Cash Vouchers + Replenishment Checks + IOUs or Advances to Employees Employee's NSF Check

PCF, Ending Balance

Coins and Currencies + Replenishment Check

Fluctuating Fund System

The PCF balance fluctuates because in every transaction, PCF is journalized. Expenses are recognized immediately every after transaction. Adjustments at the end of the accounting period is not necessary since expenses are recorded immediately.

Cash Equivalents

All highly liquid investments that are acquired within three (3) months before maturity.

Investment is Not Acquired Within 3 Months Before Maturity But Matures Within 12 Months After the Reporting Period

Not considered a cash equivalent but rather, a short-term investment, part of current assets.

Investment is Not Acquired Within 3 Months Before Maturity And Matures Beyond 12 Months After the Reporting Period

Not considered a cash equivalent and also not classified as a current asset.

Redeemable Preference Shares Acquired Within 3 Months Before Redemption Date

A hybrid instrument that is considered a cash equivalent.

Bank Reconciliation

A process of matching the cash balance per company's books with the company's cash balance per bank. It is usually prepared monthly.

Deposit in Transit, Outstanding Checks, and Bank Errors

The following are bank reconciling items.

Bank Credit Memo, Bank Debit Memo, and Book Errors

The following are book reconciling items.

Reconciling Items

Refers to the items used to reconcile the book and bank balances. These items are what cause the difference between the acsh per book and cash per bank.

Deposit in Transit

Refers to the amount of cash that was already recorded and sent by the depositor to the bank for deposit but the bank is yet to recognize the amount. Usually happens when the cutoff time is already effected before it was deposited, therefore, the bank will account such items in the following period, thus, it will not be included in the current bank balance.

Outstanding Checks

Refers to the amount of cash already recorded by the depositor as cash disbursement but is yet to be reflected by the bank.

Outstanding Checks

These are the checks already forwarded to payees for the settle of account but the latter is yet to present it to the bank for encashment.

Certified Check

Is one in which the bank has stamped the words "accepted" or "certified" on the front, indicating that the funds are sufficient. Because these checks are no longer outstanding, they should be deducted from the total outstanding checks (if included).

Book Reconciling Items

Refer to the items that are yet to be recorded in the company's books but already recorded by the bank.

Bank Credit Memo

Refers to the items already added by the bank but not yet added by the book. I order to adjust the cash balance per book, these items should be added.

Bank Debit Memo

Refers to the items already deducted by the bank but not yet deducted by the book. In order to adjust the cash balance per book, these items should be deducted.

Proof of Cash

A more comprehensive bank reconciliation that includes proof of cash cash receipts and disbursements. Unlike bank reconciliation, it is only done when it is required, which is usually in the case of cash fraud investigations.