CASH AND CASH EQUIVALENT

⁷YOUTUBE: Dean CJ Formaran Accounting Lectures

• May sariling accounting standard na sinusunod ang mga line items

Guidelines on how to study IA/FAR subjects

1. Know the applicable accounting standards
2. Know the scope of the applicable accounting standards
3. Know the important definition of terms
4. Know the recognition (a) initial and; (b) subsequent
      * Kelan dapat irecord sa general journal o sa journal o mag reflect sa financial statement itong line items na to, mga title na ito \n ____
5. Know the measurement (historical cost, fair value, face value, revaluation value, etc**)**

   
   1. initial and;
   2. subsequent

6. Know the essential journal entries
7. know the presentation
8. know the disclosure requirements
      * E.g naka loan, related sa cash in bank then may loan ka. COH, CIB, petty cash fund, so dapat na disclose or naka break down
      * Naka disclose mean naka appear sa financial statements

Applicable (Application) accounting standards

• no specific accounting standard deals with (cash and cash equivalent
    * Walang specific na standard na ang title ay CCE
• Philippine financial reporting standards (PFRS) 9 - financial instruments ( may kinalaman sa kaperahan.  settlement will be made by cash)
• Phil. Accounting standards (PAS) 32 - financial instruments - disclosure and presentation
• PAS 1 - Presentation of financial statements
• PAS7 - Statement of cash flows

Definition of important terms

1. Cash - includes money and any other negotiable instrument that is payable in money and acceptable by the bank for depeosit and immediate credit.
      * Cash is money or its equivalent that is readily available for unrestricted use (pwedeng gamitin pambili, pambayad ng OPEX). If pag ang cash ay may restriction mean hindi pinapagamit sayo kaya ihihiwalay mo sya as part of other current asset.
      * Examples:

   
   1. Cash on hand (CUTCMoBa)
      * C - Customer's checks awaiting  for deposit
        * hindi dapat NSF, POSTDATED
      * U - Undeposited cash collections (currencies such as bills and coins)
      * T - Traveler's check
      * C - Cashiers/ Official/ Treasurer's/ Manager's checks
      * Mo - Postal money orders (a demand credit instrument issued and payable by a post office)
      * Ba - Bank drafts (a written order addressed to the bank to pay an amount of money to the order of the maker)
      * \
   2. Cash in bank

      
      1. Current account / Checking account / demand deposit / commercial deposit
         * Generally non-interest bearing
         * Withdrawable by checks against bank
         * pwedeng mag withdraw gamit check
      2. Savings deposit (savings account - SA)
         * Generally interest bearing
         * Depositories issued an ATM card or passbook
         * Withdrawable in ATM station or within the bank
         * Cash fund (set aside for current purpose - nagbubukod ng fund para sa employee or payroll fund)
         * SA close bank - part sa receivable
   3. cash fund for current operations (CP²RIntPeDiT²)
      * C - Change fund
      * P - Payroll fund
      * P - purchasing fund (for purchasing of inventories)
      * R - Revolving fund
      * Int - interest fund
      * Pe - Petty cash fund (for small and miscellaneous disbursements)
        * internal control for cash - set by the management para walang mandaya/magnakaw
          * under sa imprest sytem - lahat ng nakita mong pera ideposit sa bank para walang manakaw. dapat naka checky lahat
      * Di - Dividend fund
      * T - travel fund
      * T - Tax fund - VAT

Fund for noncurrent operations

These are part of the non current assets and should not be included as part of cash. Examples are as follows (P2ACIS):

1. P - Pension Fund - Generally, noncurrent investment but if the related liability is current, the fund is included as cash. If walang sinabi/state na current then ilalagay sya sa noncurrent clasification.
2. P - Preferred Redemption fund - Noncurrent investment unless the preferred share has a mandatory redemption and if redeemable

• \
    * If within 1 year from the reporting period  - part of the current investment
    * Within 3 months from the reporting period - part of current investment
    * Redemable ps - mandatorty na bilhin ulit yng RPS
      * part of LIABILITY - UTANG
      * 1HR 32MINS RECORDED BALIKAN
    * Dr PRF
      * Cr cash

1. A - Acquisition of property, plant, and equipment - Always noncurrent even if expected to be distributed next year

• \
    * restricted - mean yung fund ay hindi na pwedeng galawin o gamitin sa ibang bagay, pambili ng property, land, building, machinery or equipment lang ang fund
    * classified as noncurrent, tatanggalin as part of cash
    * hindi nag babago kahit na kelan idisburse

1. C - Contingent fund - Non current investment

• \
    * biglaang gastos ang kompanya - aksidente ng empleyado, nasunog ang manufacturing building, sinampahan ng kaso yng kompany.
    * contingent - di mo alam kung kelan mo magagsatos
    * pwedeng nakalock ng time deposit ng maikli o mahabang panahon
    * classified as non current kasi nag eexpect naman ng return

1. I - Insurance fund - noncurrent investment

• \
    * pinapainsure, building, property, employee

1. S - bond Sinking fund- Nonecurrent investment, if the related bonds payable is current, the fund is included as cash

2hr 40min balikan

• \
    * sinking- naghiwalay ng utang (loan) and ang utang ay pang matagalan, hiniwalay yng pondo o fund para pambayad ng interest.
    * sinking kasi nababawasan/ lumulubog dahil nag babayad ng interest
• bonds payable - mangungutang thru bonds. pag current, ilalagay mo as cash ang sinking fund
• pag silent ang problem, basta nilagay lang sinking fund then automatically noncurrent investment yun
    * unless other wise sinabi na ang babayarang bonds payable ay current then that is the time you clasify sinking fund as cash

IMPORTANT NOTE!

• Classification of cash funds as current or noncurrent should be parallel to the classification applied to the related liability.
    * pag naghiwalay ng pondo then na identify mo na yung pondo na yun ay ipambabayad ng utang then tanungin mo kung yung bibilhin (inventory= current cash) (building= noncurrent, tanggalin sa cash then magiging noncurrent investment/ fund)
• thus, an entity should reclassify such non current asset if the realated liability bocomes current.

CASH EQUIVALENT

• EASILY CONVERTIBLE INTO CASH AND HINDI KA MANGANGAMBA NA MAG BABAGO VALUE NYA
• cash equivalents are “short-term”, highly liquid investments that are readily convertible to known amounts of cash and which are subject
    * insignificant ang risk- hindi mararamdamn ang any change of value, if bumababa man sobrang baba naman ng nabawas sa value

to an insignificant risk of changes in value” (PAS 7 statement of cash flows)

• hindi tlaaga cash but rather ang CE ay investment
• only highly liquid investments that are acquired 3 months or less before maturity can qualify as cash equivalents
    * 3 month role - binili o nag invest before maconvert into cash kasi bibilhin na ulit sayo ung investment.
    * nag invest ka 3 mons bago mag mature
      * maturity - kelan bibilhin ulit ng piang-investan mo yng investment (53mins sa recording ni sir)
• equity invest - hindi part ng CE since they dont have maturity date
• time deposit - CCE
    * HINDI PWEDENG IVITHDAW FOR A CERTAIN PERIOD OF TIME, NORMALY 6MONS
• money market instrument or commercial paper - CCE
• treasury bills, treasury notes and treasury bonds - CCE
    * SECURITIES ISSUED BY THE GOVERNMENT
    * INVESTMENT FROM GOVERNMENMT
• redeemable preference shares with mandatory redemption period - CCE
• NOTA BENE (note well): what is important is the DATE OF PURCHASE prior to maturity date (which should be three months or less)

CASH EQUIVALENT - IMPORTANT NOTE

• If the item cannot be included as CE because it did not qualify the cut-off time period (i.e omons), it will always be classified as INVESTMENTS (short-term ot log-term) depending in the period up to maturity.
• If the problem is silent (walang sinabi kung kelan binili) with regard to:
    * Treasury note and bonds - assumed noncurrent investments
    * cash in money market account - cash and cash equivalents
    * Time deposits - cash and cash equivalents

POST-DATED CHECKS AND UNRELEASED CHECKS

• postdated checks - naka forward ang date. hindi pa pwedeng i-in cash ngayong araw kaylangn dumating yng date na nakalagay bago ma-in cash
• \
• \
    * Post dated checks ==received== from customers are ==excluded from cash==
      * mananatiling ACCOUNTS RECEIVABLE (sa part ng nakareceive ng postdated checks) hanggat hindi pa na convert(deposit sa bank account, convert into cash into cash
    * Postdated checks ==drawn== are included in cash
      * ACCOUNTS PAYABLE (pag ikaw ang nagbigay ng postdated check) hanggat hindi pa na convert into cash
• Unreleased checks - nakagawa ng check and pirmado na pero di mo pa nabibigay sa supplier/babayaran
    * Unreleased checks drawn are included in cash
      * Relesed check - once na maibigay na ang check o pwede ng maconvert
      * Part parin ng cash

STALE CHECKS/CHECKS LONG-OUTSTANDING (REVERT BACK TO CASH)

• wala namang sinasabi sa batas kung kelan dapat maregnize na stale ang check
• peor sa bank naman para masabing stale chek ay 6mns so pag lumagpas dun hindi na tatanggapin ng bank
    * If material (masyong malki ang ammount)
• ibabalik sa cash dahil naging stale o hindi na pwedeng ipaconvert ang check
    * \
      * Dr Cash
        * Cr Accounts payable
      * If immaterial
        * Dr Cash
          * Cr Miscellaneous Income
• e.g nagpaconvert ako ng check yng check nayun ay babalik sa bank na may stamp, katunayan na convert na into cash

COMPENSATING BALANCE

• pagnangutang sa bank, hindi nila ibibgay ng buo yng inutang mo mag kakaroo ng remaining balance / compensating balance which is 10% of the 500k (eg)
    * Anong mangyayari sa compensating balance? ans below:
• Compensating balances that ==are legally restricted (may contact)== as to withdrawal (bawal iwithdraw) by the borrower are excluded from cash (hindi part ofcash).
• compensating balances that are ==not legally restricted== as to withdrawal are ==included in cash==
• wether restricted or not, compensating balances are ==disclosed in the notes==
    * ilalagay sa financial statement na merong compensatingblacke at state kung not/restricted
      * kaakibat nitong CB ay may loan and right ng bumabasa ng FS na malaman na may loan ang company
• if silent, assumed to be not legally restricted

BANK OVERDRAFT

• A bank overdraft is presented as a current liability, unless it quantifies to be offset againts cash. in short, negetive balance in the bank acoount
    * napasobra ang withdraw sa bank
    * represent CURRENT LIABILITY
    * bawal offset - bawal ibawas sa iba mong account sa ibang bank
    * nag issue ng check more than sa kaya ng bank accout/ more than sa laman ng bank - pwedeng kasuhan ng stafa
• what is the treatment?

  a. ==Different banks== - current liability or netted against other banks if immaterial. pwede pag maliit lang

  b. ==Same bank== - can be netted with account with positive amount but cannot be offset against restricted account. as long as ang bank account ay not restricted pwedneng ibawas / offset

CRITERIA ON RECOGNITION OF CCE

• kelan irecord journal si CCE at mag appear sa financial statement

1. Applying the recognition of PAS 1 (PRESENTATION OF FINANCIAL STATEMENTS)

• recognize as assets when:
    * it is probable that the ==future economic benefits== associated with the asset flow to the enterprise; and
    * the cost of the asset can be ==measure reliably.==

1. Applying the recognition definition of pfrs9 (financial instrument) - may kinalaman sa usaong pera :

• when the entity ==becomes a party to the contract or when the transfer if resources transpired.==
    * ==nakasama ka sa contract / nagkaron ng transfer of resource, binigay mo na nagpalitan na==
    * transpired - nangyarin na talaga.
    * thisnthe time na mag recognize ng CCE

MEASUREMENT of CCE

• the cost of the asset must be measure reliably

1. Cash is measured at ==face amount==
2. cash denominated in ==foreign currency== is translated at the ==current exchange rate as of reporting date==

   
   1. dapat naka peso, hindi pwedeng naka dolar
   2. foreign bank - that are restricted to use or withdrawal should be reported separately, preferably, as non current assets

3. cash maintained in a bank undergoing ==bankruptcy is excluded from cash and presented as receivable measured at realizable value==

• receivable kasi babayaran ka ng insurance ng (if may insurance ka sa bank - up to 500k)
    * Dr cash
      * Cr receivable (measure at realizable value)

Some Measurement Issues and Frequent Encountered Tricks in Cash and Cash Equivalents Computation

(book: applied auditing 2018 nila ms nina escala at asuncion)

PETTY CASH FUND

TOPIC OUTLINE:

1. DEFINITION OF IMPREST SYSTEM
2. Difference berween:

   
   1. imprest fund system
   2. Fluctuating fund system

3. Sample problems
4. accounting for cash shortage or Overage

REVIEW:

PETTY CASH FUND:

• system for control sa cash
    * para maiwasan ang nakawan (thief) / misappropriation

a. collection (inflow) - all collections should be deposited sa BANK. lahat ng nacollectang pera ngayong araw dapat the following day should be deposited

b. disbursement (outflow) - all payments should be made by CHECK except for petty expenses (petty cash fund)

• voucher system - all payments is thru CHECKS. sino, ano, at magkano ang babayaran. may control number para maiwasan ang paglabas ng pera ng hindi nalalaman kung kanino binigay
    * nakikita kung san napupunta ang pera ng company at hindi basta binayaran mo lang at walang katunayan na nareceive ang check (papirmahin ang nag receive ng payment)
      * process: request for payment - voucheer - check. pipirma si supplier sa voucher para katunayan na nareceive na nya yng check
        * 3 persons gumawa for voucher: prepare - review - approval
      * once na nareceive na yung check, tatakan / stamp na ang voucher na may nakalagay na paid para maiwasan na magawan ulit ng check at mabayaran ang same amount na yun

PETTY CASH FUND (PCF)

• petty cash CUSTODIAN - namamahala ng PCF. hawak-hawak nya ang fund for disbursement o sino man ang magrerequeest ng fund / amount, need gawan ng voucher
    * ==petty cash voucher== - pertainnig lang sa petty cash para maidentify. nilalagay din kung ano ang expenses na binayaran
      * naka-attach ang official receipt or noted (if walang receipt) kapag nabawasan ang pera kinuha sa PCF
• PCF is money set aside to defray / clear relatively small amounts of cash disbursement / payment
• however, it is impractical for the company to make all payments thru check. therefore, a petty cash fund is established to cover small and miscellaneous expenditures.

2 METHODS TO ACCOUNT PETTY CASH FUND

STEPS:

NOTE: Currency and coins ay yung mismong pera o natira / balance ng PCF

ACCOUNTING FOR CASH SHORTAGE / OVERAGE

• Minsan si PC custodian / may hawak ng cash on hand ay nawawalan ng pera o napapa sobra ang hawak o ninanakaw(theft)

• subject to investigation parin, under control, dapat walang ssobra o kkulang