Cash
Cash
Cash
CASH - includes money and any other negotiable instrument that is payable in money and acceptable by
the bank for deposit or immediate encashment.
Accordingly, cash includes checks, bank drafts and money orders because these are acceptable by the bank for
deposit or immediate encashment.
Examples of cash:
a. Cash on Hand
- Coins and Currencies (Bills), Checks (except to Undelivered Checks, Postdated Checks, Stale
Checks and NSF Checks), Bank Drafts, Money Orders.
b. Cash in Bank
- Checking Accounts and Savings Accounts.
c. Cash Funds
● To settle current liabilities.
- Payroll Fund, Dividend Fund and Tax Fund.
● For operating expenses.
- Petty Cash Fund, Revolving Fund and Change Fund.
h. Insurance Fund
i. Bonds Sinking Fund
Take note : Bonds sinking fund can also be classified as part of cash funds. When the bonds are expected to be
retired within the current period.
MEASUREMENT OF CASH:
- CASH is measured at FACE VALUE.
- CASH in FOREIGN CURRENCY is measured at the current exchange rate.
Take note : Current exchange rate means the exchange rate value that is present at that current date.
Scenario A:
Charles Company has the following records:
In this scenario, offsetting is not allowed because two bank accounts came from different banks.
Here, we can offset the negative balance to the positive balance. In net effect, the reported cash under
“Cash in Bank - BPI is 80,000”.
Scenario A:
Belinda Company has the following records:
Cash on Hand 700,000
Petty Cash Fund 13,000
Time Deposit 515,000
Bank Overdraft (10,000)
Inventory 130,000
FVPL - Equity 175,000
Inv. in Assoc. 300,000
Take Note : The bank overdraft here cannot be deducted over the cash balances, because it is presumed to be a
material amount. As a general rule when the “Bank Overdraft does not explicitly say that it is immaterial, it
should be considered as material amount (regardless of the amount shown in the problem).
Scenario B:
Belinda Company has the following records:
Cash on Hand 700,000
Petty Cash Fund 13,000
Time Deposit 515,000
Bank Overdraft,immaterial (10,000)
Inventory 130,000
FVPL - Equity 175,000
Inv. in Assoc. 300,000
Take Note : The bank overdraft here in the given scenario can be deducted among the cash balances of the
account.
Take Note : The problem should explicitly say that the bank overdraft is an integral part of cash management to
be included as classification of cash.
Scenario A:
Garet Company has the following balances:
Cash in Bank - BPI Account 1,000,000
Cash in Bank - LANDBANK 300,000
Financial Accounting and Reporting (Assets) - CASH
Additional information:
a. The P150,000 cash in bank under BPI Account is subject to legally restricted compensating
balance for 5 months.
b. The P30,000 cash in bank under PSBank Account is subject to legally restricted compensating
balance for 2 years.
c. The P100,000 cash in bank under Landbank Account is subject to compensating balance.
d. The P20,000 cash in bank under BPI Account is subject to compensating balance.
e. The P5,000 cash in bank under Landback Account is subject to legally restricted compensating
balance for 15 months.
A. Undelivered Checks
- These are the checks that are recorded as “cash disbursement” by the issuing company but not
yet given to the recipient of check.
- These are the checks that are recorded as “cash receipt” by the recipient company but not yet
received.
On December 27,2023 Juliana signed a check worth P30,000 as payment to the supplier for inventory. It
was recorded under the book that the check is already recorded as cash disbursement. The check
remained undelivered until the last reporting date.
Necessary adjusting entries to be made by Juliana in her book at the year end:
Explanation : As if there was not yet payment already done therefore in the book of Juliana, she reversed the
entry by debiting Cash and crediting Accounts payable.
On December 27,2023 Juliana signed a check worth P30,000 as payment to the supplier for inventory. It
was not yet recorded in the book. The check remained undelivered until the last reporting date.
Explanation : There is no need to record an adjusting entry, there was no entry made before. Juliana did not
record any cash disbursement yet.
On December 29,2023 Ryan recorded in his books a receipt of P50,000 as payment for the service he
rendered last month. It was recorded in his book as a cash receipt. Upon checking, the issuing company
confirmed that the check was undelivered until the end of the year.
Explanation : As if there was no payment yet done to Ryan because the check remains undelivered. Therefore
the receivable should remain to exist.
Explanation : There is no need to record an adjusting entry, there was no entry made before. Ryan did not
record any cash receipt yet.
B. Postdated Checks
- Checks that are allowed to be encashed in the latter date.
- Here are checks not allowed for encashment in the present.
On December 26, 2023 Rosette Company signed a check worth P120,000 as payment for the equipment
purchased. The check was dated on January 5, 2024. The said payment was recorded already in the book
of the company.
Here are the pro-forma entries made by Rosette Company in its book:
Accounts Payable 50,000
Cash 50,000
Explanation : As if there was no payment yet done because the check issued to the seller cannot be encashed
until January 5,2024.
On December 26, 2023 Rosette Company signed a check worth P120,000 as payment for the equipment
purchased. The check was dated on January 5, 2024. The said payment was not yet recorded in the book of
the company.
Explanation : There is no need to record an adjusting entry because there was not yet recorded a cash
disbursement and in reality there was no liability being settled already.
On December 29, 2023 Bravo Company received a check worth P190,000 as payment for the service
rendered last month. The check was dated on January 11,2024. The cash receipt transaction was already
recorded in the book of the company.
Here are the pro-forma entries made by Bravo Company in its book:
Cash 50,000
Accounts Receivable 50,000
Explanation : As if there was no payment yet done because the check issued to Bravo Company cannot be
encashed until January 11,2024.
On December 29, 2023 Bravo Company received a check worth P190,000 as payment for the service
rendered last month. The check was dated on January 11,2024. The cash receipt transaction was not yet
recorded in the book of the company.
Explanation : There is no need to record an adjusting entry because there was not yet recorded a cash receipt
and in reality there were no receivables being settled already.
C. Stale Checks
- Check not encashed by the recipient for a long period.
- The provision of the law does not provide when a check remains valid or the one should be
classified as stale one.
- In banking practice : Check become stale when not encashed within 6 months (this can be
differed regarding with the policy of the Bank)
On June 1, 2023 Delta Company issued a check worth P300,000 as payment for the land acquired by the
company to Juliet Company. It was recorded in the book of the company. After 6 months the check
remained not cashed yet.
On June 1, 2023 Delta Company issued a check worth P300,000 as payment for the land acquired by the
company to Juliet Company. It was not recorded in the book of the company. After 6 months the check
remained not cashed yet.
Financial Accounting and Reporting (Assets) - CASH
Take Note: There is no need for adjusting entry for the stale check because in the first place it was not recorded
yet as cash disbursement.
There will only be a pro-forma entry for the issuance of a new check as payment to Juliet
Company.
On June 1, 2023 Delta Company issued a check worth P300,000 as payment for the land acquired by the
company to Juliet Company. It was recorded in the book of the company. After 6 months the check
remained not cashed yet.
If Juliet Company successfully received a new check in exchange for the payment.
Cash 300,000
A/R 300,000
On June 1, 2023 Delta Company issued a check worth P300,000 as payment for the land acquired by the
company to Juliet Company. It was not recorded in the book of the company. After 6 months the check
remained not cashed yet.
Take Note: There is no need for adjusting entry for the stale check because in the first place it was not recorded
yet as cash receipt.
There will only be a pro-forma entry for the receipt of a new check as payment to Juliet
Company.
D. NSF Checks
- Also known as bounced checks.
Financial Accounting and Reporting (Assets) - CASH
- Occurs when the amount in the bank account is insufficient to cover the amount of check signed
by the issuer.
- Also called as Drawn Against Insufficient Fund (DAIF) and Drawn Against Uncleared Deposits
(DAUD).
December 23, 2023 Xebec Company signed a check worth P95,000 for payment to the supplier of the
inventories delivered a few days ago. Upon checking in the bank, the check was labeled as DAIF check and
was returned to the issuer. After 7 days the issuer re-deposit the amount to his bank and after 15 days the
check was cleared. The transaction was recorded in the book of the company.
NO NECESSARY ENTRY
NO NECESSARY ENTRY
Financial Accounting and Reporting (Assets) - CASH
Take Note : Since there was an unrecorded transaction before the event of bouncing of check, there is no need
to do adjusting entries.
December 23, 2023 Xebec Company signed a check worth P95,000 for payment to the Supplier Company
of the inventories delivered a few days ago. Upon checking in the bank, the check was labeled as DAIF
check and was returned to the issuer. After 7 days the issuer re-deposit the amount to his bank and after
15 days the check was cleared. The transaction was recorded in the book of the company.
NO NECESSARY ENTRY
NO NECESSARY ENTRY
Take Note : Since there was an unrecorded transaction before the event of bouncing of check, there is no need
to do adjusting entries.
Financial Accounting and Reporting (Assets) - CASH
END OF DISCUSSION