CASH AND CASH EQUIVALENTS

CASH SYSTEM

- available for use and is any  the payer will go to bank in

negotiable instrument acceptable by same bank/branch - on-us.
the bank for deposit and immediate  the bank will cancel the
credit. check (cancelled check).
 then, convert it to bills and
MEASUREMENT AND PRESENTATION coins
initial: @face amount  and pay it to the payee.

subsequent: @face amount NOTE: clearing is when two different

banks or branches talk (the drawing
if the bank is in bankruptcy/financial
bank and the depository bank).
difficulty: @NRV - recoverable
amount lower than face amount. COMPENSATING BALANCE
foreign currency - converted to PHP - amount of cash that the firm must
through current exchange rate. maintain as part of loan agreement.
generally UNRESTRICTED for use.  Restricted – cash held as CB
EXCESS CASH (refer to related loan).
short term – CA
- invested temporarily in some long term – NCA
revenue earning investment.  Unrestricted – as cash items
E.G. in treasury bills, money market on deposit/part of cash.
instruments, and time deposits. BANK OVERDRAFT
 3 months or less – CE - when CIB account has credit
 more than 3 months less balance and should not offset against
than 1 year – CA other banks.
(ST investment)
 more than 1 year – NCA RULE:
(LT investment)  Same Bank – offsetting is
ENCASHMENT allowed (computed as
deduction-net).
- conversion from check to cash.  Different Bank – offsetting is
NOT allowed (only the
positive account is included).
CASH ITEMS:

INCLUDED:
CASH ON •currencies and coins •cashier's check
HAND •money orders •manager check
•bank drafts •personal check
•customer's check •traveler's check
•certified check

EXCLUDED:
•postdated check if there’s add info:
•NSF/DAIF check company’s check (add)
•stale check customer’s check (less)
•unreleased check
INCLUDED:
CASH IN •checking account
BANK •savings account
•silent/unrestricted compensating balance
•unrestricted deposit in foreign bank
•bank overdraft (same bank - net)
•bank overdraft (diff bank - only the positive account)

EXCLUDED:
•time deposit - CE
•restricted compensating balance
•restricted deposit in foreign bank - NCA
•deposit in closed bank - CA
•bank overdraft (silent/diff bank) - CL
OPERATION - INCLUDED:
CASH •PCF •payroll fund •dividend fund
FUND •revolving fund •tax fund •travel fund
•change fund •interest fund

NOT FOR OPERATION – EXCLUDED

•sinking fund
•pension fund
•pref. sh. redemption fund

ALWAYS EXCLUDED – NCA

•plant acquisition fund •insurance fund
•depreciation fund
•contingency fund
CASH EQUIVALENTS IMPREST SYSTEM

- short term highly liquid investment. - internal cash control.

- convertible into cash and acquire  Cash Receipts

three months or less before maturity – collections.
-> reckoning period to qualify as CE. - deposited altogether.
 Cash Disbursements
- duration is from date of purchase to
– payments/expenses.
date of maturity.
- deposited by means of
NOTE: when identifying a cash check unless petty cash
equivalent always look for its disbursements.
purpose regardless of the time unless
PETTY CASH FUND
if acquired (excluded).
- set aside for small expenses.

INCLUDED:
CASH •time deposit/cert. deposit within 3 mos
EQUIVALENTS •money order/comm. paper (included)
•treasury bills beyond 3 mos
•investent in pref. sh. (excluded)
silent (included)

DISTRACTIONS – NOT CONSIDERED

•IOU'S - receivables
•postage stamps - supplies
•CM from supplier - contra purchase account
•CSV - investment
• equity securities/investement in shares -
investement

UNRELEASED, POSTDATED, STALE/OUTSTANDING CHECKS

o Company’s Check
- check of company to creditors.
- drawn by the company

initial entry if check dated: adjusting entry if PDC/UC:

AP XX CASH XX
CASH XX AP XX

o Customer’s Check
 - check of customer to company.
- check received by the company

Initial entry if check dated: adjusting entry if PDC/UC:

CASH XX AR XX
AR XX CASH XX

SILENT:

o Postdated Check (less) o Unreleased Check (add)

during the month: during the month:
CASH XX AR/AP XX
AR/AP XX CASH XX
end of the month: end of the month:
AR/AP XX CASH XX
CASH XX AR/AP XX

o Compensating Balance
restricted (less)
unrestricted (add)

IMPREST FUND SYSTEM PCF XX

 Establish fund FLUCTUATING SYSTEM

PCF XX
 Establish fund
CIB XX
PCF XX
 Payment of expenses
CIB XX
No entry
 Payment of expenses
 Replenishment
Expenses XX
Expenses XX
PCF XX
CIB XX
 Replenishment
 End of period
PCF XX
Expenses XX
CIB XX
PCF XX
 End of period
 Beginning of period
No entry
Reverse entry
 Beginning of period
 Increase in fund
No entry
PCF XX
 Increase in fund
CIB XX
PCF XX
 Decrease in fund
CIB XX
CIB XX
  Decrease in fund PCF XX
CIB XX

BANK RECONCILIATION
KINDS OF BANK DEPOSIT loans and get interest. These
deposits are generally taken
o Demand Deposit through:
– current account or Current Account
checking account and is non- - can be withdrawn to the
interest bearing. extent of the balance at any
o Savings Deposit time without any prior
– covered by a passbook notice.
(required in making deposits Savings Account
and withdrawal - made - are for encouraging savings
anytime but sometimes need by individuals.
Fixed Deposits
notice of withdrawal) or ATM
- are time deposits with a
card and is interest bearing.
higher rate of interest as
o Time Deposit compared to the savings
– is interest bearing and accounts.
evidenced by a formal  Clearing of Cheques
agreement in an instrument - cheques books are issued to
called “certificate of the holders of accounts in
deposit”. banks. The cheque is a
negotiable instrument and
BANK OPERATIONS the most convenient and
- banks perform various types of widely used credit
instrument. It is used to
transactions and activities to support
facilitate trade and business
their banking business.
by endorsements and
- these transactions may include withdrawal of deposits.
making or accepting payments, Bearer Cheques
trading, clearing and settlement of - can be encash immediately
at bank counter.
accounts, and custody.
Crossed Cheques
o Acceptance of Deposit - can only be deposited in the
- deposits are the basis of the payee's account.
loan operations since banks  Remittance of Funds
are both borrowers and - banks also facilitate fund
lenders of money. As transfer from one place to
borrowers they pay interest another, leveraging the vast
and as lenders, they grant network of branches that are
 interconnected to each - checks issued by depositor and paid
other. Many banking by the bank during the month.
instruments are in usage for
enabling transfer of funds - literal canceled by stamping or
from one account to another punching to show that they are paid.
like bank drafts, pay orders,
LEDGER – ENTITY/DEPOSITOR
wire or mail transfers.
increase in cash – DEBIT
- bank earns nominal
commission by way of bank decrease in cash – CREDIT
charges on some of the
BANK STATEMENT – BANK
transfers. The bank issues a
draft for the amount at its increase in entity’s cash – CREDIT
own branch which can be
credited to another account decrease in entity’s cash – DEBIT
which might be with a
STEPS:
different branches or
different banks. Banks collect  determine the end balance
the amount on behalf of the Beg. Balance
depositor which is known as Receipts
the clearing process.
(Payments)
End Balance
BANK CERTIFICATE
 compare the book debits to
- is usually a one-page document that
certifies that you have an account bank credits
with that branch. Often, the latest  compare the book credits to
available balance is indicated. But in bank debits
some banks, you can request that  analyze the differences:
some details be included. Ledger
– CM & DM (from bank)
BANK STATEMENT Bank
– DIT & OC (from book)
- is a detailed record of the balance
Errors
and the transactions on that account
- (silent errors – book)
within a specified period of time. It
includes the amounts deposited into, ONE-DATE BANK RECONCILIATION
the amounts withdrawn from, and
even the interests gained by that BOOK RECONCILING ITEMS
account, and the corresponding  Credit Memo
dates. – already in the bank
CANCELED CHECKS statement (deposit) but not
 yet reflected in book/ledger FORMS OF BANK RECONCILIATION
(cash receipts).
 Adjusted Balance Method –
*loans/notes collected
preferred method, brought
*interest
to correct cash balance.
*matured time deposits
Book Balance
 Debit Memo
CM
– already in the bank
(DM)
statement (withdrawals) but
*Error*
not yet reflected in
Adjusted Book Balance
book/ledger (cash
disbursement).
Bank Balance
*NSF/DAIF
DIT
*defective checks
(OC)
*bank service charge
*Error*
*reduction of loan
Adjusted Bank Balance
 Error – rule: who commits
the error, corrects the error.
 Book to Bank Method – book
BANK RECONCILING ITEMS balance reconciled with bank
balance.
 Deposit in Transit – already
Book Balance
in the book/ledger (cash
CM
receipts) but not yet
(DM)
reflected in bank statement
*Error*
(deposits).
OC
*undeposited collections
(DIT)
*collections
*Error*
 Outstanding Check – already
Bank Balance
in the book/ledger (cash
disbursement) but not yet
 Bank to Book Method – bank
reflected in bank statement
balance reconciling with
(withdrawals).
book balance.
*checks drawn
Bank Balance
*certified check - stamped
DIT
indicating sufficiency of fund
(OC)
and deducted directly to
*Error*
total OC.
DM
 Error
(CM)
*Error*
Book Balance
ADJUSTING ENTRIES:

 Loan/Note/Interest Collected  Service Charge

CIB XX SC XX
Loan/note/interest XX CIB XX
 NSF/DAIF  Error
AR XX AP XX
CIB XX CIB XX

TWO-DATE RECONCILIATION

 Book Balance – beginning  Deposit in Transit

and ending. Deposit in Transit – date 1
Book Balance – beg. Book Debits
Book Debits (CM – date 1)
(Book Credits) Bank Credits
Book Balance – end (CM – date 2)
Deposit in Transit – date 2
 Bank Balance – beginning
and ending.  Outstanding Check
Bank Balance – beg. Outstanding Check – date 1
Bank Credits Book Credits
(Bank Debits) (DM – date 1)
Bank Balance – end Bank Debits
(DM – date 2)
Outstanding Check – date 2

 Adjusted Balance

Book Balance – end Bank Balance – end

CM – date 2 DIT end
(DM – date 2) (OC end)
Adjusted Book Balance Adjusted Bank Balance

PROOF OF CASH

- more detailed reconciliation includes proof of receipts and disbursements.

- evidence of existence of completeness of assertions for transaction.