INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
OVERVIEW
(Further Discussion will be under the Conceptual Framework and Accounting Standards)
Definition of accounting:
It is the art of identifying, recording and summary of financial transactions and communicating the
results to users to make economic decision.
Purpose of the Intermediate Accounting Subjects:
To widen out and further study to have the respective treatment for each account under the Philippine
Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)
Overview of Subjects
1. Conceptual framework and Accounting Standards
a. Overview and theoretical foundation of all Intermediate Accounting Subjects
2. Intermediate Accounting 1
a. Assets
3. Intermediate Accounting 2
a. Liabilities
b. Shareholder’s Equity
4. Intermediate Accounting 3
a. Financial Reporting
b. Special Areas and Transactions
Elements of an Asset
- Control (Right)
- Past events
- Future Economic Benefits
CASH AND CASH EQUIVALENTS
-
First Line item in the condensed Financial Statements
most liquid assets – that’s why it is the first item presented in the statement of financial position
Condensed vs Consolidated
- Condensed – Just like condense milk – it means it is dense to categories
Example
Common Financial Statements
Condensed Financial Statement (Proper
Financial Reporting Under PAS 1)
Cash
200,000
Schedule
Petty Cash
5,000
Cash and Cash Equivalents
1 205,000
Accounts Receivable
100,000
Trade and Other Receivables
250,000
Notes Receivable
150,000
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
-
Notes to Financial Statements
1. Cash and Equivalents
Cash
200,000
Petty Cash
5,000
Total
205,000
Consolidated – it is the aggregate amount of same account
Parent (JFC)
Cash in bank
Accounts Receivable
CASH
-
250,000
75,000
Subsidiary (Mang
Inasal)
150,000
80,000
Consolidated
400,000
155,000
Money
Medium of Exchange in business transaction
It is the means of transaction to buy goods or services as progressed from barter to currency.
Most liquid asset
Is it an asset?
Elements of an Asset
- Control (Right)
o You have the right to use the cash to purchase goods or services, serves as a payment for liability
or use it as investment.
- Past events – without past transaction you will not have any cash
o Either you invested cash in the business or
Debit: Cash on Hand
xxx
Credit:
Dela Cruz, Capital
xxx
o Collected Cash from revenues or receivables
Debit: Cash on Hand
xxx
Credit:
Sales/Accounts Receivable
xxx
1/12/2022
1/12/2022
-
Cash
100,000
50,000
Future Economic Benefits
o Cash may generate sales through the purchases of inventories and sell them
o Cash may generate new assets such as equipment for use in the operation
o Cash can avail services
o And other related transactions
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
Accounting Treatment/Recognition
Type of Account:
Asset
Classification as to period: Current Asset (only the unrestricted cash)
Philippine Peso
Initial Measurement:
Subsequent Measurement:
Face Value
Face Value
Foreign Currency (further discussion will be on Advanced Financial Accounting: Topic: Foreign Exchange)
Initial Measurement:
Current Exchange Rate
Subsequent Measurement: Current Exchange Rate
Note:
Unrestricted Cash – Available for immediate use, not subjected to any kind of restriction, condition, contract or
otherwise
Restricted Cash* – Unavailable for immediate use (Ex. Sinking fund as payment for Bonds Payable)
*Any restricted Cash is reported as Non- Current Asset under other non-current assets category
Kinds of Cash (Current)
1. Cash on hand (COH)
2. Cash in Bank (CIB)
3. Cash Fund
a. Change fund
b. Petty cash fund
c. Payroll fund
d. Tax fund
e. Revolving fund
f. Dividend fund
g. Any cash that set aside for current/short term purpose
Cash that are part of long-term Investment
1. Sinking Fund
- a cash designated for the redemption or payment of bonds or long-term debt
o Is it part of “Cash and Cash Equivalents”?
 Apply the matching principle:
Long term Debt = Non-Current Liability, thus
Sinking fund = Non-current Asset
2. Preference share redemption fund
3. Contingent fund
4. Insurance fund
5. Fund for property plant and equipment
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
6. Any kind of cash that set aside for long term purpose
CASH EQUIVALENTS - “3 MONTHS”
“Highly liquid investments” – already convertible into cash in short period of time
- Investments Purchased which have 3-month period remaining or 3 months before maturity date only.
Otherwise, it is part of long-term investments under non-current assets.
(Assuming reporting date is as of year-end December 31, 2022)
Higher the Risk = Higher the Income
Lower the risk = Lower the Income
Account
3 months BSP Treasury Bill (Gov’t Securities)
3 yr. BSP T Bills – Purchased 3 months before maturity
Classification
Cash Equivalents
Cash Equivalents
March 15, 2019 – 3 yrs = March 15, 2022
January 12, 2022
3-month time deposit
3-month money market instrument/ Commercial Paper
Redeemable Preference share purchased 3 months before redemption
Equity Securities
Redeemable preference shares purchased 6 months before redemption but
only have less than 3 months before redemption date
Purchased 1 year T-bill on April 1, 2022 (Due Date March 31, 2023) and
have 3 months remaining as of December 31, 2022
Purchased 3-year T-bill on April 1, 2022
Cash Equivalents
Cash Equivalents
Cash Equivalents
Financial Assets
Financial Assets
Financial Assets
Long Term Investments
Bank Overdraft
- Offsetting of a negative balance bank account to the other bank account but normally offset to same bank.
In the Philippines it is not permitted and we account the bank accounts separately.
“Bouncing Law”
BDO Bank Acct 1 = 12,000
BDO Bank Acct 2 = (500)
Cash And Cash Equivalents = 11,500
In reality
BDO Bank Acct 1 = 12,000
BDO Bank Acct 2 = 200
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
Case 3
BDO Bank Acct 1 = 12,000
BPI Bank Acct 2 = (500)
Cash And Cash Equivalents = 12,000
Compensating Balance
- “Maintaining balance”
- Security deposit with the bank
Treatment:
Type of Loan
Short Term
Long Term
Short Term
(1 year or less)
Agreement
Informal – Not Restricted
Informal – Not Restricted
Restricted
Long term
(More than 1 year)
Restricted
Treatment
Cash
Cash
Other Current Assets
As “Cash held as compensating
balance”
Non-current Investment
Check Matters
Check
- Is a form of cash written pay to the order of the payee for specific sum of money and have a designated
date when it can be transacted for deposit or encashed. Lastly it will be sign by a single signatory or two.
Sample Check:
1. Undelivered or unreleased check
 Checks that are already issued but not yet received by the payee or not yet been deposited
to the payee’s bank account
 Effect: The liability or expenditure still unpaid
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
2. Postdated check (post – after such date)
 Checks already issued and received by the payee but dated for later processing.
 Example:
 Date of Issuance is November 10, 2022
 Date of check is March 25, 2023
 Today is December 31, 2022, as of this date the check is still ineligible for bank
processing.
 Effect: The payment still floats until March 24, 2023.
 On March 25, 2023 onwards, the check can be processed for encashment or deposit
but until September 25, 2023 (after 6 months – considered as stale check)
3. Stale Check
 Check is already issued and can be process at the bank, yet it is not been processed for 6
months for encashment nor deposit (bank practice in the Philippines)
 Effect? The check will be useless/forfeited and will request for the payor for the
replacement check
Assuming year end December 31, 2022 reporting
Situation
Amount Date of Check
Treatment
12/5/2022
Received
by the
payee?
Yes
Issued check for the payment of
supplies
Issued check for the payment of
insurance
Issued check for the payment of
utilities
Issued check for the payment of
inventories
2,500
10,000
12/10/2022
No
Unreleased check
5,000
1/15/2023
Yes
Postdated Check
75,000
4/31/2022
Yes
Stale check
(Almost 7 months)
None
“Daily Cash Count”
Cash Shortage
- Possibilities
o Unrecorded disbursements
o Theft
o Loss (Misplaced – Mixed with other/personnel)
3*20*12 = 720
PCF = 5,000
PCV = 2,600
Cash Count = 2,000
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
Cash Overage
- Possibilities
o Unrecorded receipts or deposits
o Excess such as tips or immaterial change (centavos or piso)
“BALANCED”
Petty Cash Fund
Two kinds
1. Imprest System – The standard or common use
The PCF = is untouched
Establishment
Debit: Petty Cash Fund
Credit:
Cash in Bank
xxx
xxx
Replenishment
Debit: Supplies Expense Account
Debit: Water Expense Account
Debit: Transportation Expense Account
Debit: Representation Expense Account
Credit:
Cash in Bank
xxx
xxx
xxx
xxx
xxx
Petty Cash Fund
10,000
1/12/2022
Ending Balance
Cash Balance
10,000
156,000,000.00
Year-end December 31, 2022
Adjusting Entry
Debit: Supplies Expense Account
Debit: Water Expense Account
Debit: Transportation Expense Account
Debit: Representation Expense Account
Credit:
Petty Cash Fund
Replenishment
Janaury 10, 2023
Debit: Petty Cash Fund
Credit:
Cash in Bank
1,000
1,500
2,000
2,500
7,000
7,000
7,000
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INTERMEDIATE ACCOUNTING 1
CHAPTER 1 – Cash and Cash Equivalents
Zyronn Joseph Denbert B. Zulueta, CPA, MICB, RCA, MBA, CTB, CTT
2. Fluctuating System
The PCF is changing
Establishment
Debit: Petty Cash Fund
Credit:
Cash in Bank
Recognition
Debit:
Debit:
Debit:
Debit:
Credit:
10,000
Supplies Expense Account
Water Expense Account
Transportation Expense Account
Representation Expense Account
Petty Cash Fund
Replenishment
February 10, 2022
Debit: Petty Cash Fund
Credit:
Cash in Bank
1/12/2022
2/10/2022
10,000
1,000
1,500
2,000
2,500
7,000
10,000
10,000
Petty Cash Fund
10,000
1/31/2022
10,000
Ending Balance
7,000
13,000
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