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CASH AND CASH CASH AND CASH EQUIVALENTS EQUIVALENTS

Cash and cash equivalents

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Page 1: Cash and cash equivalents

CASH AND CASH CASH AND CASH EQUIVALENTSEQUIVALENTS

Page 2: Cash and cash equivalents

IMPREST SYSTEMIMPREST SYSTEM System of control of cash which requires System of control of cash which requires

that all cash receipts should be deposited that all cash receipts should be deposited intact and all cash disbursements should be intact and all cash disbursements should be made by means of checkmade by means of check

Page 3: Cash and cash equivalents

PRESENTATION AND MEASUREMENT OF PRESENTATION AND MEASUREMENT OF CASH IN THE BALANCE SHEETCASH IN THE BALANCE SHEET

A.A. CASH ITEMSCASH ITEMS

1.1. PETTY CASH FUNDPETTY CASH FUND

2.2. CASH IN BANKCASH IN BANK

3.3. POSTAL MONEY ORDERPOSTAL MONEY ORDER

4.4. MANAGER’S CHECK AND TRAVELLER’S CHECKMANAGER’S CHECK AND TRAVELLER’S CHECK

5.5. UNDELIVERED OR UNRELEASED CHECKSUNDELIVERED OR UNRELEASED CHECKS

6.6. COMPANY’S POSTDATED CHECK AND STALE CHECKCOMPANY’S POSTDATED CHECK AND STALE CHECK

7.7. COMPENSATING BALANCES ( UNRESTRICTED )COMPENSATING BALANCES ( UNRESTRICTED )

8.8. CASH SET ASIDE FOR CASH SET ASIDE FOR CURRENTCURRENT OPERATIONS OPERATIONS

9.9. FOREIGN CURRENCY- cash in foreign currency should be FOREIGN CURRENCY- cash in foreign currency should be translated to Philippine currency using the exchange rate at translated to Philippine currency using the exchange rate at the balance sheet date ( closing rate )the balance sheet date ( closing rate )

B. CASH EQUIVALENT- short term investment purchased 3 B. CASH EQUIVALENT- short term investment purchased 3 MONTHS OR LESS BEFORE MATURITYMONTHS OR LESS BEFORE MATURITY

Page 4: Cash and cash equivalents

CASH IN CLOSED BANKS/BANKS HAVING A CASH IN CLOSED BANKS/BANKS HAVING A FINANCIAL DIFFICULTYFINANCIAL DIFFICULTY

- classified as receivable and write down to its - classified as receivable and write down to its recoverable valuerecoverable value

CUSTOMERS POSTDATED CHECKS AND NSF CHECKCUSTOMERS POSTDATED CHECKS AND NSF CHECK

- classified as receivables including the IOUs - classified as receivables including the IOUs

- it is described also as DAUD AND DAIF- it is described also as DAUD AND DAIF EXPENSE ADVANCES- classified as prepaid expense EXPENSE ADVANCES- classified as prepaid expense

such as travel expenses and postage stampssuch as travel expenses and postage stamps BANK OVERDRAFT- occurs when a depositor has BANK OVERDRAFT- occurs when a depositor has

written checks for a sum greater than that in the written checks for a sum greater than that in the depositor’s bank accountdepositor’s bank account

-classified as current liability-classified as current liability

-right of offset exists- cash in bank net of bank -right of offset exists- cash in bank net of bank overdraftoverdraft

Page 5: Cash and cash equivalents

PETTY CASH FUNDPETTY CASH FUND

Small amount of cash in a fund Small amount of cash in a fund to pay MINOR EXPENSESto pay MINOR EXPENSES

Page 6: Cash and cash equivalents

ESTABLISHMENT OF FUNDESTABLISHMENT OF FUND

Journal Entry:Journal Entry:

PETTY CASH FUND PETTY CASH FUND XXXX

CASH IN BANKCASH IN BANK XXXX

Page 7: Cash and cash equivalents

PAYMENT OF EXPENSESPAYMENT OF EXPENSES

NO ENTRYNO ENTRY

Page 8: Cash and cash equivalents

REPLENISHMENT OF FUNDREPLENISHMENT OF FUND

Journal entry:Journal entry:

EXPENSES ( VARIOUS ) EXPENSES ( VARIOUS ) XXXX

CASH IN BANK CASH IN BANK XXXX

NOTE:NOTE:

Reimbursement should equal to the amount/ sum Reimbursement should equal to the amount/ sum of petty cash vouchers submittedof petty cash vouchers submitted

Page 9: Cash and cash equivalents

YEAR-END ADJUSTMENTYEAR-END ADJUSTMENT

Journal entry:Journal entry:

EXPENSESEXPENSES XXXXPETTY CASH FUNDPETTY CASH FUND XXXX

NOTE:NOTE:1.1. To avoid understatement of expensesTo avoid understatement of expenses2.2. To avoid overstatement of assetsTo avoid overstatement of assets

Page 10: Cash and cash equivalents

TO INCREASE OR DECREASE PETTY CASH TO INCREASE OR DECREASE PETTY CASH FUNDFUND

Journal entry:Journal entry:

PETTY CASH FUNDPETTY CASH FUND XXXXCASH IN BANKCASH IN BANK XXXX( To increase PCF )( To increase PCF )

CASH IN BANKCASH IN BANK XXXXPETTY CASH FUNDPETTY CASH FUND XXXX( To decrease PCF )( To decrease PCF )

Page 11: Cash and cash equivalents

CASH SHORT/OVER ( CSO )CASH SHORT/OVER ( CSO )

- Nominal account Nominal account that is that is debited for shortages debited for shortages and and credited for overagescredited for overages in the Petty Cash Fund in the Petty Cash Fund

- Error in making change fund or failure to obtain Error in making change fund or failure to obtain receipts for very small amountsreceipts for very small amounts

- Incorrect recording of amounts and theft/lossIncorrect recording of amounts and theft/loss- Cash shortage is debited to miscellaneous Cash shortage is debited to miscellaneous

expense at the end of the periodexpense at the end of the period- Cash overage is credited to miscellaneous income Cash overage is credited to miscellaneous income

and deposited to general cash account at the of and deposited to general cash account at the of the period and the journal entry isthe period and the journal entry is

Cash in BankCash in Bank xxxxMiscellaneous Income Miscellaneous Income xxxx

Page 12: Cash and cash equivalents

BANK RECONCILIATIONBANK RECONCILIATION

Page 13: Cash and cash equivalents

Bank Reconciliation- report that explains the Bank Reconciliation- report that explains the difference between the book ( company ) difference between the book ( company ) balance of cash and the cash balance balance of cash and the cash balance reported in the bank statementreported in the bank statement

Bank Statement- monthly report provided by the Bank Statement- monthly report provided by the bank to the depositor which shows the followingbank to the depositor which shows the following

Beginning-of-month cash balanceBeginning-of-month cash balance Total deposits made by the depositor and other Total deposits made by the depositor and other

bank creditsbank credits Checks paid by the bank and other chargesChecks paid by the bank and other charges End-of-month cash balanceEnd-of-month cash balance

Page 14: Cash and cash equivalents
Page 15: Cash and cash equivalents

BANK RECONCILING ITEMSBANK RECONCILING ITEMS

DEPOSITS IN TRANSIT/ UNDEPOSITED DEPOSITS IN TRANSIT/ UNDEPOSITED COLLECTIONSCOLLECTIONS

OUTSTANDING CHECKSOUTSTANDING CHECKSERRORSERRORS

Page 16: Cash and cash equivalents

BOOK RECONCILING ITEMSBOOK RECONCILING ITEMS

DEBIT MEMOSDEBIT MEMOSCREDIT MEMOSCREDIT MEMOSERRORSERRORS

Page 17: Cash and cash equivalents

DEPOSITS IN DEPOSITS IN TRANSIT/UNDEPOSITED TRANSIT/UNDEPOSITED

COLLECTIONSCOLLECTIONS Deposit made near the end of the month and Deposit made near the end of the month and

recorded on the depositor’s books but is not recorded on the depositor’s books but is not received by the bank in time to be reflected on received by the bank in time to be reflected on the bank statement ( DIT )the bank statement ( DIT )

Collections still in the hands of the depositor Collections still in the hands of the depositor awaiting delivery to the bank for deposit ( UC )awaiting delivery to the bank for deposit ( UC )

Comparing the receipts in the accounting records Comparing the receipts in the accounting records and deposits in the bank statementand deposits in the bank statement

Understate the bank balanceUnderstate the bank balance Added to the bank balanceAdded to the bank balance

Page 18: Cash and cash equivalents

OUTSTANDING CHECKSOUTSTANDING CHECKS

Checks written by the company and issued to Checks written by the company and issued to payees but have not been cleared or presented to payees but have not been cleared or presented to the bank for paymentthe bank for payment

Comparing written checks during the month as Comparing written checks during the month as reflected in the company’s check voucher or cash reflected in the company’s check voucher or cash disbursements book with the canceled checks disbursements book with the canceled checks included in the bank statementincluded in the bank statement

Overstate the bank balanceOverstate the bank balance Deducted from the bank balanceDeducted from the bank balance

Canceled checks- checks that the bank has paid Canceled checks- checks that the bank has paid and deducted from the depositor’s accountand deducted from the depositor’s account

Page 19: Cash and cash equivalents

DEBIT MEMOSDEBIT MEMOS

Charges to the company’s or depositor’s account Charges to the company’s or depositor’s account made directly by the bank such as returned made directly by the bank such as returned checks ( NSF and technically defective checks ), checks ( NSF and technically defective checks ), bank service charge, charge for the cost of check bank service charge, charge for the cost of check booklets and payment of bank loansbooklets and payment of bank loans

Overstate the book balanceOverstate the book balance Deducted from the cash balance per bookDeducted from the cash balance per book

Page 20: Cash and cash equivalents

CREDIT MEMOSCREDIT MEMOS

Deposits or credits made directly by the bank to Deposits or credits made directly by the bank to the depositor’s account such as notes collected the depositor’s account such as notes collected by bank in favor of the depositor, proceeds of by bank in favor of the depositor, proceeds of bank loan and interest earned on the depositor’s bank loan and interest earned on the depositor’s account and matured time deposits transferred to account and matured time deposits transferred to current accountcurrent account

Understate the book balance Understate the book balance Added to the cash balance per bookAdded to the cash balance per book

Page 21: Cash and cash equivalents

FORMS OF BANK FORMS OF BANK RECONCILIATIONRECONCILIATION

ADJUSTED BALANCE METHODADJUSTED BALANCE METHOD

BOOK TO BANK BALANCE METHODBOOK TO BANK BALANCE METHOD

BANK TO BOOK BALANCE METHODBANK TO BOOK BALANCE METHOD

Page 22: Cash and cash equivalents

ADJUSTED BALANCE METHODADJUSTED BALANCE METHOD Under this method, the book balance and the bank balance Under this method, the book balance and the bank balance

are brought to a correct cash balance that must appear on the are brought to a correct cash balance that must appear on the balance sheetbalance sheet

PROFORMA RECONCILIATIONPROFORMA RECONCILIATION

Book balanceBook balance xx xx Bank balanceBank balance xx xx

Add: Credit memosAdd: Credit memos xxxx Add: Deposits in transitAdd: Deposits in transit xxxx

TotalTotal xx xx TotalTotal xx xx

Less: Debit memosLess: Debit memos xxxx Less: Outstanding checks Less: Outstanding checks xxxx

Adjusted book balance xxAdjusted book balance xx Adjusted bank balance Adjusted bank balance xx xx

Page 23: Cash and cash equivalents

BOOK TO BANK METHODBOOK TO BANK METHOD

Under this method, the book balance is reconciled with the Under this method, the book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance or the book balance is adjusted to equal the bank balancebank balance

PROFORMA RECONCILIATIONPROFORMA RECONCILIATION

Book balanceBook balance xxxx

Add: Credit memosAdd: Credit memos xxxx

Outstanding checksOutstanding checks xxxx xxxx

TotalTotal xxxx

Less: Debit memosLess: Debit memos xxxx

Deposits in transitDeposits in transit xxxx xxxx

Bank balance Bank balance xxxx

Page 24: Cash and cash equivalents

BANK TO BOOK METHODBANK TO BOOK METHOD Under this method, the bank balance is reconciled with the Under this method, the bank balance is reconciled with the

book balance or the bank balance is adjusted to equal the book balance or the bank balance is adjusted to equal the book balancebook balance

PROFORMA RECONCILIATIONPROFORMA RECONCILIATION

Bank balanceBank balance xxxx

Add: Deposits in transitAdd: Deposits in transit xxxx

Debit memosDebit memos xxxx xxxx

TotalTotal xxxx

Less: Outstanding checksLess: Outstanding checks xxxx

Credit memosCredit memos xxxx xxxx

Book balanceBook balance xxxx

Page 25: Cash and cash equivalents

DEPOSITS IN TRANSITDEPOSITS IN TRANSIT

Deposit in transit, beginning of the monthDeposit in transit, beginning of the month XXXXAdd: Cash receipts reflected in the company’s record during Add: Cash receipts reflected in the company’s record during

the month*the month* XXXXTotalTotal XXXXLess: Deposits during the month as reflected in the Less: Deposits during the month as reflected in the

bank statement **bank statement ** XXXXDeposit in transit, end of the monthDeposit in transit, end of the month XXXX

*The amount does not necessarily represent debits ( charges ) in *The amount does not necessarily represent debits ( charges ) in the company’s records. If the total of charges to the cash the company’s records. If the total of charges to the cash account is given, any credit memo in PREVIOUS month should be account is given, any credit memo in PREVIOUS month should be excludedexcluded

**The amount does not necessarily represent credits in the bank **The amount does not necessarily represent credits in the bank statement. If the total of the credits in the bank statement is statement. If the total of the credits in the bank statement is given, any credit memo for the CURRENT month should be given, any credit memo for the CURRENT month should be excludedexcluded

Page 26: Cash and cash equivalents

OUTSTANDING CHECKSOUTSTANDING CHECKS

To compute the outstanding checks:To compute the outstanding checks:

Outstanding checks, beginning of the monthOutstanding checks, beginning of the monthXXXX

Add: Checks drawn by the company during the month* Add: Checks drawn by the company during the month* XXXX

TotalTotal XXXX

Less: Checks paid by the bank during the month**Less: Checks paid by the bank during the month** XXXX

Outstanding checks, end of the monthOutstanding checks, end of the month XXXX

*The amount does not necessarily represent credits in the company’s *The amount does not necessarily represent credits in the company’s records. If the total of the credits to the cash account is given, any records. If the total of the credits to the cash account is given, any debit memo in PREVIOUS month should bee excludeddebit memo in PREVIOUS month should bee excluded

**The amount does not necessarily represent debits ( charges ) in the **The amount does not necessarily represent debits ( charges ) in the bank statement. If the total of charges in the bank statement is bank statement. If the total of charges in the bank statement is given, any debit memo for the CURRENT month should be excluded given, any debit memo for the CURRENT month should be excluded

Page 27: Cash and cash equivalents

PROOF OF CASHPROOF OF CASH

Reconciles the beginning and ending Reconciles the beginning and ending balances of cash for the month, as balances of cash for the month, as well as the recorded receipts and well as the recorded receipts and disbursements made by the bank disbursements made by the bank and by the depositor company and by the depositor company

Page 28: Cash and cash equivalents

CASH IN BANKCASH IN BANK

Jan 31 beginning balance 50,000Jan 31 beginning balance 50,000 Feb 28 Book creditsFeb 28 Book credits

( including NSF of P 5,000 ( including NSF of P 5,000

Feb 28 Book debitsFeb 28 Book debits and SC of P 1,000 for Jan) and SC of P 1,000 for Jan) 180,000180,000

( including Jan CM of 15,000 ) 200,000( including Jan CM of 15,000 ) 200,000

COMPANY XCOMPANY X

Feb 28 Bank debits Feb 28 Bank debits Jan 31 Beg bal 84,000Jan 31 Beg bal 84,000

( including NSF check ofP10,000) 130,000( including NSF check ofP10,000) 130,000 Feb 28 Bank creditsFeb 28 Bank credits

( including CM for note ( including CM for note

collected of P 20,000) collected of P 20,000) 170,000170,000