CASH – most liquid asset

General Rule: Must not be restricted as to use.

Common Examples:
1. CASH IN BANK
- Demand deposit
- Current account
- Savings account
- Checkbook account
2. CASH ON HAND
- Undeposited collections
- Cash that is in the premises of the business
3. CASH FUNDS
- Sinking fund
- Payroll fund
- Petty Cash fund
- The treatment for CASH FUNDS is RELATIVE to the liability it is allocated to

For example, if a cash fund is allotted to a liability that will be paid in the next accounting
period or within 1 year, the said fund is current, hence it can be classified as cash.
4. Others
- Postal money order
- Checks

Common Problems:
1. COMPENSATING BALANCE – balance maintained in a bank account in relation to a loan
Treatment:
a. If not legally restricted, disregard
b. If legally restricted, deduct the amount
Example:
BDO Account #143 amounting to P290,000 has a compensating balance of 5% and is legally
restricted as to withdrawal.

BDO Account, unadjusted 290,000

Less: Compensating Balance
(290,000*0.05) (14,500)
BDO Account, adjusted 275,500

No adjusting entry needed.

2. BANK OVERDRAFT – a negative balance in the bank resulting from various reasons
Treatment:

a. If the amount is material, disregard and will be classified as current liability

b. If the amount is immaterial and both accounts are in the same bank, can be offset
Example:
BDO Account #222 50,000
BPI Account #222 124,000
BPI Account #221 (24,000)

Adjusting Entry:
Bank Overdraft 24,000
Cash in Bank 24,000
The total amount of cash to be reported is P150,000.

3. CASH IN FOREIGN CURRENCY – cash that is deposited but not in Philippine Peso
Treatment: The amount must first be converted into PHP using the current rate.
Example:
 ABC Company has a bank account in BDO amounting to $4500. The conversion rates are as
follows:
Yesterday $1=49
Today $1=51
Expected $1=48

The cash in the bank account must first be converted into PHP using the current rate.

$4,500 x 51 = PHP 229,500.

4. CHECKS – not literally fiat cash or fiat money, but can be easily convertible to cash, considered
as part of cash.
IMPORTANT POINTS TO CONSIDER: Issuer of the check and Dates
a. POSTDATED – checks drawn but can only be encashed at a certain date
Treatment: Not included as cash.

Example:
Included in the cash on hand of P200,000 is a customer check dated check January 28, 2020
amounting to P30,000.

How much cash on hand is to be reported on Dec. 31, 2019?

Cash on Hand, unadjusted 200,000

Less: Customer Postdated Check (30,000)
Cash on Hand, adjusted 170,000

Adjusting Entry:
Accounts Receivable 30,000
Cash on Hand 30,000

b. UNDELIVERED – checks drawn but not yet delivered to the payee

Treatment: Not included as cash.

Example:
Excluded in the cash in bank balance of P240,000 is a customer check amounting to P40,000
but not delivered to the payee until January 06, 2020.

How much cash on hand is to be reported on Dec. 31, 2019?

The amount to be reported is P240,000. The P40,000 check is not deducted because it is
already excluded as stated in the problem.

c. STALE CHECK – checks that are not encashed for more than 6 months or 180 days.
Treatment: Added back to the cash balance.

Example:

TRNA Company held the following balances in their records, as of Dec. 31, 2019.
Cash in Bank 340,000
Cash on Hand 180,000

Addtl info:

A check issued to a supplier dated February 08, 2019 amounting to P60,000 has not yet
been encashed.

How much cash should be reported on Dec. 31, 2019?

Cash in Bank, unadjusted 340,000

 Add: Stale check 60,000
Cash in Bank, adjusted 400,000

Adjusting Entry:

1. If the amount is material

Cash in Bank 60,000
Accounts Payable 60,000

2. If the amount is immaterial

Cash in Bank 60,000
Miscellaneous Income 60,000

5. CASH FUND – cash that is allotted for a specific purpose

Common Examples:
Payroll Fund – for the payment of salaries
Petty Cash Fund – for petty expenses
Change Fund – fund used for petty changes
Sinking Fund – for the payment of Bonds Payable
Cash Fund for expansion of Non Current Asset

Treatment: RELATIVE.
a. If it is allotted for a noncurrent liability, not considered as part of cash.
b. If it is allotted for a current liability, considered as part of cash.
c. If it is allotted for expansion of PPE, not considered as part of cash.

FRIEND Company held the following accounts on Dec. 31, 2019.

BPI Savings Account allotted for 1,500,000

Plant Expansion in January 2020
Cash Fund Allotted for Payment of
Bonds Payable maturing on 2021 750,000
Cash Fund Allotted for Payment of
Bonds Payable maturing on 2020 850,000
Change Fund 20,000
Petty Cash Fund 6,000

How much is the total cash as of Dec. 31, 2019?

Cash Fund Allotted for Payment of

Bonds Payable Maturing on 2020 850,000
Change Fund 20,000
Petty Cash Fund 6,000
Total Cash 876,000

Note:
- The BPI Savings Account was not included because it is allotted for expansion of PPE.
- Cash Fund Allotted for Payment of Bonds Payable maturing on 2021 was not included as
part of cash since the bonds will mature on 2021.

6. PETTY CASH FUND – fund that is allotted for petty expenses

a. IMPREST – the amount of PCF in the books doesn’t change.
b. FLUCTUATING – the amount of PCF in the books fluctuate.

ENTRIES:
TRANSACTION IMPREST FLUCTUATING
1. A petty cash fund of PCF 10,000 PCF 10,000
P10,000 was established CIB 10,000 CIB 10,000
 2. Used P1,000 for No entry Transpo Expense 1,000
transportation PCF 1,000
3. The fund was replenished Transpo Expense 1,000 PCF 1,000
CIB 1,000 CIB 1,000
4. The fund was not Transpo Expense 1,000 No entry
replenished PCF 1,000
***if not replenished until year- PCF 1,000 No reversing needed
end, a reversing entry is needed Transpo Exp. 1,000
the first day of the next year

PCF IN MEASUREMENT OF CASH

1. If the fund was replenished, include the whole amount of PCF.
2. If the fund was not replenished, include only the coins and currency, and “check issued to
the order of petty cash custodian.”

Example:
At the start of the month, BBB Company established a Petty Cash Fund of P20,000. At the end of
the month, the following information were provided:

Coins and Currencies 3,000

Vouchers:
Transportation 4,000
Supplies 3,000
Utilities 5,000
Miscellaneous 4,500
Envelope tagged with
“Collection for XMAS Party” 2,000
Check issued to the order of the
Petty cash custodian, representing
her salary 10,000
IOUs from Employees 5,000

1. If the fund was replenished at the end of the month, how much PCF should be included as
part of CASH?
- ANSWER: Since the PCF was replenished, the amount to be reported is P20,000.
2. If the fund was not replenished at the end of the month, how much PCF should be included
as part of CASH?
- ANSWER: Only the amount of currency and coins, P3,000 shall be included as part of cash.
The check issued to the order of petty custodian is for her salary and not as a replenishment
of the fund.
3. How much is the cash shortage/overage?
- There is a cash shortage of P500.
COMPUTATION:

Petty Cash Fund 20,000

Less: Vouchers
Transpo 4,000
Supplies 3,000
Utilities 5,000
Miscellaneous 4,500 (16,500)
Less: Currency and Coins 3,000
Cash Shortage 500
CASH EQUIVALENTS – highly traded short-term investments
General Rule: 3-month rule. (Purchase date to Maturity Date)- if no dates are present in the problem, it
is assumed that the investment was bought at creation date.

Common Examples:
- Treasury Bills
- Commercial Papers
- Certificate of Deposit
- Cash in Money Market Account
- Redeemable Preference Share
- Any other short-term investment that will mature in 3 months or less.

TIME TO MATURITY CLASSIFICATION

1. 3 months or less CASH EQUIVALENT
2. Beyond 3 months, but not beyond 1 year SHORT TERM INVESTMENT (Current Asset)
3. Beyond 1 year SHORT TERM INVESTENT (Noncurrent Asset)

Example:

BABAWI Company record as of Dec. 31, 2019 shows the following:

180-day Treasury Bill purchased September 31, 2019,

maturing on January 31, 2020 200,000
60-day Treasury Bill 100,000
180-day Commercial Paper 150,000
Cash in Money Market Account 80,000
Preference Shares that are actively
traded 50,000

How much is the Cash Equivalents? The total CE is P180,000.

Computation:
60-day Treasury Bill 100,000
Cash in Money Market Account 80,000
Total Cash Equivalent 180,000

COMPREHENSIVE PROBLEM:

1. On December 31, 2019, QUQUOTAKO Company’s book showed the following balances:

BDO Current Account #21 1,800,000

BDO Current Account #23 (250,000)
BPI Savings Account 1,000,000
Metrobank Account (in USD) 81,200
Commercial Paper maturing on
February 01, 2020 250,000
180-day TBill 200,000
Sinking Fund 210,000
Cash on Hand 1,250,000
Change Fund 2,000
Petty Cash Fund 10,000

Additional information:

a. The BDO Current Account #23 balance is a result of the foregoing transactions:
- Check issued to a supplier amounting to P200,000 dated January 27, 2020.
- Undelivered check to supplier amounting to P40,000.
 b. The BPI Savings Account is set aside for acquisition of a new Plant in early January 2020.
c. The conversion rate for US Dollars are as follows:
Past Rate – 1$=PHP45
Current Rate – 1$=PHP52
Average Rate – 1$=PHP53

d. The CASH on HAND provided the following information

- Excluded a customer check amounting to P200,000, dated February 01, 2020.
- Excluded a check payable to supplier amounting to P210,000 dated December 15, 2019 but
not yet delivered as to date.
- Included a customer check amounting to P800,000, dated January 27, 2020.
- Included a customer check amounting to P200,000 dated December 29, 2019.
- Unrecorded check payable to supplier amounting to P150,000 dated January 16, 2020.
- Unrecorded customer check amounting to P100,000.

e. Upon examination, the Petty Cash Fund revealed the following information:
Coins and Currencies 2,500
Vouchers:
Transportation 1,000
Supplies 2,500
Miscellaneous 3,500
Enveloped with cash
marked “Collection for XMAS” 2,000
Check issued to the petty cash
custodian, representing her
salary 11,500
IOUs from Employees 2,500
The fund was replenished as at year-end.

Questions:
1. How much is the Cash that should be reported as of December 31, 2019?
2. How much is the Cash Equivalent that should be reported as of December 31, 2019?
3. How much is the Petty Cash Fund as at year-end?
4. How much is the shortage/overage on the PCF?
5. How much is the total Cash and Cash Equivalents?

Answers:
1. BDO Current Account #23, unadjusted (250,000)
Add: a. Postdated Check to Supplier 200,000
b. Undelivered Check to Supplier 40,000
BDO Current Account #23, adjusted (10,000)

Entries:

a. Cash 200,000
A/P 200,000

b. Cash 40,000
A/P 40,000

BDO Current Account #21 1,800,000

BDO Current Account #23, adjusted (10,000)
Total Cash in BDO 1,790,000

Metrobank Account (81,200 x 52) = 4,222,400

 Cash on Hand, unadjusted 1,250,000
Add: a. Undelivered check to supplier 210,000
b. Unrecorded Customer Check 100,000
Less: c. Postdated Customer Check #1 (800,000)
d. Postdated Customer Check #2 (200,000)
Cash on Hand, adjusted 560,000

Entries:

a. Cash 210,000
A/P 210,000

b. Cash 100,000
A/R 100,000

c. A/R 800,000
Cash 800,000

d. A/R 200,000
Cash 200,000

Cash in BDO 1,790,000

Cash in Metrobank 4,222,400
Cash on Hand 560,000
Change Fund 2,000
Petty Cash Fund 10,000
Total Cash 6,584,400