Zeus Millan

Vitug, Ann Princess F.
ZEUS MILLAN
CHAPTER 2 CASH AND CASH EQUIVALENTS
LEARNING OBJECTIVES
• Define cash and identify the items that are included in the “Cash and Cash Equivalents”
line item.
• Account for petty cash funds and cash shortages/overages.
DEFINITION OF CASH
• Cash is money or its equivalent that is readily available for unrestricted use.
Examples: a. Cash on hand b. Cash in bank c. personal check d. money orders e. bank drafts
POST-DATED CHECKS AND UNRELEASED CHECKS

• Postdated checks received from customers are excluded from cash.
• Postdated checks drawn are included in cash.
• Unreleased checks drawn are included in cash.
CASH EQUIVALENTS
• Cash equivalents are “short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value.” (Pas 7 Statement of Cash Flows)
• Only highly liquid investments that are acquired 3 months or less before maturity can
qualify as cash equivalents, otherwise it's temporary investment.
FINANCIAL STATEMENT PRESENTATION

• Items of cash and cash equivalents are aggregated and presented in the statement of
financial position under a single line item described as “Cash and cash equivalents.”
MEASUREMENT
• Cash is measured at face amount.
• Cash denominated in foreign currency is translated at the current exchange rate as of
reporting date.
• Cash maintained in a bank undergoing bankruptcy is excluded from cash and presented
as receivable measured at realizable value.
COMPENSATING BALANCE
• Compensating balances that are legally restricted as to withdrawal by the borrower are
excluded from cash.
• Compensating balances that are not legally restricted as to withdrawal are included
in cash.
• Whether restricted or not, compensating balances are disclosed in the notes.
BANK OVERDRAFT
• A bank overdraft is presented as a current liability, adding them to the amount reported
as accounts payable, unless it qualifies to be offset against cash.
PETTY CASH FUND

• Petty cash fund is money set aside to defray relatively small amounts of cash
disbursements.
Chapter 4 ACCOUNTS RECEIVABLE

LEARNING OBJECTIVES
• Classify receivables as either current or noncurrent assets. State the timing of
recognition and measurement of trade receivables.
• Estimate the recoverable historical cost of trade receivables.
TRADE VS. NON-TRADE RECEIVABLES

• Trade receivables are receivables arising from the sale of goods or services in the
ordinary course of business.
• Receivables arising from other sources are non-trade receivables.
FINANCIAL STATEMENT PRESENTATION

• Trade receivables are classified as current assets when they are expected to be
realized in cash within the normal operating cycle or one year, whichever is longer.
• Non-trade receivables are classified as current assets only when they are expected to
be realized in cash within one year.
• Trade and non-trade receivables that are current assets are aggregated and presented
in the statement of financial position as “Trade and other receivables.”
INITIAL MEASUREMENT
• Trade receivables that do not have a significant financing component are measured
at the transaction price in accordance with PFRS 15 Revenue from Contracts with
Customers.
• Transaction price is "the amount of consideration to which an entity expects to be
entitled in exchange for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties (e.g., some sales taxes).”
(PFRS15)
• As a practical expedient under PFRS 15, an entity may not discount a trade receivable if
it is due within 1 year.
RECOGNITION
• Trade receivable is recognized when the entity has right to consideration that is
unconditional. This is normally the case when the control over the promised goods or
services is transferred to the customer.
FOB SHIPPING POINT VS. FOB DESTINATION

• Under FOB shipping point, ownership is transferred to the buyer upon shipment.
Therefore, sales and accounts receivable are recognized on shipment date.
- The buyer becomes the owner of the goods immediately, thus he or she pays the
shipping fee.
• Under FOB destination, ownership is transferred only upon receipt of the goods by the
buyer. Therefore, sales and accounts receivable are recognized only when the buyer
receives delivery of the goods.
- The seller is still the owner of the goods, thus he or she pays the shipping fee.
FREIGHT COLLECT VS. FREIGHT PREPAID

• Under Freight Collect, the delivery guy or the forwarder gets the payment of shipping
to the buyer.
If not, the buyer will shoulder the shipping fee (abono)
• Under Freight Prepaid, the delivery guy or the forwarder gets the payment of shipping
to the seller.
ACCOUNTING FOR SALES DISCOUNTS

• Trade discount vs. Cash discount
• Traditional GAAP vs. PFRS 15 treatment
ALLOWANCE METHOD OF ACCOUNTING FOR BAD DEBTS

• Journal entries
• T-account of the “Allowance for doubtful accounts” account.
• T-account of the “Accounts receivable” account.
ESTIMATING DOUBTFUL ACCOUNTS

1. Percentage of net credit sales method
– the doubtful account expense for the year or period
2. Percentage of ending receivable method

– the ending balance of allowance for doubtful accounts (ADA)
3. Aging method
NET REALIZABLE VALUE

• The accounts receivable needs to be deducted or less by these four:
1. allowance for doubtful accounts (ADA)
2. allowance for sales return
3. allowance for sales discount
4. allowance for freight changes
T-accounts Journal Entries

Accounts Receivable
Beginning balance Collection from Customers Cash
Accounts Receivable
Sales on account Accounts Receivable Accounts Receivable ADA
written off Sales Accounts Receivable
Recoveries from previously Sales return Accounts Receivable Sales return
written off Accounts ADA Accounts Receivable
Receivable Cash
Accounts Receivable
Dishonored Notes Sales discount Accounts Receivable Sales discount
Notes Receivable Accounts Receivable
Interest Income
Recoveries from previously Accounts Receivable
written off Accounts ADA
Receivable Cash
Accounts Receivable
For doubtful expense:

doubtful account expense
ADA
CHAPTER 5 NOTES RECEIVABLE
LEARNING OBJECTIVES
• State the initial and subsequent measurements of notes receivable.
• Compute for present value factors and apply them properly.
• Prepare amortization tables.
• Compute for the effective interest rate.
NOTE RECEIVABLES
• Notes receivable is a claim supported by a formal promise to pay a certain sum of money at a
specific future date usually in the form of a promissory note.
INITIAL MEASUREMENT
• Receivables are initially recognized at fair value plus transaction costs.
SUMMARY OF MEASUREMENTS
Type of receivable Initial measurement Subsequent measurement
1. Short-term Face amount/ Present value/ Transaction Recoverable historical cost/Amortized
price (for trade receivables) cost/PFRS 15
2. Long-term Face amount Recoverable historical cost
3. Long-term w/ Present value Amortized cost
zero interest
4. Long-term w/ Present value Amortized cost
unreasonable interest
The fair value of the receivable at initial recognition may be measured in relation to the cash
price equivalent of the noncash asset given up in exchange for the receivable. In such case, the
subsequent measurement of the receivable is at amortized cost.
TIME VALUE OF MONEY

• FV of P1 vs. PV of P1
- The FV of P1 and PV of P1 are opposites.
- The FV of P1 answers the question “If I invest P100,000 today at 10% interest, how much money
do I have in three-years ‘time?"
- FV of P1 = (1 + i)" = (1 + 10%)3 = 1.331
- Answer: (P100,000 x 1.331) = P133,100
SIR: 1/1 = 100,000 x 1.1
or (P100,000 x 110% x 110% x 110%) = P133,100 - The PV of P1 answers the question “If I want
to have P133,100 in three-years' time, how much money do I have to invest today (at
10% interest)?
- PV of P1 = (1 + i)-N = (1 + 10%)-3 = 0.751315
- Answer: (P133,100 x 0.751315) = P100,000
PV OF P1
• In the second example, the P133,100 to be received in 3-years' time includes an unspecified
principal and unspecified interest. These elements are separated through present value
computations.
Therefore, assuming the P133,100 is a receivable, it should be recorded today only at P100,000
(the present value) because the P33,100 is unearned interest. The interest will be recorded only when
it is earned, i.e., through passage of time.
TIME VALUE OF MONEY (CONTINUATION)

• PV of P1 is used when the cash flow is lump sum or when cash flows are non-uniform.
PV of P1 = (1 + i)-n
• PV of ordinary annuity P1 is used when the cash flows are in installments and the first
installment does not begin immediately.
PV of an ordinary annuity of =
• PV of an annuity due of P1 is used when the cash flows are in installments and the first
installment begins immediately.
PV of an annuity due of P1 =
PRESENT VALUE
– is always less than 1, installment and payment should be equal and even.

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Vitug, Ann Princess F.

CHAPTER 2 CASH AND CASH EQUIVALENTS

POST-DATED CHECKS AND UNRELEASED CHECKS

FINANCIAL STATEMENT PRESENTATION

PETTY CASH FUND

Chapter 4 ACCOUNTS RECEIVABLE

TRADE VS. NON-TRADE RECEIVABLES

FINANCIAL STATEMENT PRESENTATION

FOB SHIPPING POINT VS. FOB DESTINATION

FREIGHT COLLECT VS. FREIGHT PREPAID

ACCOUNTING FOR SALES DISCOUNTS

ALLOWANCE METHOD OF ACCOUNTING FOR BAD DEBTS

ESTIMATING DOUBTFUL ACCOUNTS

2. Percentage of ending receivable method

NET REALIZABLE VALUE

T-accounts Journal Entries

For doubtful expense:

TIME VALUE OF MONEY

TIME VALUE OF MONEY (CONTINUATION)

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