Cash and Cash Equivalents Examples:

a) Three month BSP Treasury bills -

Cash – includes money and any other b) Three-month time deposit
negotiable instruments that is payable c) Three-month money market
in money and accepted by the bank for instrument or commercial paper
deposit and immediate credit. d) Xxx-year BSP treasury bills/
 Is the standard medium of exchange. Commercial paper/ Redeemable
 Currency and coins that is circulating preference share purchased three
and is legal tender. months before maturity date

Presentation  Current Asset Petty Cash Fund – Is money set aside to pay
(Cash is normally a current asset. It will only be small expenses which cannot be paid
considered as non-current asset when it is conveniently by means of check.
restricted for more than 12 months.)

Measurement  Face Value

(Cash is initially and subsequently measured at
face value. Unless faced with bankruptcy, cash
will be measured at estimated realizable value.)

CASH ITEMS
1. Cash on Hand
 Undeposited collections -
 Customer’s check – checks
received from customers
 Manager’s check – checks
signed by managers
 Cashier’s check – checks signed
by cashiers
 Traveler’s check – checks made
for travelling
 Bank draft – payment
guaranteed by the bank
 Money order- like e moneys
2. Cash in Bank – checking account and
saving deposit.
3. Cash Fund – change fund, tax fund.
Payroll fund, dividend fund.

Cash Equivalents – short term and highly- liquid

investments that are readily convertible
into cash and so near their maturity
they present insignificant risk of
changes in value because of changes in
interest rates.
(Cash Equivalents are considered as
current asset when the term is not
more than three months.)
BANK RECONCILIATION 3. Errors

 Is statement which bring into Bank Reconciling Items

agreement the cash balance per book 1. Outstanding Checks – checks issued
and cash balance per bank to customer but not yet reflected
on the bank.
Book Reconciling Items Examples:
1. Credit Memos – transactions  Checks drawn already given
credited by bank which the book to payee but not yet
does not know yet which results to presented for payment.
the book debiting the transaction.  Certified Checks – one
Examples: where the bank has
 Notes receivable collected stamped on its face the
by the bank in favor of the word “accepted” or
depositor and credited to “certified” indicating
the account of the sufficiency of fund.
depositor. 2. Deposit in Transit – cash deposited
 Proceeds of bank loan by the depositor but still in transit,
credited to the account of not yet reflected on the bank.
the depositor. 3. Errors
 Matured time deposits
transferred by the bank to Bank Deposits
the current account of the 1. Demand Deposit – also called as “checking
depositor account” or “current account”.
2. Debit Memos – transactions 2. Savings Deposit – for savings.
debited by the bank which the book 3. Time Deposit – there is a time restriction.
does not know yet which results to
the book crediting the transaction. Forms of Bank Reconciliation
Examples:
 NSF Checks are checks 1. Adjusted Balance Method
deposited but returned by
the bank because of BOOK
insufficiency of fund. Unadjusted Book Balance xxx
 Defective Checks are checks Add: Credit Memos xxx
deposited but returned by Total xxx
the bank because of Less: Debit Memos (xxx)
technical defects. Adjusted Book Balance xxx
 Bank service charges
including charger for BANK
interest, collection, Unadjusted Bank Balance xxx
checkbook and penalty. Add: Deposit in Transit xxx
 Reduction of Loan pertains Total xxx
to amount deducted from Less: Outstanding Checks (xxx)
the current account of the Adjusted Bank Balance xxx
depositor in payment for
loan which the depositor
owes to the bank and which
has already matured.
 2. Book to Bank Method

Unadjusted Book Balance xxx

Add: Credit Memos xxx
Outstanding Checks xxx xxx
Total xxx
Less: Debit Memos xxx
Deposit in Transit xxx (xxx)
Unadjusted Bank Balance xxx

3. Bank to Book Method

Unadjusted Bank Balance xxx

Add: Deposit in Transit xxx
Debit Memos xxx xxx
Total xxx
Less: Outstanding Checks xxx
Credit Memos xxx (xxx)
Unadjusted Book Balance xxx
RECEIVABLES What is Current Asset?
- Are financial assets that represent a a. Cash and Cash Equivalents
contractual right to receive cash or b. Part of Operating Cycle
another financial asset from another c. 12 months or less
entity. d. held for the purpose of being traded
Measurement
Initially = Fair Value + Transaction Cost Accounts Receivable xxx
Subsequently = Amortized Cost Less: Allow. For sales discount
Allow. For sales return & allow.
Trade Receivables – refers to claims arising Allow for freight
from sale of merchandise or services in the Allow for bad debts
ordinary course of business. Net Realizable Value xxx
 Accounts Receivable – are open
accounts arising from the sale of goods *Trade discount are not recorded. (tawad)*
and services in the ordinary course of
business and not supported by Freight
promissory notes. FOB (Free on Board) – who will shoulder the
 Notes Receivable – are those freight
supported by formal promises in the - Destination Point- Seller should
forms of notes. shoulder the
Non-Trade Receivables – represent claims freight
arising from sources other than sale of - Shipping Point – buyer will shoulder
merchandise in the ordinary course of business. the freight
 “Advances to” (nag pautang) or
“receivables from” (nangutang) ESTIMATION OF BAD DEBTS
shareholders, directors, officers or
employees (non-current if silent) 1. Allowance Method
 Advances to affiliates – sister company 2. Direct Write off Method
(non-current if silent) because it is hard
to collect from affiliates) Methods of Estimating Bad Debts
 Advances to Suppliers (current)
 Subscription Receivable (non-current) 1. Percentage of Sales  Income
but the presentation is a deduction in Statement Approach  Doubtful
equity. But if stated addition to asset. Accounts Expense
 Creditor’s account with debit balances 2. Percentage of Receivable  Financial
(this happens through sales return with Position Approach  Required
down payment) (current) Allowance Balance
 Special Deposits on Contract Bids (non- 3. Aging of Receivable  Financial
current) Position Approach  Required
 Accrued Income (current) Allowance Balance / Allowance for
 Claims Receivable (current) Doubtful Accounts at Year End

Classification *If the problem is silent, the sales you’ll use is

Trade – Current (always) the net. *
Non Trade – a. 12 months or less
(current) Change Now—> Future
b. more than 12 months Accounting Estimate  Currently and
(non – current) Prospectively
Accounting Policy  Retrospectively RECEIVABLE FINANCING
NOTES RECEIVABLE
- is the capability or financial flexibility of the
-are claims supported by formal promises to company to generate cash out of its receivable.
pay usually in the form of notes.
Common Forms of Receivable Financing
Negotiable promissory notes – is unconditional
promise in writing by one person to another, 1. Pledging – refers to borrowing of
signed by the maker, engaging to pay on money from the bank or any financial
demand or at a fixed determinable future time institution in which receivables in
a sum certain in money to order or to bearer. general are used in collateral.
- Also called as “general assignment”
Measurement (asking for loan in exchange of a
receivable as collateral) (no change in
Notes Initially Subsequently the entry oof receivables)
Short Interest Face Face Value
term Bearing Value Entry
Non- Face Face Value 1. Interest not deducted in advance
Interest Value Cash xxx
Bearing Loans Payable xxx
Long Interest Face Face Value
term Bearing Value 2. Interest deducted in advance
Non- Present Amortized Cash xxx
Interest Value Cost Discount on LP xxx
Bearing Loans Payable xxx

LOANS RECEIVABLE Payment of Interest

1. Interest Exp. Xxx
- a financial asset arising from a loan granted by Cash xxx
a bank or other financial institution to a
borrower or client. 2. Interest Exp. Xxx
Discount on LP xxx
Origination Fees
a. Evaluating the borrower’s financial 2. Assignment – is a more formal (type of
condition pledging) borrowing arrangement in
b. Evaluating guarantees, collateral and which the specific receivables are
other security identified and used as a security.
c. Negotiating the terms of the loan (just like pledging but refers to specific
d. Preparing and processing the receivables)
documents related to the loan
e. Closing and approving the loan Entry
transaction NON NOTIFICATION
A/R – assigned xxx
Measurement A/R - xxx
Initially  Fair Value + Transaction Cost
Cash xxx
Service Fees xxx
Loans Payable xxx
 Sales Return FORMULAS:
Sales Return xxx
A/R – assigned xxx 1. Net Proceeds =
Maturity Value – Discount
Sales Discount 2. Maturity Value =
Cash xxx Principal + Interest
Sales Discount xxx 3. Interest =
A/R – assigned xxx Principal x Rate x Time
4. Discount =
Bad Debts Maturity Value x Discount Rate
Allow. For Bad Debts xxx x Discount Time
A/R – assigned xxx 5. Carrying Amount =
Principal + Accrued Interest
Payment 6. Accrued Interest =
Interest Exp xxx Principal x Rate x Time
Loans Payable xxx 7. Gain/ Loss on Discount =
Cash xxx Net Proceeds – Carrying
Amount
Fully Paid/ Collection
A/R xxx
A/R – assigned xxx

NOTIFICATION –same entries with non-

notification except;

Payment
Loans Payable xxx
Interest Exp. Xxx
Sales Discount xxx
A/R xxx

3. Factoring – involves the sale of

receivables to a finance company,
which is called a factor. The factor or
buyer assumes the risk of collectivity
and generally handles the billing and
collection function.

(transferring of ownership of the

receivable in exchange of loan) (hold
back for any defective items)
4. Discounting of Notes Receivable – sale
of the note to a 3rd party, usually a
bank.
(just like factoring but transferring of
notes receivable instead of accounts)
INVENTORIES LCNRV = Lower of Cost and Net Realizable Value

- are assets held for sale in the ordinary course Net Realizable Value – is the estimated selling
of business in the process of production for price in the ordinary course of business less
such sale or in the form of materials or supplies estimated cost of completion and the estimated
to be consumed in the production process or in cost of disposal
rendering of services.
NRV = Selling Price – Cost to Complete – Cost
Trading  Merchandise Inventory to Sell

Manufacturing – 1. Inventories are damaged.

a. Finished Goods 2. Inventories have become wholly or partially
b. Goods in Process obsolete.
c. Raw Materials 3. The selling price have declined.
d. Factory or Manufacturing Supplies 4. Estimated cost of completion/ cost of
disposal has increased.
Service – labor and other cost of personnel
directly engaged in providing the service Rule

Goods includible in the Inventory Cost > NRV = with inventory write down
There is a write down because NRV will be
a. Goods owned and on hand recorded instead of cost. “whichever is lower”
b. Goods in transit and sold FOB Thus the need to write it down.
Destination (I’m the seller) Cost < NRV = no inventory write down
c. Goods in transit and purchase FOB
shipping point (I’m the buyer) Accounting Method
d. Goods out on consignment
e. Goods in the hand of salesmen or Direct (Cost of Goods Sold)
agents Inventory, end xxx
f. Goods held by customers on approval Income Summary xxx
or on a trial
Allowance Method
Loss on inventory write down xxx
Measurement: Inventories Allow. On Inventory write down xxx
Initial: At cost
Subsequent: LCNRV (on item by item basis) Presentation

Cost of Inventories Inventory, beg xxx

1. Cost of Purchase Net Purchases xxx
2. Cost of Inversion Total Good Available for Sale xxx
3. Other cost incurred in bringing the Inventory, end (xxx)
inventories to their present location Cost of Goods Sold xxx
and condition