INTERMEDIATE ACCOUNTING 1 [ page 1]

Chapter 1: Cash and Cash Equivalents PENETRANTE, LOUISE ANN // NCBA – BSA – 2C

DEFINITION OF CASH DEFINITION OF TERMS

 cash simply means money – cash = money; but in accounting, cash connotes LEGAL TENDER
more than money. the national currency
 MONEY – is the standard medium of exchange in business transactions. Money (peso), such as paper
refers to the currency and coins which are in circulation and legal tender. money and coins, that is
 CASH declared by law to be valid
 includes money and any other negotiable instruments that is payable in money payment for debts and
and accepted by the bank for deposit and immediate credit. financial obligations –
 includes checks, bank drafts, and money orders because these are tinatanggap ng kahit sino
acceptable by the bank for deposit and immediate encashment. dahil pinapayagan ng
 example: when checks are received in full settlement of an account batas
receivable, cash is immediately debited – ibig sabihin, kunwaring mayroong
may utang sa’yo (accounts receivable) at binayaran niya ito gamit ang check POSTDATED CHECK
– ang ire-record mo ay: debit Cash and credit A/R – kaya cash dahil ang a check on which the issuer
check ay isang promise of payment na quickly convertible into cash. has stated a date later than
 Note: POSTDATED CHECKS received CANNOT BE CONSIDERED AS CASH YET the current date – kunwari
because the postdated checks are unacceptable by the bank for deposit and gumawa ka ng check
immediate credit or outright encashment. - Banks will not accept or process noong Jan. 10 at nilagay mo
postdated checks before the date written on them. Ibig sabihin, the funds are sa check ay Jan. 25 – so
not available for deposit or withdrawal hangga’t hindi pa dumadating ‘yung hangga’t hindi pa
date na nakalagay mismo sa check. dumadating ang Jan. 25,
PRESENTATION OF CASH hindi pa ito mapa-process
ng bangko at hindi pa ‘to
 Cash and Cash equivalents should be shown as the first line item under CURRENT
available for deposit or
ASSETS. – However, the details comprising the cash and cash equivalents should
withdrawal / encashment
be disclosed in the notes to financial statements.
 Cash is usually considered a current asset because it's readily available for use
within a year. LIQUIDITY
 Cash ito kung sakaling ito ay UNRESTRICTED which means hindi p’wedeng ability to go anywhere, to do
pagbawalan kung saan mo gustong gamitin – Cash is the most liquid asset. whatever you want –
 Exceptions: malaya and walang
 There are times that Cash CANNOT BE considered as a CURRENT ASSET – restriction
WHEN CASH IS RESTRICTED for at least 12 months after the end of the reporting ability to get your money
period.
whenever you need it
UNRESTRICTED CASH: PAS 1, PARAGRAPH 66.
 An entity shall classify an asset as a current when the asset is cash or a cash equivalent UNLESS it is restricted to settle a
liability for more than twelve months after the end of the reporting period. - if your cash is restricted (you can't use it to
pay bills or debts) for more than a year, then it’s treated as a noncurrent asset.
 Accordingly, to be reported as cash, an item must be UNRESTRICTED IN USE.
 The cash must be readily available in the payment of current obligations and not be subject to any restrictions,
contractual or otherwise.

MEASUREMENT OF CASH
 Cash is measured at FACE AMOUNT / VALUE – kung magkano ‘yung nakikita mong amount sa mismong mukha ng
dokumento
 Measurement – assigning or paglalagay ng value or amount
 INITIALLY - refers to the value or amount when you first acquire or recognize an asset, like the purchase price of
equipment when you first buy it – magkano o ano siya noong una mo siyang nakita
 SUBSEQUENTLY - refers to the value or amount after some time has passed, accounting for changes like
depreciation or appreciation – magkano o anon a siya paglipas ng panahon
 Example: Equipment – you bought it for 500k (initially), but over time it depreciates, and its value changes
subsequently

GENERAL RULE: WE MEASURE CASH INITIALLY AND SUBSEQUENTLY AT FACE VALUE

 If you have 1,000 pesos now, what is written on the face of the bill you're holding? It’s 1,000 pesos because that's what’s
on the document or cash you’re holding –INITIALLY. After some time, say three months later - SUBSEQUENTLY, how much
is it now? It’s still 1,000 pesos.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 2]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

EXCEPTIONS:
1. Cash, sometimes, can be measure at its 2. When CASH IS IN A DIFFERENT CURRENCY that is not legal tender in the
ESTIMATED RECOVERABLE AMOUNT OR Philippines.
REALIZABLE VALUE. a. Cash in foreign currency should be translated to Philippine pesos using
 If a bank or financial institution the CURRENT EXCHANGE RATE.
holding the funds of an entity is in  If you have cash in a foreign currency, you need to convert it to
bankruptcy or financial difficulty, Philippine pesos using the exchange rate at the time of the
cash should be written down to conversion.
estimated realizable value if the  The CURRENT EXCHANGE RATE refers to the rate at which one
amount recoverable is estimated to currency can be exchanged for another at a specific point in time.
be lower than the face amount.  For example, on December 31, the exchange rate is $1 = ₱48. If
 Estimated Recoverable Amount or after one month the exchange rate rises to $1 = ₱52, when you
Realizable Value is used to represent prepare your report again, you should use ₱52 instead of ₱48.
the actual cash that can be obtained b. Deposits in foreign countries which are NOT SUBJECT TO ANY FOREIGN
or recovered when the full face value EXCHANGE RESTRICTION are INCLUDED IN CASH.
is not expected to be realized.  If you have money deposited in a foreign bank and there are no
 If there’s an issue with the cash— restrictions on accessing or converting it into pesos, this money is
example: you deposited 100,000 considered part of your cash. It means you can use or convert it
pesos, but the bank you deposited it freely.
in closed, and now you can only c. Deposits in foreign bank which are SUBJECT TO FOREIGN EXCHANGE
withdraw 80,000 pesos—due to this RESTRICTION should be classified separately among NONCURRENT
problem, you won’t measure the ASSETS and the restriction clearly indicated.
cash at its face value. Instead, you  If your money is in a foreign bank but there are restrictions on how
measure it at its estimated you can use or convert it (like limits or special permissions required),
recoverable amount. Because of the this deposit should be treated differently. You should list it
problem, you measure your cash as separately in your financial reports as a noncurrent asset, meaning
80,000 pesos, not the original 100,000 it won’t be readily available within a year. You also need to clearly
pesos. state that there are restrictions on this money.

CASH ITEMS INCLUDED IN CASH:

(1) CASH ON HAND
 Cash on hand includes undeposited cash collections and other cash items awaiting deposit such as customers’
checks, cashier’s or manager’s checks, traveler’s checks, bank drafts and money orders.
 Cash on Hand: This is the money or cash-like items that are physically present at your business location, not in the
bank.
a. UNDEPOSITED COLLECTIONS: This includes cash and checks you've collected but haven't yet deposited into your
bank account. – hindi mo pa nade-deposit pero nakolekta mo na
b. CUSTOMER’S CHECK: A check given by a customer that you haven’t deposited yet. It’s a promise of payment, but
you can only be sure of its value when it clears the customer’s bank.
c. MANAGER’S CHECK: A check issued by the bank that’s guaranteed to have funds. It’s less likely to bounce
because it’s approved by the bank manager. – automatic ay may pondo na at hindi tatalbog dahil approved by
the manager
d. CASHIER’S CHECK: Similar to a manager’s check, but it’s guaranteed by the bank’s cashier. It also has funds
guaranteed. – same with manager’s check, sure na may pondo na at hindi tatalbog – approved by the cashier
e. TRAVELER’S CHECK: A type of check used by travelers that is already guaranteed to have funds. – check na dala-
dala ng mga traveler na sure ding may pondo o laman
f. BANK DRAFT: A document written by the bank that guarantees the funds are available. It’s a MORE SECURE form of
payment because the bank guarantees the funds. – mas guaranteed na may pondo since ang naka-backup ay
bangko mismo
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [[ page
page 3]
3]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

g. MONEY ORDER: A form of payment that is pre-paid and guaranteed. It’s not always issued by a bank; it can also
be issued by other financial institutions, like Western Union. You pay the issuer, and they provide you with a money
order that you can use to pay someone else. – kukuha ka ng money order: magbibigay ka ng pera sa kanila at
magbibigay sila ng money order na p’wede mong gamitin o ibayad sa ibang lugar – llike GCash.
(2) CASH IN BANK

 Cash in bank includes demand deposit or checking account and saving deposit which are UNRESTRICTED AS TO
WITHDRAWAL.
a. CHECKING ACCOUNT / DEMAND DEPOSIT
 money deposited into a bank account with funds that can be withdrawn on-demand at any time
 you don't deposit money into this account to save it; instead, you keep it here because you want to use it for
your transactions – ginagamit mo pang-araw-araw
 most flexible and accessible type of bank account, used primarily for managing everyday finances
b. SAVINGS DEPOSIT
 the purpose of this account is to save money – para makapag-ipon
 a type of bank account designed primarily for saving money and earning interest over time
 unlike a checking account, which is used for frequent transactions, a savings account is intended for
accumulating funds that you don’t need immediate access to
CHECKS UNDER CASH IN BANK
1. UNDELIVERED OR UNRELEASED CHECK
 an undelivered or unreleased check is one that merely drawn and recorded but not given to the payee before the
end of the reporting period - supposedly, ibabayad mo ito pero hindi mo naibigay sa dapat na makatatanggap
 the PAYEE is the person who receives money from the payor // the PAYOR is the person who pays the money to
the payee
 there is no payment when the check is pending delivery to the payee at the end of the reporting period – ibig
sabihin, kung hindi mo pa nade-deliver ang check kay payee = still not paid / no payment done
 the reason is that undelivered check is still subject to the entity’s control and may thus be canceled anytime before
delivery at the discretion of the entity – since nasa kamay pa ito ng entity at hindi pa naibibigay kay payee, may
control pa rin ang entity at p’wede nila ito i-cancel anytime
 accordingly, an adjusting entry is required to restore the cash balance and set up the liability - because the check
hasn't left the entity's control, an adjusting entry is necessary - this entry restores the cash balance (since hindi pa
naman talaga naibabayad so hindi talaga nabawasan ang pera mo) and reinstates the liability (since hindi ka pa
nga bayad, may utang ka pa rin)
 example: you bought shoes and wrote a check to pay for them, but the check never reached the seller

When you write the check: If the check was undelivered, you need to reverse the entry:

Accounts Payable (A/P) xxx Cash in Bank (CIB) xxx

Cash in Bank (CIB) xxx Accounts Payable (A/P) xxx

2. POSTDATED CHECK DELIVERED

 A postdated check delivered is a check drawn, recorded and already given to the payee but it bears a date
subsequent to the end of the reporting period – ex. sinulat at binigay mo ‘yung check ng Nov. 12 pero ang
nakalagay pa talaga sa check ay Nov. 18 – so kung hindi pa dumadating ang Nov. 18, hindi pa ito ipa-process ng
bangko at hindi pa ito mae-encash kasi nga ang check ay at a later date
 The original entry recording a delivered postdated check shall also be reversed and therefore restored to the cash
balance – hindi pa ito considered as payment talaga kahit na-deliver mo na ang check – kagaya lang ng
undelivered checks so you have to reverse the original entry – you restore the cash balance as if the money hasn’t
been spent yet
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 4]
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2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE, LOUISE ANN // NCBA – BSA – 2C
PENETRANTE, LOUISE ANN // NCBA – BSA – 2C

 The reason is that there is no payment until the check can be presented to the bank for encashment or deposit -
the payment isn’t considered complete until the date on the check arrives and it can be cashed or deposited by
the payee
 the reversal restores the cash balance and re-establishes the liability, acknowledging that the payment is still
pending until the check is valid for encashment

Original entry when the check was written and delivered Reversing the entry (because the check is postdated)

Accounts Payable (A/P) xxx Cash in Bank (CIB) xxx

Cash in Bank (CIB) xxx Accounts Payable (A/P) xxx

3. STALE CHECKS OR CHECK LONG OUTSTANDING

 A stale check is a check not encashed by the payee within a relatively long period of time. – nakatanggap ka ng
check – lumipas na ang mahabang panahon at wala kang ginawa o hindi mo in-encash ang check na ‘yon
 The question is how long a time must the check remain outstanding – the Negotiable Instruments Law provides that
where the instrument is payable on demand, presentment must be made within a reasonable time after issue.
Clearly, the law does not specify a definite period within which checks must be presented for encashment.
Reference is made to usage of trade or business practice. – no specific timeframe kung hanggang kalian ito – it is
just a matter of practice or usage – pero according to the law, a check payable on demand should be presented
within a "reasonable time" after being issued
 In banking practice, a check becomes stale if not encashed within six months from the time of issuance. Of course,
this is a matter of entity policy. Thus, even after three months only, the entity may issue a stop payment order to the
bank for the cancelation of a previously issued check. – sa mga bangko, usually kino-consider na stale check na
ito kung within 6 months eh hindi pa rin na-encash, ayon ang common practice – it may still differ depending on
the entity’s policies – p’wede ring i-cancel ng entity ‘yung check bago pa ito ma-stale
a) If the amount of a stale check is immaterial, it is simply accounted for as miscellaneous income.
b) However, if the amount is material and liability is expected to continue, the cash is restored and the liability is set up.
c) paano naman kapag nawala mo ang check - If you lose a check that was given to you, the person who issued the
check has the choice of whether to issue a new one or not. They can refuse to replace it, but they might agree to
do so since the original check wasn't cashed, meaning their account wasn't debited, and they haven't suffered any
loss.
Stale Check with an Immaterial Stale Check with a Material Amount: Stale Check - Replaced
Amount / Not replaced

Cash in Bank (CIB) xxx Cash in Bank (CIB) xxx No additional entry
Miscellaneous Income xxx Accounts Payable (A/P) xxx needed

 considered immaterial  the stale check involves a material (significant)  the check has become
(insignificant) and does not stale, but it is being
amount, and the liability is expected to
impact financial statements
continue or be reissued replaced with a new
 similar to the situation where the
stale check is not replaced, the  reflecting that the obligation to pay still exists check, meaning the
debit restores the cash balance, and must be addressed, either through a new payment obligation
and the credit to Miscellaneous check or another payment method continues
Income reflects the small amount  the debit to Cash in Bank restores the funds to  the original accounting
being treated as income the entity’s cash balance because the stale entry (debit to
 debit to Cash in Bank restores the Accounts Payable and
check is no longer valid – the credit to Accounts
funds to your available balance,
Payable re-establishes the liability, indicating credit to Cash in Bank)
and the credit to Miscellaneous
Income recognizes that the that the entity still owes the amount. – this entry remains valid, as the
obligation to pay has been acknowledges that while the specific check is obligation to pay is still
removed and the amount is now no longer valid, the obligation to pay the in place, just with a new
considered as income amount still exists and will need to be settled check
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 5]
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[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE, LOUISE ANN
PENETRANTE, LOUISE ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

BANK OVERDRAFT GENERAL RULE: NO OFFSETTING ALLOWED

 check drawn more than the deposited amount – not  A bank overdraft is classified as a current liability and
legal or now allowed by law in the Philippines but it SHOULD NOT BE OFFSET AGAINST OTHER BANK ACCOUNTS
can still happen in practice with debit balances. – utang mo ito sa bangko na
 ex. Let’s say you have ₱1 million deposited in your kailangan mong bayaran
bank account. You write a check for ₱1.2 million –  For when you have a multiple bank account – different
someone tries to cash it. Under normal banks: each bank account must be reported separately,
circumstances, the check would bounce because it with the overdraft shown as a liability, not as a reduction of
exceeds the available balance—meaning the bank cash.
cannot honor the full amount since there's only ₱1  kapag nag-present ka ng cash, hindi allowed ang
million in the account. // bounced check = penalty = offsetting (pagbabawas) sa overdraft
damaged relationship  example, an entity maintains three bank accounts:
 When the cash in bank account has a credit Bank A – overdraft (200,000)
balance, it is said to be an overdraft. - in some Bank B – 1,000,000
situations, the bank might allow the check to be Bank C – 2,500,000
cashed even if it exceeds the deposited amount. This
 you are only going to present cash from bank B and C
is known as an overdraft. For instance, if the depositor
– the reported cash should be 3,500,000 and the
has been a long-term client of the bank (e.g., 10
200,000 will never be presented as cash but rather part
years) and regularly deposits money, the bank may
of the current liability – bank overdraft
decide to honor the overdraft. The bank might
contact the depositor to notify them that the check
Current Asset:
amount exceeded their balance.
Cash in Bank – Bank B 1,000,000
 The credit balance in the cash in bank account
Cash in Bank – Bank C 2,500,000
results from the issuance of checks in excess of the
deposits. – ibig sabihin, ‘yung may-ari ng bank
Current Liability:
account ay nag-issue ng check na more than the
Bank Overdraft – Bank A 200,000
amount na nasa bangko niya talaga – they have
overdrawn their account
EXCEPTION TO THE RULE ON OVERDRAFT
 When an entity maintains two or more accounts in one bank and one account results in an overdraft, SUCH OVERDRAFT
CAN BE OFFSET AGAINST THE OTHER BANK ACCOUNT WITH A DEBIT BALANCE in order to show cash, net of bank overdraft
or bank overdraft, net of other bank account.
 Example: Suppose an entity has two accounts at Bank A:
Account 1: Overdraft of ₱50,000 // Account 2: Positive balance of ₱100,000
 Offsetting Allowed: In this situation, you can combine the balances of these accounts for reporting purposes:
a. Net Cash Balance: The net cash balance is calculated by offsetting the overdraft in Account 1 against the
positive balance in Account 2. – ang nangyayari, since may utang ‘yung isa mong hawak na account (ex.
checking account) at may balance o laman pa ‘yung is among account (ex. savings account) with the same
bank – ibabawas na lang o io-offset na lang ito:
₱100,000 (positive balance) - ₱50,000 (overdraft) = ₱50,000 net cash balance.
b. The net cash balance is reported on the balance sheet as:
Cash in Bank (Net): ₱50,000
c. Presentation: Instead of showing the overdraft and the positive balance separately, you report the net amount.
This simplifies the presentation and reflects the entity’s actual cash position with that bank.
 An overdraft can also be offset against the other bank account if the amount is not material. – instead of separately
showing a small overdraft and a large positive balance, the net amount (₱49,000) can be reported.
 Under IFRS, bank overdraft can be offset against other bank account when payable on demand and often fluctuates
from positive to negative as an integral part of cash management. – businesses have accounts that regularly switch
between positive balances and overdrafts – this can be a normal part of managing cash flow – IFRS allows these
fluctuating overdrafts to be offset against other bank accounts with positive balances if they are with the same bank.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 6]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

(3) CASH FUND DEFINITION OF TERMS

 GENERAL RULE: to be reported as cash, an item must be UNRESTRICTED IN USE. DIVIDENDS
 EXCEPTION: CASH FUND – If the cash fund is set aside for use in current Dividends are payments made
operations (e.g., daily business activities) or for the payment of current by a company to its
obligation (e.g., bills due soon), IT IS A CURRENT ASSET AND INCLUDED AS PART shareholders as a way of sharing
its profits.
OF CASH AND CASH EQUIVALENTS. – cash ang classification but there is a
When a company earns profit, it
restriction - it is included as part of cash and cash equivalents on the balance can either reinvest it back into
sheet, even if there is a restriction on its use the business or distribute a
 no restriction = cash /// if the restriction is for current operation = cash fund = portion of it to shareholders in
cash the form of dividends.
 Examples:
 Change Fund: This is the cash kept for giving change in a small store, like DIVIDENDS FUND
A dividends fund is money that a
coins kept in a container for daily transactions (e.g., a small bowl with
company sets aside specifically
coins). to pay dividends to its
 Petty Cash Fund: Used for small, everyday expenses. shareholders.
 Payroll Fund: Set aside for paying employee wages. This fund ensures that the
 Travel Fund: Reserved for employee travel expenses. company has enough cash
 Interest Fund: Set aside for paying interest on loans. available to make the dividend
 Dividend Fund: Reserved for paying dividends to shareholders. payments when they are due.
 Tax Fund: Set aside for paying taxes. – part ng current operation ang
SINKING FUND
pagbabayad ng tax
A sinking fund is a reserve of
 On the other hand, if the cash fund is set aside for NONCURRENT PURPOSE (e.g.,
money that a company sets
buying a long-term asset) or PAYMENT OF NONCURRENT OBLIGATION (e.g., a
aside over time to repay a large
loan due in more than a year), it is shown as LONG-TERM OR NONCURRENT
debt or bond at its maturity.
INVESTMENT.
Instead of waiting until the due
 The classification of a cash fund as current or noncurrent should parallel the
date to gather all the money
classification of the related liability.
needed to pay off the debt, the
The classification of the cash fund (whether current or noncurrent) should
company regularly contributes
align with the classification of the related liability. - If the debt is current
smaller amounts into this fund.
(due within a year), the cash fund set aside for it should also be classified
This reduces the risk of not
as current. – If the debt is noncurrent (due in more than a year), the cash
having enough money when
fund should be classified as noncurrent.
the debt is due.
 Example:
a. Sinking Fund for Bond Payable: If a sinking fund is set aside to pay off a
BOND PAYABLE
bond payable, and the bond is due within a year after the end of reporting A type of debt that a company
period, the sinking fund is classified as a current asset. borrows from investors
b. Cash Fund for Noncurrent Asset Acquisition: If a cash fund is set aside to
When a company issues bonds,
buy a noncurrent asset (like a building or machinery), it remains classified it is essentially taking a loan from
as a noncurrent asset regardless of the year of disbursement or when the
investors, promising to pay them
money will actually be spent. – example: you have a cash fund of 500k set back the principal amount (the
aside para bumili ng machinery na bibilhin mo in two years, ‘yung cash
face value of the bond) on a
fund na ‘yan will be classified as a noncurrent asset. - If the machinery will specified maturity date.
be acquired within a year or next year, the cash set aside for it is classified
as a current asset in the financial statements. SINKING BOND PAYABLE / SINKING
 Restriction for Non-Current Operations: If the restriction is for non-current or FUND BOND
long-term purposes, it is not considered cash but may be classified as a long- A sinking fund bond is a bond
term investment. that requires the company to
 plant expansion fund – this is not for current operation so this will not be regularly set aside money in a
considered as cash but rather long term investment sinking fund to ensure the bond
 mortgage or loans/bonds – utang ng 10 years – nagi-iipon ka ng sinking
can be paid off when it matures.
fund para makasiguradong makakabayad at hindi ka lumubog sa utang

INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 7]
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[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

COMPENSATING BALANCE
 compensating balance – p’wede kang umutang – ex. 2M – pero dapat at least 200,000 ang deposit o balance mo
and this is the compensating balance – pang-compensate doon sa usapan – this is a restriction
 A compensating balance generally takes the form of minimum checking or demand deposit account balance that
must be maintained in connection with a borrowing arrangement with a bank. – kapag umutang ka sa bangko, nire-
require ng bangko na mayroong compensating balance sa account mo – this is a way to compensate the bank for
giving you the loan – this compensating balance is not available for the company to use directly – it must be
maintained in the account as part of the loan terms.
 For example, an entity borrows P5,000,000 from a bank and agrees to maintain 10% or P500,000 minimum
compensating balance in a demand deposit account. – ibig sabihin, kahit P5,000,000 pa ang inutang ng isang
company sa bangko, P4,500,000 lang talaga ang p’wede nitong gamitin dahil ‘yung P500,000 is held in the
compensating balance – not available for their immediate use.
 In effect, this arrangement results in the reduction of the amount borrowed because the compensating balance proves
a source of fund to the bank as partial compensation for the loan extended. – ang compensating balance ay nagpo-
provide ng additional funds sa bangko for they can use for other purposes (such as lending to other customers) and it
also acts as a form of collateral – reducing the risk for the bank – this compensating balance also serves as a partial
compensation for lending the money.

CLASSIFICATION OF COMPENSATING BALANCE

1. If the deposit is NOT LEGALLY RESTRICTED as to withdrawal by the borrower because of an INFORMAL COMPENSATING
BALANCE AGREEMENT, the compensating balance is part of CASH.
panakot lang –simpleng kasunduan lang; INFORMAL RESTRICTION = UNRESTRICTED CASH
no formal, legally binding agreement requiring the borrower to keep the balance in the account. It's more of a
verbal or casual understanding between the bank and the borrower
example: sa mga savings account sa mga bangko na dapat kapag nag-open ka ng bank account ay sinasabi
nila na ang maintaining balance ay 3k – hindi siya masyadong formal kasi kapag nag-withdraw ka, mawi-withdraw
mo pa rin naman ‘yung 3k na ‘yon or part ng maintaining balance mo – kung mayroon kang 10k – nag-withdraw
ka ng 9k – dito makikita na hindi gano’n kapormal ‘yung agreement when it comes to maintaining your balance
kasi nagagalaw mo pa rin naman

2. If the deposit is LEGALLY RESTRICTED because of a FORMAL COMPENSATING BALANCE AGREEMENT, the compensating
balance is classified separately as cash held as compensating balance under current assets if the related loan is short-
term.
formal restriction and legally binding
Short-term Loan: A loan is considered short-term if it is due to be paid back within one year from the date of the
financial statements.
the compensating balance is not considered as available cash for the company's immediate use because it is
LEGALLY RESTRICTED – since legally restricted nga, hindi mo ito magagalaw o magagamit until the loan is paid off
PERO kung ang related loan or kung ang utang mo ay for short-term lang naman, the compensating balance is
expected to be freed up within a year – ibig sabihin, may potential pa rin siyang magamit as cash within the near
future
As a result, the compensating balance is classified separately on the balance sheet under “Cash Held as
Compensating Balance” within the current assets section. – it reflects na kahit restricted man ang compensating
balance for now, expected pa rin itong maging available within the company’s operating cycle
example: umutang ka sa bangko ng 500k with a formal contract saying na the business must maintain a 50k
balance in its account for the duration of the loan (set to be repaid within 6 months)
 ‘yung 50k na compensating balance ay hindi freely magagamit ng company hangga’t hindi ito bayad
 so sa balance sheet, ‘yang 50k ay magiging under “Cash Held as Compensating Balance” sa current assets
section – ‘yung loan na 500k naman as a short-term liability – current liabilities.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 8]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

3. If the related loan is LONG-TERM, the compensating balance is classified as NONCURRENT INVESTMENT.
similar to the previous case, this involves a formal and legally binding agreement – however, the difference lies in
the duration of the related loan.
Long-term Loan: A loan is considered long-term if it has a maturity period of more than one year from the date of
the financial statements.
since long-term ang loan, ‘yung compensating balance ay expected na mare-restrict for a period na lalagpas ng
isang taon kaya this will be classified as noncurrent investment – noncurrent assets.
example: nag-loan ka ng 1M with a maturity period of 5 years and required kang mag-maintain ng 100k na
balance for the duration of the loan.
 ‘yung 100k na compensating balance ay legally restricted and hindi magagamit ng company hangga’t hindi
pa bayad
 sa balance sheet, ‘yung 100k will be considered as a noncurrent investment which indicates na hindi ito
available for immediate use – and ‘yung 1M naman ay classified as long-term liability.

4. Silent Problem: If the problem statement does not specify whether the compensating balance is formal or informal, it is
practical to assume the more commonly used approach. Therefore, in most cases, the compensating balance will be
considered as an INFORMAL RESTRICTION.

CASH EQUIVALENTS
 PAS 7, paragraph 6, defines cash equivalents as SHORT-TERM AND HIGHLY LIQUID INVESTMENTS that are readily
convertible into cash and so near their maturity that they present insignificant risk of changes in value because of
changes in interest rate.
 The standard further states that only highly liquid investments acquired three months before maturity can qualify as
cash equivalents.
 cash equivalent – purpose: investment - investment must be short term and must be highly-liquid – hindi risky; mabilis
maging pera ulit
 Short-term means the investment matures in a period of three months or less from the date of acquisition. - these
investments minimize the risk of changes in their value due to market fluctuations, making them reliable for
immediate liquidity needs.
 Insignificant risk means that the investment is not likely to experience major price changes due to interest rate
movements or other market conditions.
 Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its market
price.
 nag-invest ka – maturity is maikli – onti lang ang changes in value kasi nga highly-liquid ang pinaglagyan mo and the
time is so short
 kapag nag-invest ka at three months lang or less – p’wedeng ma-consider na cash equivalent
 insignificant risk and highly liquid investments – about company – saan mo ba i-invest
 so kung ang investment mo ay 2 months at and pinaglagyan mo ay hindi highly-liquid, wala pa rin – still not considered
as cash equivalent
 Examples:
a. THREE-MONTH BSP TREASURY BILLS
BSP Treasury Bills – Bangko Sentral ng Pilipinas (BSP)
Treasury bills (T-bills) issued by the Bangko Sentral ng Pilipinas (BSP) are short-term government securities.
When you invest in BSP T-bills, it’s like lending money to the government, and they promise to pay back the
principal amount plus interest after a short period. – nag-i-issue ang BSP ng T-bills – ito ay investment sa POV
mo – p’wede kang mag-invest sa BSP – lumalabas na parang nangungutang ang BSP sa iyo tapos later on
ay babayaran din nila with interest
 Short Maturity: These T-bills mature in three months or less.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 9]
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[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

 Low Risk: As government-issued securities, they are considered among the safest investments. The
government’s backing minimizes the risk of default. – hindi naman maba-bankrupt ang BSP so safe na
safe
 High Liquidity: Since they are widely recognized and trusted, T-bills can be easily sold in the financial
market without losing value.

b. THREE-MONTH TIME DEPOSIT

A time deposit is a bank account where you agree to leave your money for a specified period in exchange
for a higher interest rate than a regular savings account.
time deposit – nagede-deposit ka pero hindi mo pa p’wedeng ma-withdraw in a certain period of time //
p’wedeng hindi mo ito p’wede withdraw-hin kasi nga may kapalit which is ‘yung interest na makukuha mo
so lumalabas na investment ito
 Short Maturity: The time deposit has a maturity period of three months. - investment ito pero 3 months
lang – short term
 Low Risk: Banks are regulated institutions, and deposits are typically insured by government agencies,
reducing the risk of loss. – banks, hindi naman malulugi agad ang mga bangko within 3 months
 High Liquidity (in short term): Although you cannot access the money before the maturity date without
penalties, the three-month duration ensures it’s still considered highly liquid for cash equivalent purposes.
kung sakaling ang time-deposit ay more than 3 months, not considered as cash equivalent

c. THREE-MONTH MONEY MARKET INSTRUMENT OR COMMERCIAL PAPER

Commercial Paper: This is a type of unsecured, short-term debt instrument issued by businesses or private
entities, not by central banks like the BSP (Bangko Sentral ng Pilipinas) – para itong t-bills pero this is issued by
businesses and not BSP
unsecured – walang collateral - no specific assets that the lender can claim or seize to recover the money.
For example, you pay 90 pesos today, and after three months, you get 100 pesos back. These are typically
issued by companies with a very low or insignificant risk of going bankrupt, making them a tolerable and highly
liquid investment option.
It’s a short-term financial instrument issued by private companies to meet immediate financing needs.
How Commercial Paper Works
 Issuance: mag-i-issue ang isang company ng commercial paper para mag-raise ng funds pambayad sa
kanilang mga short-term needs like payroll expenses, short-term obligations sa kanilang mga supplier, and
etc. – nakalagay rito kung magkano ang kailangan nila and kung kalian magma-mature
 Discounted Pricing: syempre nakalagay mismo sa mismong commercial paper ‘yung amount they need
and ibebenta nila ito sa mga investors at a discounted price – for example, 100k ang amount or face
value ng commercial paper pero binebenta nila ito ng 98k lang
 Maturity: and then syempre kapag dumating na ‘yung maturity period at babayaran na ng company
ang investor or ‘yung may hawak ng commercial paper, babayaran nila kung ano ang nasa face value
mismo which is, sa example sa taas, 100k – so kumita ng 2k ang investor
bilang investor, syempre pipili sila ng company na mapagkakatiwalaan or well-known para hindi risky
Commercial papers can be bought and sold in the secondary market. – flexible kasi ang commercial paper
– kung sakaling ikaw ang investor na bumili ng commercial paper sa isang company (based on the example
kanina) – kung may biglaang emergency ka at hindi pa dumadating ang maturity date pero kailangan mo
na talaga ng pera, p’wede mong ibenta sa iba ‘yung commercial paper na ‘yun at a discounted price din
– ex. ibebenta mo sa third person ng 96k – so pagdating ng maturity date, ‘yung third person na ‘yon, tutubo
siya ng 4k
What If Issued by Local Entities (Like Barangays): If these instruments are issued by local entities such as
barangays (village or district administrations), they are GENERALLY NOT CONSIDERED HIGHLY LIQUID – local
entities may not have the same level of financial stability or creditworthiness as large corporations or financial
institutions
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 10]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

Money market instruments are short-term investments that are safe and easy to turn into cash quickly. They
are used by companies, governments, and banks to handle short-term money needs - ibig sabihin, ‘yung pera
mo ay hindi ide-deposit mismo sa bangko bagkus sa stock market kumbaga i-invest nila – and kapag kumita,
may share ka nang mas malaking interest – examples are t-bills, commercial paper, certificate of deposits
(time-deposit sa mga bangko)
money market instruments are like a safe, short-term place to put your money with a predictable, though
usually modest, return

d. XXX-YEAR BSP TREASURY-BILLS/COMMERCIAL PAPER/ REDEEMABLE PREFERENCE SHARE PURCHASED THREE-MONTHS

BEFORE MATURITY DATE
hindi lahat ng t-bills ay may 3 months na time period – mas marami pa ‘yung mas mahabang panahon
5-month t-bills – not considered as cash equivalent but investment
ex. Si Juan ay may t-bills na for 5 months – after 2 months, kinailangan niya na ng pera at ibinenta niya ito kay
Pedro – considered as cash equivalent ito in a sense na simula sa date of purchase sa part ni Pedro, papasok
pa rin ito sa short term kasi nga 3 months na lang naman before the maturity date
ex. kung 5 years ang t-bills mo tapos 3 months na lang bago ka gumawa ng report up to the date of maturity
– not considered or hindi mo ire-reclassify as cash equivalent // kasi ang classification ng cash equivalent ay
dapat 3 months before the maturity date // so all throughout ang pagtingin mo dapat dito ay investment
it doesn’t matter kung gaano ito katagal na-acquire basta ang importante ay binili mo siya three months
before maturity date
Regular Shares: These are long-term investments with no set repayment date, so they’re not considered
cash equivalents.
Redeemable Preference Shares: These shares do have a maturity date, so despite being shares, they are
treated like liabilities because they will be paid back by the company.
REDEEMABLE PREFERENCE SHARE – equity investment cannot be classified as cash equivalent (bumili ka ng
share or stocks ng isang corporation), ang point is, wala kasing maturity date kapag nag-i-invest ka sa mga
ordinary share or preference share kasi bawal silang ibalik so hindi ito papasok sa pagiging short term since
walang maturity date, pangmatagalan talaga ang investment mo – EXCEPTION: p’wedeng magkaroon ng
preference share na redeemable – ang redeemable preference share ay example ng substance over form
– kapag share, wala dapat maturity date – pero ang redeemable preference share, from the time na
pinanganak siya noong ginawa ng corporation ‘yon, nilagyan nila ng maturity date – so in form, ito ay share
pero dahil may maturity date (wherein wala dapat maturity date kapag share), therefore in substance,
hindi ito share but rather ito ay liability kasi may maturity date – sa POV ng corporation – ikaw ang nag-
invest at ang prefence share ay highly liquid (like San Miguel Corp) – considered as cash equivalent

INVESTMENT OF EXCESS CASH

 The control and proper use of cash is an important aspect of CASH MANAGEMENT. Basically, the entity must maintain
sufficient cash for use in current operations. ANY CASH ACCUMULATED IN EXCESS OF THAT NEEDED FOR CURRENT
OPERATIONS SHOULD BE INVESTED even temporarily in some type of revenue earning investment. Accordingly, excess
cash may be invested in time deposits, money market instruments, and treasury bills for the purpose of earning interest
income. Investments in time deposit, money market instruments, and treasury bills should be properly classified.
a. If the term is THREE MONTHS OR LESS, such instruments are classified as CASH EQUIVALENTS. - if the investment is
three months (assuming highly liquid) = cash equivalent
b. If the term is MORE THAN THREE MONTHS BUT WITHIN ONE YEAR, such investments are classified as SHORT-TERM OR
TEMPORARY INVESTMENTS and presented separately as current assets.
c. If the term is MORE THAN ONE YEAR, such investments are classified as NONCURRENT OR LONG-TERM INVESTMENTS.
However, such investments that become due within one year from the end of the reporting period are reclassified
as current.
 Cash Equivalents are not money but rather by form, they are investment but because the term or maturity is so near
and the investment is highly liquid, it still considered as cash equivalent.

INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 11]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE, LOUISE ANN
PENETRANTE, LOUISE ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

IMPREST SYSTEM

 In a business, cash transactions can be categorized as either CASH IN OR RECEIPTS and CASH OUT OR DISBURSEMENTS,
operating from 8 AM to 5 PM. Throughout the day, makatatanggap ang business ng bills, coins, checks, and other
negotiable instruments. Simultaneously, there are also cash expenses. When the business pays for its expenses, it
doesn't use the cash collected on that day (unlike small neighborhood stores). Instead, they use checks to pay their
expenses, which is known as the IMPREST SYSTEM. – so kapag nag-i-incur ng expenses ang isang business, hindi nila
ginagamit ‘yung mga collection nila na natanggap that exact day – gumagamit sila ng check pambayad
 During the day, when collections are made, they are held until the end of the day. Then, an employee responsible for
all collections will go to the bank and deposit the money. By the NEXT MORNING, there will be no remaining collections
because everything has been deposited. SINCE THE BUSINESS HAS MONEY DEPOSITED IN THE BANK, IT USES CHECKS TO
PAY FOR ITS EXPENSES.
 The IMPREST SYSTEM is a system of control of cash which requires that all CASH COLLECTIONS ARE KEPT INTACT AND
DEPOSITED IN THE BANK, and all CASH DISBURSEMENTS ARE MADE THROUGH CHECKS.
 Cons: In the worst-case scenario, if the business is robbed, only the cash collected that day would be taken.
Additionally, when paying suppliers, using checks is quicker because you just need to write and sign the check. Without
an Imprest System, you would need to count cash, which carries the risk of errors or excess amounts, and it also takes
time. If the person holding the checks is robbed, they would lose the checks, but the money in the bank remains safe.
 While internal control ideally requires that all payments should be made by means of check, this is SOMETIMES
IMPOSSIBLE. – since kapag nag-i-incur ng expenses ang isang business, mas mabuting check ang gamitin pambayad,
may mga instances kasi na hindi possible or very impractical na gumamit ng check – example, kapag namasahe ang
empleyado papunta sa isang business meeting or may need bilhin for the company, hindi naman puwedeng check
ang ipambayad mo bilang pamasahe kasi hindi naman din tatanggapin
 There are occasions when the issuance of checks becomes impractical or inconvenient such as when small amounts
are paid of things are hurriedly bought or customers are entertained.
 Consequently, in such instances, IT MAY BE MORE ECONOMICAL AND CONVENIENT TO PAY IN CASH RATHER THAN ISSUE
CHECKS. – dito papasok ang Petty Cash Fund

PETTY CASH FUND

 In a business, there are small expenses that cannot be conveniently paid by check. These are typically minor expenses
where using a check would be impractical, such as paying for transportation fares or buying items from a market. For
such small expenses, businesses use a Petty Cash Fund.
 The Petty Cash Fund is money set aside to pay small expenses which cannot be paid conveniently by means of check.
 This petty cash is included in the cash account under the cash fund, which is money reserved for current operations
but has certain restrictions.
 There are two methods of handling the petty cash, namely: IMPREST FUND SYSTEM and FLUCTUATING FUND SYSTEM
 Petty Cash Accounting Process:
1. Establishment of Petty Cash Fund: mag-i-issue ng check ang business which is later withdrawn and placed into the
petty cash fund managed by the petty cash custodian. –this action creates the petty cash fund and is recorded
in the journal, resulting in an accounting entry. Essentially, a portion of the business's cash is reallocated to a new
category called the Petty Cash Fund. This reallocation has no effect on the total cash and cash equivalents, as the
total amount remains the same.
2. Handling Expenses: When a small expense occurs, the responsible employee approaches the petty cash
custodian. The custodian records the expense in a Petty Cash Memorandum Book, which tracks all petty cash
expenditures.
3. Replenishment of Petty Cash: Over time, the bills and coins in the petty cash fund will run out. When this happens,
the petty cash custodian requests a new check from the treasury or accounting office. To do this, the custodian
presents the Petty Cash Memorandum Book along with receipts and vouchers at the accounting office. The
accounting office records these transactions in the journal and issues another check, which the custodian then
withdraws to replenish the petty cash fund.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 12]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

IMPREST FUND SYSTEM

 The imprest fund system is the one usually followed in handling petty cash transactions. – most used
 pinagsasama-sama lahat ng expenses bago i-record ang expense// ang account title na Cash in Bank ang
gumagalaw
ESTABLISHMENT OF THE FUND
 A check is drawn to establish the fund. – to establish the petty cash fund, mag-i-issue ang company ng check for a
specific amount and then wi-withdraw-hin ni petty cash custodian sa bangko.

Petty Cash Fund xxx

Cash in Bank xxx

EXPENSES
 In the imprest system, EXPENSES ARE NOT IMMEDIATELY RECORDED IN THE GENERAL LEDGER. Instead, the petty cashier
waits until it's time to replenish the petty cash fund. During this period, all expenses are kept track of in the Petty Cash
Journal or Petty Cash Memorandum Book – this method is efficient because it avoids the unnecessary cost and effort
of recording each small transaction individually, adhering to the Benefit Over Cost – ini-intact niya muna – huwag
mag-e-exceed ang cost sa benefit // since maliliit na expenses lamang ito na maya’t maya ay nangyayari, kung
nire-record mo nang nire-record, ‘yung effort mo ay hindi naman worth it doon sa benefit
 in this system, YOU DO NOT RECORD IT AS IT OCCURS but rather hinihintay mo na dumami sila – nire-record mo ito
kapag nagre-replenish na for petty cash fund
 The petty cashier generally requires a signed petty cash voucher for such payments and simply prepares
memorandum entries in the petty cash journal. - Every time a payment is made from the petty cash fund, the petty
cashier requires a signed Petty Cash Voucher. This voucher is a crucial document that serves as proof of the
transaction. The voucher typically includes the date, amount, purpose of the expense, and signatures of both the
person receiving the cash and the petty cashier. This ensures that every disbursement from the petty cash fund is
well-documented and authorized.

No Entry – no formal journal entries are made

REPLENISHMENT
 Whenever the petty cash fund runs low, a check is drawn to replenish the fund.
 The replenishment check is usually equal to the petty cash disbursements
 It is at this time that the petty cash disbursements are recorded.

Expenses xxx
Cash in Bank xxx

 The petty cash disbursements should be replenished only by means of check and not from undeposited collections.
 ang account title na Petty Cash Fund ay nire-record lamang sa kaniyang establishment
 and whenever we replenish, we record cash in bank kasi nga ibibigay ‘yung check

END OF REPORTING PERIOD

 At the end of the accounting period, it is necessary to adjust the unreplenished expenses in order to state he correct
petty cash balance.

Expenses xxx
Petty Cash Fund xxx

 The adjustment is to be reversed at the beginning of the next accounting period.

 The reversal is made in order that the normal replenishment procedures may be followed by simply debiting
expenses and crediting cash in bank without distinguishing whether the expense pertain to the current period or
prior period. So in the beginning of the next accounting period, the entry should be:

Petty Cash Fund xxx

Expenses xxx
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 13]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

 since in this system, nagre-record sila sa petty cash memorandum book – kapag dumating ‘yung Dec. 31 which is
the end of reporting period at hindi pa ubos ang petty cash fund (so hindi pa nagre-replenish), therefore, may mga
expenses na hindi pa nare-record sa journal – kaya naman, ire-record mo ‘yung mga expenses na naabutan para
tumama sa record ng journal for the financial statements // hindi ka nanghingi ng check kasi hindi ka pa naman
nagre-replenish, nagkataon lang na inabutan ka ng reporting at kailangang i-update ang expenses // hindi ka nag-
request ng check pero totoo pa rin namang nabawasan ang petty cash fund mo kaya ike-credit mo ito

INCREASE OR DECREASE THE FUND (SAME WITH FLUCTUATING FUND SYSTEM)

 As in the imprest system, the company may decide to increase or decrease the petty cash fund. Increases are done
by issuing a new check, while decreases involve depositing excess cash back into the bank.
 minsan lamang nangyayari
 INCREASE: p’wedeng dahil napapadalas ang pag-replenish, therefore, tinaasan na lang ang fund

Petty Cash Fund xxx

Cash in Bank xxx

 DECREASE: kapag naman sumobra ang fund, ibabalik lang ulit or ide-deposit ang sobra sa bank

Cash in Bank xxx

Petty Cash fund xxx

ACCOUNTING FOR CASH SHORTAGE AND CASH OVERAGE (SAME WITH FLUCTUATING FUND SYSTEM)
 When the cash count shows cash which is LESS THAN THE BALANCE per book, a CASH SHORTAGE is to be recorded –
may pagkakataon na ang record at physical money ay nagkakaiba (ex. nasobrahan ng bigay si custodian) kaya
nagkakaroon ng cash overage or shortage

Cash Short or Over / Cash Shortage xxx

Cash xxx
 When the cash count shows cash which is MORE THAN THE BALANCE per book, a CASH OVERAGE is to be recorded.

Cash Short or Over / Cash Overage xxx

Cash xxx

 The CASH SHORT OR OVER ACCOUNT / CASH SHORTAGE / CASH OVERAGE is only a TEMPORARY OR SUSPENSE
ACCOUNT. When financial statements are prepared the same should be adjusted. – kasi kung sakaling nagkaroon ng
shortage, iimbestigahan pa ito kung bakit nagkaroon ng shortage – para itong income summary na tinatanggal mo
rin
 ex. nalaman na kaya pala nagkulang ay kinuha ng custodian so ang mangyayari ay kukunin mo ito sa kaniya – so
after investigation, babaguhin mo na sa tamang pangalan ng mismong babayaran o kokolektahin – THE CASHIER OR
CASH CUSTODIAN IS HELD RESPONSIBLE

Due from cashier / Receivable from Cashier xxx

Cash Short or Over / Cash Shortage xxx

 However, if reasonable efforts FAIL TO DISCLOSE THE CASE OF THE SHORTAGE/OVERAGE – hindi na nalaman kung bakit
ba nagkaroon ng shortage or overage – the adjustment should be:

Cash Shortage:
Loss from Cash Shortage / Miscellaneous Expense xxx
Cash Short or Over / Cash Shortage xxx
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 14]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

Cash Overage:
Cash Short or Over / Cash Overage xxx
Miscellaneous Income xxx

The CASH OVERAGE IS TREATED AS MISCELLANEOUS INCOME if there is no claim on the same.

 But where the CASH OVERAGE IS PROPERLY FOUND TO BE THE MONEY OF THE CASHIER – kapag naman nalaman mo
na pera pala ito ni custodian at napahalo – A LIABILITY SHOULD BE ESTABLISHED:

Cash Short or Over / Cash Overage xxx

Payable to Cashier xxx

Establishment of the fund. Remember na whenever magkakaroon tayo ng

Illustration: IMPREST FUND SYSTEM
expenses, there will be NO ENTRY – kasi magre-
2023 record lang tayo ng expenses kapag tayo ay
Nov. 10 The entity established an imprest fund of P10,000. magre-replenish na.

- the currency and coin represents the money na

Petty Cash Fund 10,000
Cash in Bank 10,000 natira sa petty cash fund and ALWAYS check kung
tama ba or tugma ba ang total ng expenses and
29 Replenished the fund. The petty cash items include the following: natira sa mismong total ng petty cash fund dahil
kung hindi, baka may cash short/over
Currency and coin 2,000
Supplies 5,000 Now, this is the actual replenishment. Ibig sabihin ng
Telephone 1,800 replenishment ay binabalik ng company ‘yung
Postage 1,200 mga perang nagamit for the expenses (supplies,
telephone, postage).
29 The journal entry to record the replenishment is:
Mapapansin na hindi natin ginagamit ang account
Supplies 5,000 title na PETTY CASH FUND bagkus ang kine-credit
Telephone 1,800 natin ay CASH IN BANK dahil nire-replenish nga lang
Postage 1,200 ng bangko kung ano mang nabawas sa petty cash
Cash in Bank 8,000 fund through check – magbibigay ulit ng check
ang company kung magkano ang nabawas at iwi-
Dec. 31 The fund was not replenished. An adjustment is necessary to
withdraw ulit ni petty cashier or custodian.
record the unreplenished expenses.

The fund is composed of the following: currency and coin P7,000,

supplies P1,500, postage P500, miscellaneous expense P1,000.
Ito ‘yung instance na naabutan na ng end of the
Supplies 1,500 reporting period pero walang replenishment na
Postage 500 nangyari. Dito natin gagamitin ang account title na
Miscellaneous Expense 1,000 PETTY CASH FUND para maipakita natin ‘yung mga
Petty Cash fund 3,000 expenses na nagastos at dahilan kung bakit
nabawasan ang petty cash fund kasi hindi naman
2024 p’wedeng sa financial statement mo ay buo pa
Jan. 1 The adjustment made on December 31, 2023 is reversed. ring 10k ang petty cash fund mo kahit nagkaroon
naman talaga ng expenses.
Petty Cash Fund 3,000
Supplies 1,500 Dito ipapakita na ike-credit sa Petty Cash Fund
Postage 500 lahat ng naging expenses para makita rin sa
Miscellaneous Expense 1,000 financial statement kung magkano ang nabawas
talaga o magkano ang mga expenses.

Magkakaroon ng reversing entries pagpasok ng panibagong taon o accounting period. Ginagawa ito upang mapanatali ‘yung
tamang proseso ng replenishment ng petty cash fund under the imprest fund system. Makikita na sa ating replenishment (Nov. 29),
Cash in Bank ang ginagamit natin at hindi Petty Cash Fund account. Kung may mga expenses na hindi pa na-replenish noong
December 31, nire-record muna sila para tama ang financial statements. Pero sa January 1, binabalik ito sa dati para sa susunod na
replenishment, normal ulit ang proseso na ginagamit. Purpose of reversing the entries: maintain the correct replenishment process for
the petty cash fund.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 15]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

FLUCTUATING FUND SYSTEM

 The accounting for petty cash is called fluctuating fund system because the checks drawn to replenish the fund do
not necessarily equal the petty cash disbursements.
 The replenishment checks are simply drawn upon the request of the petty cashier. - The petty cashier requests
replenishment based on the current cash balance and needs, which might include adjustments for any discrepancies
or expected future expenses. This means the check amount is adjusted to fit the actual needs rather than matching
past disbursements exactly.
 Moreover, petty cash disbursements are immediately recorded thus resulting in a fluctuating petty cash balance per
book from time to time. Because expenses are recorded immediately and replenishment checks can vary, the petty
cash balance in the book keeps changing.
 every time ire-record whenever there is a fluctuation or movement unlike imprest na pinagsasama-sama mo

ESTABLISHMENT OF THE FUND

Petty Cash Fund xxx

Cash in Bank xxx

EXPENSES
 Under this system, THE DISBURSEMENTS FROM THE PETTY CASH FUND ARE IMMEDIATELY RECORDED in the
contradistinction with the imprest fund system where the disbursements are recorded upon the replenishment of the
fund. - whenever there are expenses under this system, pinapagalaw mo ang account title na Petty Cash Fund

Expenses xxx
Petty Cash Fund xxx

REPLENISHMENT
 The replenishment check MAY OR MAY NOT BE THE SAME AS THE PETTY CASH DISBURSEMENTS. - The petty cash
balance can vary frequently because expenses are recorded as they occur. The replenishment amount is based on
how much cash is needed to bring the petty cash back to its original level, which might not always be the exact
total of the disbursements.
 Overall, the goal is to ensure that the petty cash fund is adequately stocked for future expenses, and the
replenishment amount is adjusted accordingly, rather than simply matching past expenditures.
 hindi na ire-record ang expenses dahil nga in this system, nire-record mo ang expenses as it occurs ang kaya rin siya
fluctuating kasi nga ginagalaw mo si petty cash fund
 since in this system, kine-credit mo ang petty cash fund whenever there is an expense, kapag nag-replenish sa
system na ito, bibigyan ka ulit ng check edi ibabalik o ide-debit mo ulit si petty cash fund

Petty Cash Fund xxx

Cash in Bank xxx

END OF REPORTING PERIOD

 At the end of the accounting period, NO ADJUSTMENT IS NECESSARY BECAUSE THE PETTY CASH EXPENSES ARE
RECORDED OUTRIGHT.
 kung sakaling kailangan gumawa ng report, under this sytem, there will be NO ENTRY kasi nga every time there is a
transaction – they are recording, therefore, updated sila

NO ENTRY

NOTE: For the increasing or decreasing the fund and the cash short or over, the entries will be the same as the Imprest
fund System.
INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING 11 [ page 16]
5]
[ page 2]
Chapter 1:
Chapter 1: Cash
Cash and
and Cash
Cash Equivalents
Equivalents PENETRANTE,
PENETRANTE, LOUISE
LOUISE ANN
ANN //
// NCBA
NCBA –– BSA
BSA –– 2C
2C

Illustration: FLUCTUATING FUND SYSTEM Establishment of the fund.

Nov. 10 The entity established an imprest fund of P10,000.

In fluctuating fund system, whenever there are
expenses, nire-record agad unlike sa imprest
Petty Cash Fund 10,000 fund system na ini-ipon muna. Mapapansin din
Cash in Bank 10,000 na ang account na ginagamit o gumalagalaw
ay ang Petty Cash Fund account.
11-28 Petty cash disbursements amounted to P8,000.

Expenses 8,000 Ito ‘yung sinasabing the replenishment check

Petty Cash Fund 8,000 may or may not be the same as the petty cash
disbursements or kung magkano lang talaga ang
29 Issued a check for P10,000 to replenish the fund. nagastos – in here, nag-replenish ulit ng 10k ang
petty cash fund, expenses mo ay 8k lang so may
Petty Cash fund 10,000 tira ka pa talagang 2k last time – kaya ang total
Cash in Bank 10,000 ay 12k.

At this point, the petty cash balance per book is P12,000.

same scenario sa pangalawa –
Dec. 1-30 Petty Cash expenses amounted to P9,000. whenever there are expenses, nire-
record agad.
Expenses 9,000
Petty Cash Fund 9,000

31 Issued a check for P15,000 to replenish the fund. same scenario sa pangatlo kapag nagre-
replenish
Petty Cash Fund 15,000
Cash in Bank 15,000 nag-replenish ulit ng petty cash fund
amounting to 15k, ang expenses mo lang ay 9k
At this point, the petty cash balance is P18,000.
= 12k – 9k = 3k + 15k = 18k

Note:

 Petty Cash Balance Changes: In the fluctuating fund system, the petty cash balance fluctuates because expenses
are recorded as they occur, and replenishment checks are issued as needed.

 Replenishment: Replenishment checks may be for amounts different from the petty cash disbursements due to
varying expenses and the need to adjust the petty cash balance.

 Recording Expenses: Expenses are recorded in real time. At the end of the reporting period, all transactions,
including petty cash disbursements, should already be recorded. Thus, there is typically no need for end-of-period
adjustments or reversing entries related to petty cash in the fluctuating fund system.

 No Reversal Required: Since the fluctuating fund system continuously tracks and updates petty cash transactions
and balances, the petty cash fund is always current. Unlike the imprest system, where adjustments are made to
align the petty cash balance with the fund’s actual usage, the fluctuating system maintains real-time accuracy.