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FAR Reviewer > Cash & Cash Equivalents > Flashcards

Cash & Cash Equivalents Flashcards

1
Q

What is cash?

A

Cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit.

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2
Q

Recognition of cash

A

PAS 1 - unrestricted in use

Immediately available for use in current operations
- payment of OPEX
- payment of CL
- acquisition of CA

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3
Q

Measurement of cash

A
  1. Cash in local currency - at face value
  2. Cash in foreign currency - at face value but translated at spot rate to PHP
  3. Cash in closed bank or banks in bankruptcy - NRV (max. of P500k per account)
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4
Q

Composition of cash

A
  1. Cash on hand
  2. Cash in bank
  3. Cash fund
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5
Q

Composition of Cash on Hand and their classification

A
  1. Coins and currencies (C)
  2. Checks
    - Customer’s checks (C)
    - Personal checks (C)
    - Cashiers’ check (C)
    - Managers’ check (C)
    - Travelers’ check (C)
    - Certified checks (C)
    - Stale checks issued (C)
    - Stale checks received (AR/Loss)
    - Undelivered checks issued (C)
    - Undelivered checks received (AR)
    - Postdated checks issued (C)
    - Postdated checks received (AR)
    - NSF checks issued (C)
    - NSF checks received (AR)
  3. Other instruments
    - Money order (C)
    - Bank drafts (C)
    - IOUs (AR)
    - Advances to Employees (AR)
    - Postage stamps (Supplies)
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6
Q

Composition of Cash in Bank and their classification

A
  1. Demand Deposit - non-interest bearing (C)
  2. Savings Deposit - interest bearing (C)
  3. Foreign Deposit
    - unrestricted (C)
    - restricted (?)
  4. Compensating Balance
    - unrestricted/silent (C)
    - restricted (STI/LTI)
  5. Bank overdrafts
    - silent (CL)
    - same bank (-C, offset from other bank accounts)
    - immaterial (-C, offset from other cash accounts)
  6. Credit Line
    - used (C)
    - unused (?)
  7. Escrow deposit (LTI)
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7
Q

True or False: Not all cash are legal tender.

A

True

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8
Q

Composition of Cash Fund and their classification

A
  1. For use in operations
    - Change Fund (C)
    - Payroll Fund (C)
    - Revolving Fund (C)
    - Petty Cash Fund (C)
    - Travel Fund (C)
    - Plant Expansion Fund (LTI)
  2. For asset acquisition
    - Current (C)
    - Non-current (LTI)
  3. For settlement of current liabilities
    - Other Imprest Bank Account (C)
    - Interest Fund (C)
    - Dividend Fund (C)
    - Tax Fund (C)
    - Preference Redemption Fund (LTI)
  4. For settlement of non-current liabilities
    - Pension Fund (LTI)
    - Contingency Fund (LTI)
    - Insurance Fund (LTI)
    - Sinking Fund (LTI)
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9
Q

What is cash equivalents?

A

PAS 7 - short-term and highly liquid investments that are readily convertible into cash and so near their maturity.

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10
Q

Recognition of cash equivalents

A

Only debt instruments acquired within 3 months or less before maturity date.

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11
Q

Can Equity securities qualify as cash equivalents?

A

No since they do not have maturity date, except REDEEMABLE PREFERENCE SHARES (with mandatory redemption) that are acquired 3 months before their redemption date.

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12
Q

Composition of Cash Equivalents and their classification

A
  1. Treasury Bills
    - 3 mos./silent (CE)
    - more than 3 mos. (CA)
  2. Treasury Notes
    - 3 mos. (CE)
    - more than 3 mos./silent (CA/NCA)
  3. Treasury Bonds
    - 3 mos. (CE)
    - more than 3 mos./silent (NCA)
  4. Commercial Paper
    - 3 mos./silent (CE)
    - more than 3 mos. (CA)
  5. Money Market Instrument
    - 3 mos./silent (CE)
    - more than 3 mos. (CA)
  6. Redeemable Preference Shares
    - 3 mos./silent (CE)
    - more than 3 mos. (CA/NCA)
  7. Time Deposit
    - 3 mos./silent (CE)
    - more than 3 mos. (CA/NCA - STI/LTI)
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13
Q

What is Petty Cash Fund?

A

Petty Cash Fund is money set aside to defray relatively small amount of cash disbursements.

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14
Q

What is Petty Cash Impurities?

A

Items which do not belong to the fund but for one reason or another are nevertheless found in the petty cash box.

  • Bills and coins and customers’ check from the cashier’s collections (should have been in general cash)
  • Checks issued by the client in payment of utility bills (should have been delivered to the payees)
  • Checks issued to the client in payment of personal advances (should have been in the general cash)
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15
Q

Methods to account for Petty Cash Fund

A
  1. Imprest Fund System - the PCF balance is fixed/intact
  2. Fluctuating Fund System - the PCF balance keeps on changing
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16
Q

What is the general rule of the PCF balance in theory?

A

In theory, the general rule is PCF balance does not move throughout the year unless there is an increase or decrease in cash fund.

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17
Q

JE: Establishment of PCF

A

Imprest Fund System:
Dr. PCF
Cr. Cash in Bank

Fluctuating Fund System:
Dr. PCF
Cr. Cash in Bank

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18
Q

JE: Payment of expense (PCF)

A

Imprest Fund System:
Memo entry only

Fluctuating Fund System:
Dr. Expenses
Cr. PCF

19
Q

JE: Replenishment of PCF

A

Imprest Fund System:
Dr. Expenses
Cr. Cash in Bank

Fluctuating Fund System:
Dr. PCF
Cr. Cash in Bank

20
Q

JE: A.E. for unreplenished PCF

A

Imprest Fund System:
Dr. Expenses
Cr. PCF

Fluctuating Fund System:
No entry

21
Q

JE: Increase in PCF

A

Imprest Fund System:
Dr. PCF
Cr. CIB

Fluctuating Fund System:
Dr. PCF
Cr. CIB

22
Q

JE: Decrease in PCF

A

Imprest Fund System:
Dr. CIB
Cr. PCF

Fluctuating Fund System:
Dr. CIB
Cr. PCF

23
Q

JE: CS/CO upon discovery

A

Cash Shortage:
Dr. Cash short/over
Cr. Cash

Cash Overage:
Dr. Cash
Cr. Cash short/over

24
Q

JE: CS/CO upon investigation (cashier is accountable)

A

Cash Shortage:
Dr. Due FROM cashier
Cr. Cash short/over

Cash Overage:
Dr. Cash short/over
Cr. Due TO cashier

25
Q

JE: CS/CO upon investigation (untraceable)

A

Cash Shortage:
Dr. Loss from shortage
Cr. Cash short/over

Cash Overage:
Dr. Cash short/over
Cr. Other income

26
Q

How to compute for cash shortage or overage

A

Petty cash accounted
Less: Petty cash accountabilities
= Overage (shortage)

27
Q

How to compute for replenishment check?

A

Total expense + cash shortage - cash overage

or

Petty cash accountability - Bills and coins

28
Q

How to compute for petty cash accounted?

A

Accounted for = actual balance

Coins and currencies
+ Unexpended employee contributions (contributions for christmas party, birthday party, etc.)
+ Cash collections of accounts receivable or sales
+ Unclaimed salary
+ Stale checks
+ Post-dated checks (checks dated after reporting date & cash count date)
+ Unreplenished vouchers (expenses, IOUs taken from the PCF)

29
Q

How to compute for petty cash accountabilities?

A

Accountability = should be balance

PC Fund ledger balance
+ Petty cash impurities except checks issued in settlement of cash advance from the PCF
+ Unexpended employees contribution (contributions for christmas party, birthday party, etc.)
+ Collections of accounts receivable or sales (in cash or in check)
+ Unclaimed salary
+ Stale checks
+ Company’s check in payment of a liability (utilities) (if among the checks for deposits)

30
Q

What is the term sundry?

A

It means temporary account

31
Q

What’s the rule for unexpended employees contributions, unclaimed salary, and cash collections of AR or Sales?

A

Should be included in the accounted only when it is intact or the envelope is still closed on the cash count date.

However, it is included as part of the cash accountabilities whether intact or not.

32
Q

Fraudulent activities in cash

A
  1. Window dressing - intentional manipulation of FS to make it more attractive
  2. Lapping (Tapal) - misappropriating collections and concealing with collection made from another customer (uncovered by “Confirmation of AR)
  3. Kiting - maximization of banks delay in recording (use proof of cash)
33
Q

How to compute for adjusted PCF balance?

A

Coins and currencies (excluding collections, unexpended employees contribution, and unclaimed salary) X
Add: Expenses paid out of the PCF after reporting date X
Check of the company in the name of petty cash custodian as a:
a. Replenishment check of the petty cash fund or X
b. Salary of the petty cash custodian X
Employees’ check (good check only, exclude NFS check) X
= Adjusted PCF balance X

34
Q

What is bank reconciliation?

A

A schedule prepared that accounts for the differences between cash balances per book and per bank statement.

35
Q

Who prepared the bank reconciliation?

A

It is done by the company.

36
Q

Methods/Forms of Bank Reconciliation

A
  1. Adjusted balance method
  2. Book to bank method - unadjusted book to unadjusted bank
  3. Bank to book method - unadjusted bank to unadjusted book
37
Q

Reconciling items in Bank Reconciliation

A
  1. Book reconciling items
    a. Credit memos - collections made by bank but not yet recorded in books
    (collections made by the bank, proceeds of bank loan, matured time deposits, interest income credited to the account)
    b. Debit memos - charges made by bank but not yet recorded in books
    (bank service charges, NSF/DAIF/DAUD, payment of loan, final withholding tax on interest income)
    c. Errors
  2. Bank reconciling items
    a. Deposits in transit - deposits recorded in cash books but not yet reflected by the bank
    (collections already forwarded to the bank, undeposited collections)
    b. Outstanding checks - checks written and released to payees in cash books but not yet reflected by the bank
    c. Errors
38
Q

What are certified checks?

A

Checks that the bank already certified as having sufficiency of funds and are no longer outstanding checks.

39
Q

Solution for Bank Reconciliation

A

Book:
Unadjusted balance XX
CM XX
DM (XX)
Errors XX(XX)
Adjusted balance XX

Bank:
Unadjusted balance XX
DIT XX
OC (XX)
Errors XX(XX)
Adjusted balance XX

40
Q

Computation of DIT (when not explicitly given)

A

DIT, beginning XX
*Deposits made XX
*Deposits acknowledged XX
DIT, end XX

*computation for deposits made/acknowledged - see p.183/notes

41
Q

Computation of OC (when not explicitly given)

A

OC, beginning XX
*Checks issued XX
*Checks paid XX
OC, end XX

*computation for deposits checks issued/paid - see p.183/notes

42
Q

What is proof of cash?

A

A two-date bank reconciliation.

43
Q

How to account for proof of cash?

A

Per book: (PM)CM
Receipts - total debits (CM) - credit memo
Disbursements - total credits (CM) - debit memo

Per bank: (PM)CM
Receipts - total credits (CM) - DIT
Disbursements - total debits (CM) - OC

Errors:
Prior month error - check J.E.
Current month error - check nature of error

*check notes/p.190 for table & examples

FAR Reviewer (10 decks)

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