CHAPTER 1 Flashcards
According to ____, financial instrument is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity.
International Accounting Standards 32 Financial Instrument: Presentation
It is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity.
Financial Instrument
Its value changes in response to change in specified interest rate, it requires no initial net investment or smaller than the required. And it is settled at a future date
Derivatives
Financial instrument includes:
- Cash and cash equivalents
- Equity instrument of another entity
- Contractual right to receive from another entity cash or other financial asset
- Investment in debt instrument of another entity
Recognition of financial asset
- It depends on the attributes of relevance and faithful representation
- It will provide an inflow of economic benefits.
It is one of the most significant because of its ability to settle an obligation, acquire another asset etc.
Cash
It is used as a standard medium of exchange and refers to currency and coins
Cash
It includes checks, bank drafts, postal money orders, currency demand deposits with banks
Cash
It must be unrestricted and immediately available for use in current operations
Cash
cash segregated for current use in the ordinary conduct of business
working fund
It is highly liquid financial instruments that are so near their maturity and that there is insignificant risk of change in value due to fluctuation of interest rates.
Cash equivalents
It qualifies as cash equivalents if it matures within a short period of time; 3 months or less from the__-
date of acquisition
They are not included in cash equivalents but classified as either equity investment at fair value through profit or loss or through other comprehensive income.
Temporary investment in equity shares
Cash in closed banks or banks in bankruptcy is reported as__
Accounts receivable
Customer’s post dated check, NSF and IOUs are classified as
Accounts receivable
Postage stamps and expense advances are reported as
prepaid expenses
bank overdraft that cannot be offset against another account is reported as ___
liability
undelivered or unreleased checks are not___ from cash and should be ___ to the cash balance
not be deducted form cash and should be reverted to the cash balance
Company’s post-dated check should be ___
reverted into cash and the corresponding liability shall continue to be recognized.
It is a minimum amounts that a company agrees to maintain in a bank checking account as support or collateral for a loan by the depositor.
Compensating balances
Compensating balances that are not legally restricted should be reported as ____ and those who are legally restricted should be classified as _____
not legally restricted = cash
legally restricted= current asset or non current asset
5 Cash management
- Segregation of duties for handling cash and recording cash transactions.
- Imprest system
- Voucher system
- Internal audits at irregular intervals
- Periodic reconciliation of bank statement and cash balance.
Journal entry for the establishment of the petty cash fund
Petty cash fund
Cash in Bank
Journal entry for the replenishment of the fund
Expenses
Cash in Bank
Adjusting entry for petty cash fund ( cash short )
Expenses
Cash short or over
Petty cash fund
Adjusting entry for petty cash fund ( cash over )
Expenses
Petty cash fund
Cash in Bank
Miscellaneous income
Reconciliation of bank balance
- Beginning cash balance
- Total deposits made by depositor and other bank
credit - Total checks paid by bank and bank charges
- Ending cash balance
It is a cash receipt that has been added to the company’s cash balance but has not been added to the balance reported on bank statement.
Deposit in transit
It is a check written by company, issued to the payees and deducted from company’s cash but have not been reflected in bank
Outstanding check
It is the charges to the depositor’s account made directly by the bank and should be deducted from balance per books such as NSF, bank service fees, bank loans, check booklets
debit memos
It is the deposits made directly by the bank to the company’s account and should be added to the cash balance per books such as notes/drafts collected by the bank
credit memos
How to get the outstanding check, ending
outstanding check, beginning
add: checks drawn by the company
less: checks paid by bank
outstanding check, ending
How to get deposit in transit, ending
deposit in transit, beginning
add: cash receipt reflected in company
deduct: deposit during the month reflected in bank
deposit in transit, ending
Types of bank reconciliation statement
- Single-date bank reconciliation statement
2. Four-column reconciliation or proof of cash
Forms of bank reconciliation
- Both bank and book balances are reconciled to a correct balance
- Bank balance reconciled with book balance
- Book balance reconciled with bank balance
Bank balance with book balance
balance per bank
add: deposit in transit
undeposited check
bank charge
NSF
error
total
deduct: outstanding check
note collected
interest collected
Balance per bookBook balance with bank balance
balance per book
add: outstanding check
note collected
interest collected
total
deduct: deposit in transit
undeposited check
NSF
bank charge
error
balance per bank
