Cash Group 5 Cayabyab Gumpal Gorospe Jimenez Samson

Nature and Definition Layman’s term – ready money, or its equivalent paid for goods or services at the time of purchase of delivery. Accounting – refers to money and negotiable instrument payable in money which is acceptable by a bank or other financial institution for deposit at face value.

Categories of Cash: 1.Cash on Hand – refer to undeposited cash collections such as bills, coins, customers’ checks, travellers' check, bank drafts and postal money orders. 2.Cash in Bank – peso or foreign currency deposits in banks which must be unrestricted. It can be savings account or checking/demand deposit accounts. 3.Cash in working funds – are cash funds established by the company for use in current operations. PP etty cash fund, change fund, payroll fund, interest fund, dividend fund, and tax funds

Measurement Cash is valued at face value. Cash denominated in foreign currency is valued at the exchange rate Cash in banks and other financial institution which are in bankruptcy or financial difficulty, must be measured at the estimated realizable value if the amount recoverable is estimated to be lower than the face value.

Financial Statement Presentation Cash is usually presented as the first item among current assets in a classified balance sheet. In financial statement of companies, cash is presented as the last item of the balance sheet.

Cash Equivalents Investments which mature within a short period of time, normally three months or less, from the date of acquisition. Cash equivalents are not cash Examples:  Three-month treasury bill  Cash placed in a time deposit account which matures in three months.  A government security which matures in three years, but has been acquired by the company within three months from the date of maturity

Internal Controls over Cash 1.Segregation of duties – the responsibilities of handling and the recording cash transactions should be assigned to different personnel. 2.All cash receipts must be deposited intact 3.All disbursements should be made through checks. 4.Use of voucher system 5.Periodic reconciliations of the cash account 6.Surprise cash counts and internal audits of cash transactions.

Petty Cash Fund Small cash disbursements are made in the ordinary course of doing business. Money set aside to pay small expenses which cannot be paid conveniently by means of check. Methods of Handling Petty Cash Fund a.Imprest Fund System – a system control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check. b.Fluctuating Fund System – checks drawn to replenish the fund resulting to the increase and decrease of the petty cash fund.

Bank Reconciliation A statement prepare by an enterprise which brings into agreement the cash balance per book and cash balance per bank. Bank statement – is a monthly report of the bank to the depositor showing the cash balance per bank at the beginning, the deposits acknowledged, checks paid by the bank, other charges and credits and daily cash balance per bank during the month.

Timing Differences 1.Deposit in Transit – these are collections already recorded by the company-depositor as cash receipts, but not yet been reflected on the bank statement. 2.Outstanding Checks – checks drawn by the depositor and delivered to the payee, but the payee have not yet encash the checks with the bank.  Certified Check – the bank has already accepted or certified the check as proof of sufficiency of funds. 3.Credit Memos – items not representing deposits, but has not been recorded by the company as a cash receipt. 4.Debit Memos – items not representing checks paid by the bank, but has not yet been recorded by the company as cash disbursement

Debit memos include the following: a.Bank service charges – bank charges for interest, charges for other bank services, penalties for violation of bank policies, and the cost of checkbooks. b.No-sufficient-fund (NSF) checks – when checks from customers are deposited to the bank, the bank immediately increases the depositor’s cash balance for the amount of check. c.Technically defective checks – checks deposited but returned by the bank due to technicalities. d.Maturity of a bank loan – if the depositor has a loan with the bank, upon the maturity of loan, the bank debits the depositor’s account for the amount of the loan, plus interest.

Errors Book Errors: 1.Overstatement of cash receipt – the error should be added to the book balance 2.Understatement cash receipt - the error should be deducted from the book balance. 3.Understatement of cash disbursement – the error should be deducted from the book balance. 4.Overstatement of cash disbursement – the error should be added to the book balance.

Bank Errors: 1.Understatement of bank credit – the error should be added to the bank balance. 2.Overstatement of bank credit - the error should be deducted from the bank balance. 3.Understatement of bank debit - the error should be deducted from the bank balance. 4.Overstatement of bank debit - the error should be added to the bank balance.

Computation of Correct Cash Balance (Adjusted Balance Method) Unadjusted Book Balance + Notes/Interest Collected by bank + Proceeds from Bank Loans + Understated Cash receipts + Overstated Cash Payments - NSF Checks - Defective Checks by Customers - Service Charges - Payment of Maturing Loans - Overstated Cash Receipts - Understated Cash Payments ADJUSTED BOOK BALANCE Unadjusted Bank Balance + Deposit in Transit + Understated Cash Receipts + Overstated Cash Payment - Outstanding Checks - Overstated Cash Receipts -Understated Cash Payments ADJUSTED BANK BALANCE