AC COUNTING FOR

CASH AND CASH

TRANSACTION
 Cash is an example of financial asset. It is
classified as a current asset because it is
expected to be used in the daily
transaction of the company. It is usually
presented at the first line item in the
statement of financial position of every
company. This is due to the fact that
most balance sheet items are presented
on the order of liquidity.
 Before in item to be presented as “Cash” in
the balance sheet, it must first meet the twin
requirement as follows:

1. The item must be unrestricted as to its

withdrawal.

2. It must be immediately available for use in the

current operations of the company.
 In a regular savings account withdrawals can easily
be made over the counter or through the ATM or
Automated Teller Machine.
Restricted items may include bank accounts that
have been freeze by the government. Such restriction
can be due to the fact that there was a violation of Anti-
Money Laundering Laws. Cash deposited on such
banks cannot be withdrawn until the controversy has
been resolved.
Cash deposited in banks that are experiencing
financial difficulties cannot be also classified as “Cash”
in the balance sheet. These amounts are to be properly
classified as “Receivables” from the bank because they
can no longer be withdrawn anytime.
1. It will be used to pay for operating expenses like
salaries, interest, dividends and taxes.
2. It will be used to pay for current liabilities like
accounts payable and short term notes payable. A
liability is said to be current if it is expected to be
paid within 12 months from the balance sheet
date.
3. It will be used to acquire current assets like
inventories and trading securities. Current assets
like inventories and trading securities. Currents
assets are those items that are expected to be used
within 12 months.
1. CASH ON HANDS
a) Bills and Coins
These are the paper bills and metal coins
issued by the Bangko Sentral ng Pilipinas or
BSP. It can be used to pay liabilities or to
purchase other assets needed by the company.
b) Different checks
check received a payment from other
persons entitles the holder to demand
payment from the drawee bank indicated in
the check.
 Before a check can be classified as cash,
it should first meet to the following
criteria:
 the check was received from the
customer on or before the balance sheet
date and
 The check is dated on or before the
balance sheet date
 Both criteria must be met before the check
will be classified as cash. The following are the
different kind of checks:

i. Customer’s Check
These are check receive from customers.
ii. Traveler’s Checks
This is a kind of check with a security feature.
iii. Manager’s Check
These are checks being used by bank managers.
iv. Cashier’s Check
These are check being used by bank cashier.
v. Company’s Undelivered Check
These are checks prepared by the company
that will eventually be delivered to corporate
creditors or suppliers.
vi. Company’s Postdated Check
These are company checks that were already
delivered to payees but they cannot be
encashed or deposited yet because the date
indicated in the check has not yet arrived.
vii. Company’s Stale Checks
These are check issued by the company to
suppliers and creditors and where not
encashed on time.
c) Bank Drafts
These are documents issued by
banks as an evidenced of money
deposited on them.
d) Postal Money Orders
These are cash items being sent
through the post office.
2. Cash in Bank (unrestricted)
a) Savings Account
this is the usual and regular savings account
that earns interest.
b) Checking Accounts
other depositors prefer to have a checking
accounts.
c) Bank accounts in Foreign Currency
these are cash items deposited in foreign
countries and are denominated in different
foreign currencies.
3. Working Funds
a) Petty Cash Fund
this is instituted to pay for small expenses
incurred on a daily basis.
b) Change Fund
this will be use in the store by the cashier.
c) Payroll Fund
it is segregated to make sure that there will
be enough funds to pay salaries.
d) Dividend Fund
it is segregated to pay the dividends that
were declared by corporations to stockholders.
e) Tax Fund
This fund will be segregated to
pay taxes owing to the BIR.
f) Interest Fund
This fund will be set aside to pay
interest that will become due from
short and long term liabilities of the
entity.
1. Receivables
a) Cash in closed or banks having financial difficulty
These items are no longer consider as cash
because they no longer meet one of the twin
requirements needed.
b. Customer’s post dated checks
This is a post dated check that was issued to
the company by a customer.
c. Customer’s NSF Check
There are several instances when customers
will issue checks with problems. It can be
further classified:
i. DAIF checks or drawn against unclear
deposits
ii. DAUD checks or drawn against
unclear deposits
d. Customer’s Stale Checks
This is a check received from a customer
that was not enchased by the company on
time.
e. IOU
These are the amounts borrowed by
employees from the company.

2. Prepaid Assets
a. Advances for employee travel
Employees who go out for business related
trips are usually given travel advances.
b. Postage Stamps
This item can no longer be considered as
cash because they can no longer be used as a
medium of exchange.
c. Supplies
These are the usual office supplies
being used by the company.

3. Temporary Investment
a. Trading Securities

These are shares of stocks of other

companies that were purchased by the
company using excess funds.
4. Non-current Assets
a. Restricted Foreign Bank Accounts

These cannot qualify as a cash item due to

the fact that there is a restriction as to its
withdrawal.
b. Bond Sinking Fund

This is a fund reserved for payment of

Bonds payable that are about to mature.
c. Plant Expansion/Acquisition Fund

This is a fund reserved for the purchase of

additional non-cash assets.
d. Retirement Fund
This is a fund reserved for the retirement
benefits of their employees
e. Pension Fund
These are instituted for the benefit of
their managers and employees
f. Contingent Funds
Companies tend to prepare for the worst
case scenarios. As such, prudence dictates
that they institute a contingency fund.
5. Expenses
a. Expense vouchers

These vouchers and receipts represent

the expenses that were incurred by the
company for the period.
 Cash may be considered as the most important
asset of every company. The company must
maintain an adequate amount of cash for their
day to day operations.
 It is generally not acceptable that the company
possess a very low amount of cash and a very
high amount of cash.
 Every company must employ internal control
procedures to safeguard their cash assets.
1. Segregation of duties
In every company there are three duties that
are considered to be incompatible:
a. Authorization
b. Custody
c. Recording
This is to prevent manipulation and
inappropriate use of the company’s cash
balances.
The person that will be given the
“authorization” function will be in charge of
allowing the purchase requisition orders.
These managers are usually given the
authorization function.
 The “custodian” function is usually given to
the treasurer of the company. He will be in
charge of safe keeping the assets of the
company. He will be in charge of releasing the
cash to requesting employees.
The “recording” function is usually reserved
to accountants and bookkeepers. They are in
charged of making the necessary journal
entries in the books of the company.
If all of these function are given to one and
the same person, there will always be a risk
that he will use it for his own benefits. He can
misappropriate the amount due to lack of
controls or check and balances.
2. Imprest System
There are two important features under the
imprest system:
a. All cash receipts for the day must be
deposited intact to their depositary bank.
This is to prevent huge amounts of
cash to be left in the premises of the company
b. All cash disbursements must be made
through checks
Paying creditors through checks is a
safer alternative for companies than handing
out actual bills and coins.
3. Voucher System
Under the voucher system, employees must
first get the approval of a higher level
management before cash disbursements can be
made.
4. Internal audit at irregular intervals
Internal audit is a very common procedure
for every company. This is to check the
accuracy of the work of every employee,
especially those who are handling important
matters like cash.
5. Periodic Bank Reconciliation
Records of the company must be
reconciled with the bank records.
This is usually done on a monthly
basis.
 Petty cash fund is considered to be
part of the working fund of every
company. It is instituted to pay for
small or petty expenses of the
company.
 One of the internal control features in every
company is the monthly bank reconciliation.
This is being done to show that there is no
discrepancy between the cash balance per book
records and the cash balance per bank records.