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Intermediate Accounting 1 by Sir Chua

This course discusses accounting principles related to assets. It will cover the proper recognition, measurement, and reporting of assets in financial statements. The first chapter discusses cash and cash equivalents, including what qualifies as current assets and cash items. It defines cash equivalents as short-term, highly liquid investments readily convertible to cash. The chapter also covers internal controls over cash, bank reconciliation statements, and exercises to classify items as different types of assets or liabilities.

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Analyn Lafradez
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8K views22 pages

Intermediate Accounting 1 by Sir Chua

This course discusses accounting principles related to assets. It will cover the proper recognition, measurement, and reporting of assets in financial statements. The first chapter discusses cash and cash equivalents, including what qualifies as current assets and cash items. It defines cash equivalents as short-term, highly liquid investments readily convertible to cash. The chapter also covers internal controls over cash, bank reconciliation statements, and exercises to classify items as different types of assets or liabilities.

Uploaded by

Analyn Lafradez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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INTERMEDIATE ACCOUNTING 1

This course will discuss the generally accepted accounting principles underlying ASSETS. This
course will discuss the proper recognition, measurement, and reporting of ASSETS in the financial
statements.
Chapter 1: Cash and Cash Equivalents (Part 1)

Current Assets
According to International Accounting Standard 1 entitled Presentation of Financial Statements, An entity
shall classify an asset as current when:
▪ It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle;
▪ It holds the asset primarily for the purpose of trading;
▪ It expects to realize the asset within twelve months after the reporting period; or
▪ The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used
to settle a liability for at least 12 months after the reporting period.

Current Assets include:


o Cash
o Accounts Receivable
o Inventories
o Prepaid Expenses
o Marketable Equity Securities
o Office and Store Supplies

Cash Items
▪ Cash is measured at face value. Kung magkano yung cash yun na yon.
▪ To qualify as cash presented as a current asset, cash items must be generally unrestricted. If the
cash has restrictions that is the time that we have things to talk about.

Cash Items include:


o Cash on hand (cash currently on hand, undeposited collections, customers and managers’ checks,
bank drafts and money orders)
o Cash in bank without restrictions on withdrawals
o Working funds (petty cash fund, change fund, dividend fund, payroll fund) for operating activities

Cash Equivalents
▪ Short-term highly liquid investments that are readily convertible into cash.
▪ Apply the THREE-MONTH rule for cash equivalents where the duration is from the date of
purchase up to the date of maturity.
- Three months’ time deposits and commercial papers
- BSP treasury bills purchased three months before maturity

Temporary investments of cash


If excess cash is invested to earn interest income, the actual cash invested shall be classified as follows:
▪ With a term of three months or less > cash equivalents
▪ More than three months but less than a year > short-term investments as current assets but not
as cash
▪ More than one year > long-term investments as noncurrent assets, most certainly not as cash
Compensating Balances
▪ No legal restrictions to withdraw > cash
▪ With legal restrictions on withdrawal > cash held as compensating balance or long-term
investment, depending if the related loan made is short-term or long-term.

Postdated checks
▪ A postdated check is a check on which the issuer has stated a date later than the current date. It
shall be reverted back to cash as at the end of the reporting period. Companies are paying for
expenses in the means of checks. Postdated is medyo malayo na sa reporting period. If medyo
malayo pa yung date na nakalagay sa check in the day of reporting period, sa entity pa yung
cash.

Cash Short or Over (Temporary Valuation Account)


▪ Cash count < recorded cash = Cash Shortage
▪ Cash count > recorded cash = Cash Overage
- Cash shortages are initially debited to CSO account and credited to cash.
- These shortages are then credited to the CSO account where the amount of the shortage is
debited to the “reason” for the shortage.
- Cash overages are initially credited to CSO account and debited to cash.
- These overages are then debited to the CSO account where the amount of the overage is
credited to the “reason” for the overage.

Internal Control on Cash: Imprest System


▪ Cash receipts > deposited altogether
▪ Cash payments > made through checks

Petty Cash Fund


Payments for small amount where check payments are seen impracticable.
▪ Imprest fund system
▪ Fluctuating fund system

Exercises:
Classify the following if they should be reported as: Cash, Cash Equivalent, Current Asset (other than
cash), Noncurrent asset, Current Liability

1. Cash available for immediate use – CASH


2. Three-month BSP Treasury Bill – CASH EQUIVALENT
3. Compensating balances related to short-term borrowings which are legally restricted.
– CURRENT ASSET
4. Time deposits with maturities more than three months but less than one year.
– CURRENT ASSET
5. Cash set aside for the payment of dividends. – CASH
6. Cash set aside on Dec. 31 for the purchase of land expected to be executed in the next two
months. – NONCURRENT ASSET
7. Bank overdraft – CURRENT LIABILITY
8. Investment in equity securities – NONCURRENT ASSET
9. Bank drafts and money orders – CASH
Chapter 1: Bank Reconciliation Statement and Proof of Cash (Part 2)

Cash-in-bank
▪ Cash receipts > deposited altogether
▪ Cash payments > made through checks

Sources of details about cash-in-bank


▪ Cash-in-bank ledger account of the entity
▪ Bank statement issued by the bank

1. Bank statement
o increase in entity's cash > credit
o decrease in entity's cash > debit

2. Ledger
o increase in cash > debit
o decrease in cash > credit

Bank Reconciliation Statement


▪ A bank reconciliation statement is prepared by an entity to reconcile the cash-in-bank account
balance in the entity's books versus the balance as reported by the bank in the bank statement.

Bank Balance Reconciling Items


▪ Deposits in transit (+)
Cash that has been received by an entity and was recorded in the cash-in-bank account balance
as a deposit. However, this deposit that has been sent to the bank is not yet processed and posted
by the bank, thus not reflecting in the bank statement.
▪ Outstanding checks (−)
Checks that the company had issued and was recorded as a credit entry in the entity's cash-in-
bank account. However, these checks were not yet presented for payment and has not yet cleared
from the bank account from which it is drawn.
▪ Bank errors (+/−)
Erroneous debits and credits by the bank in the entity's account.

Ledger Balance Reconciling Items


▪ Credit memos (+)
Items credited by the bank to the bank account of the entity not yet recorded by the firm in their
books. These include notes receivable collected by the bank in behalf of the entity and interest
earned in putting their cash in the bank.
▪ Debit memos (−)
Items charged against the company's bank account not yet recorded in the company's ledger.
These includes NSF (not sufficient funds) check which are checks deposited but were returned by
the bank because the source account has insufficient balance. It also includes bank service
charges.
▪ Book errors (+/−)
Erroneous debits and credits of cash in the entity's ledger.
Adjusted Balance Method

Bank-to-Book Method
Book-to-Bank Method
*Kapag magkalapait magkaiba ng sign
*Kapag magkahiwalay magkaparehas ng sign
Chapter 2: Trade & Other Receivables

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