FIN ACC1

Qualitative Characteristics of Fin.Statements:

RELEVANCE must possess three qualities: confirmatory/ feedback value (confirms earlier
expectations) predictive value(enables users to make forecasts and plan their future actions)
materiality(threshold or cutoff point for recognition)

FAITHFUL REPRESENTATION being honest; has three components: completeness (shall include all
necessary information) neutrality(not biased; not manipulated) freedom from error(process used to
produce information has been carefully selected and appropriately applied)

COMPARABILITY enables users to identify similarities and differences between different sets of
economic circumstances

VERIFIABILITY verification can be: direct (applies direct observation; ex: counting cash) indirect
(redoing the process of measurement)

TIMELINESS provided early enough to be used in making decisions

UNDERSTANDABILITY

CASH & CASH EQUIVALENTS

CASH acceptable by banks or financial institutions for deposit at face value

Unrestricted available for immediate use or on hand; classified as Current assets

1) Cash on Hand:

a) undeposited cash collections: bills, coins, customers checks, travelers checks, managers
checks, cashiers checks, bank drafts, money orders

b) working funds (cash funds segregated for current use): petty cash fund, change fund, payroll
fund, dividend fund, tax fund, interest fund

2) Cash in bank (unrestricted funds deposited in a bank that can be withdrawn upon demand) demand
deposits in savings and checking account

CASH EQUIVALENTS 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; qualified if it matures
within a short period of time, normally three months or less, from the date of acquisition

*cash generally recorded at face value

*demand deposits denominated in foreign currency are measured using the exchange rate in effect at the
end of the reporting period

Cash in closed banks or in banks having financial difficulty reclassified as receivables

Customers post-dated checks and NSF(No Sufficient Fund)/ DAIF(Drawn Against Insufficient
Funds)/DAUD(Drawn Against Unclear Deposits)checks and IOUs (I owe you notes) recorded as
receivables

Postage stamps and expense advances reported as prepaid expenses

Bank overdraft if cannot be offset, it is a liability

Undelivered or Unreleased checks reported as current payables

Companys postdated checks must be reverted to cash and corresponding payable must still exist

Compensating balances if not legally restricted, it is reported as cash. If legally restricted it should
be classified separately either as current asset or non-current asset depending on the nature of the loan
for w/c the compensating balance is set up.

Cash set aside for long term specific purpose or for acquisition of a non-current asset reported
as non-current asset

CASH MANAGEMENT

Segregation of duties for handling cash and recording cash transactions- prevents simultaneous
misappropriation and manipulation of records to cover up stolen cash

Imprest System- daily deposit of all cash receipts intact to the bank and making disbursement
through issuance of checks; prevents the presence of significant amount of cash balance w/in business
vicinity *para di manakaw :D

Voucher System- all disbursements must be supported by properly approved vouchers, which must
be recorded in the voucher register.

Internal audits at irregular intervals- prevents connivance among employees and manipulation of
cash records

Periodic reconciliation of bank statement balance and cash balance in the companys
accounting records- any error or irregularity is immediately rectified

PETTY CASH FUND

Establishment/ Increasing fund: Dr. Petty Cash Fund Cr. Cash in Bank

Petty Cash Disbursement: No journal entry because petty cash vouchers are still w/ the petty cash
custodian
 Reimbursement/ Replenishment: Dr. Expenses (lahat ng nagastos gamit ang petty cash fund)
Cr. Cash in Bank

If not replenished: Dr. expenses Cr. Petty cash fund

CASH SHORT AND OVER suspense account(minimal lang na mangyari); nominal account that is
debited for shortages and credited for overages.

If nagkulang ung PCF: Dr. Expenses Dr.Cash Short or Over Cr.PCF

*A debit balance of Cash Short or Over is reported as Miscellaneous expense

If nagsobra yung pera: Dr.Expenses Cr. PCF *hanggang established amount lang
yung irerecord sa PCF then, Dr. Cash in Bank Cr. Miscellaneous Income

RECONCILIATION

Bank&Book Both their balances will be adjusted

BookToBank From the unadjusted bal in the book, youll get the Unadjusted bal in the bank

BankToBook From the unadjusted bal in the bank, youll get the Unadjusted bal in the book

*in the BankToBook and BookToBank Reconciliation, kung anong dapat iadd at iLess sa binigay
na unadjbal para makuha ung adj bal nun, iadd and iless mo. But kung ano ung dapat iadd at iless para
makuha yung adj bal ng kukunin mong unadjbal, reciprocal yung gagawin mo.

DEPOSIT IN TRANSIT- idedeposit ng Company sa bank pero di pa nkkadating sa bank; nakaAdd na sa

book pero wala pa sa bank; iaAdd sa bank para maAdjust

DIT,beg (+) receipts recorded in the book (-) deposits recorded in the bank (=) DIT,end

*Cash receipts in the book to be added in the DIT,beg must exclude the credit memos in the
PREVIOUS month

*Deposits in the bank to be deducted from DIT must exclude the credit memos in the CURRENT
month.

OUTSTANDING CHECKS- bayad ng Co. sa creditor nito pero di pa nawiwithdraw ng creditor yung
pera; nakaLess na sa book pero wala pa sa bank; ileLess sa bank para maAdjust

OC,beg (+) mgaCrinedit sa book (-) mga binawas ng Bank (=) OC,end

*yung mga crinedit sa book na iaAdd sa OC must exclude the debit memos in the PREVIOUS
month.

*yung mga binawas ng bank na ileLess sa OC, must exclude the debit memos in the CURRENT
month.
DEBIT MEMOS- charges(binabawas) ng bank; example: NSF checks and Service charges; nileLess sa
book para maAdj

CREDIT MEMOS- inaAdd ng bank; example:Interest on notes, notes collected; inaAdd sa book para
maAdj

ERRORS- either sa bank or book

PROOF OF CASH- also known as 2dated Bank Reconciliation or 4column reconciliation; it reconciles
the beginning and ending balances of cash for the month, as well as the recorded receipts and
disbursements made by the bank and by the depositor company

Adjustments Previous Month Current Month Month Ended

Receipts Disbursements
*If magkatabi, different sign, if magkalayo, same sign

RECEIVABLES-legitimate claim from others that are expected to be settled by receipt of cash

Classification:Trade Receivables (arising from the normal course of business; generally classified
as current assets) Non-trade Receivables (arise from other sources aside from sale of goods or services; if
it is expected to be collected w/in 12months, it is classified as Current assets)

ACCOUNTS RECEIVABLE- are trade receivables on open accounts and are not evidenced by
promissory notes or time drafts.

TRADE DISCOUNT- also known as volume/quantity discounts; not recognized(not recorded) for
financial purposes; used to avoid frequent changes in catalogs

CASH DISCOUNT- or Sales Discount on sellers point of view; it is recognized when taken by using
Gross Price Method; recognized when Not taken by using Net Price Method; recognized when offered by
using Allowance Method

GROSS PRICE METHOD- simplest and most widely used

Upon Sale: Dr. Accounts Receivable Cr. Sales (both at gross)

Paid w/in Discount period: Dr.Cash(at net) Dr.Sales Discount Cr. Acc Rec (at gross)

Paid beyond the Discount Period: Dr.Cash Cr.Acc Rec (both at gross)

Adjustments: Dr. Sales Discount Cr.Allowance for Sales Discount

*If no adjusting entry is taken, both Sales revenue and Accounts Receivable are overstated

NET PRICE METHOD - theorrtically preferred over the gross method

Upon Sale: Dr. Acc Rec

Cr. Sale (both at net)

If paid within the Discount period: Dr. Cash

Cr. Acc Rec (both at net)

If paid beyond the discount period: Dr. Cash (at gross)

Cr. Sales Discount Forfeited (discount)

Cr. Accounts Receivable (at net)

Adjustments: Dr. Accounts receivable

Cr. Sales Discount forfeited (the value will be the Discount that have passed the discount period)

*Sales Discount Forfeited is reported as Other Operating Income

ALLOWANCE METHOD- least popular

Upon sale: Dr. Accounts Receivable (at gross)

Cr. Allowance for Sales Discounts (discount)

Cr. Sales (at net)

If paid within the discount period: Dr. Cash (at net)

Dr. Allowance for Sales Discount (discount taken)

Cr. Accounts Receivable (at gross)

If paid beyond the discount period: Dr. Cash (at gross)

Dr. Allowance for Sales Discount (discount not taken)

Cr. Sales Discounts Forfeited (Discount not taken)

Cr. Accounts Receivable (at gross)

Adjustments: Dr. Allowance for Sales Discounts

Cr. Sales Discount Forfeited (both value are Discount not taken)

*Allowance for Sales Discounts is a valuation account w/c records the available cash discount and
reduces the Accounts Receivable to its amortized cost

CREDIT CARD SALES- responsibility of the bank that issued credit card to pay you because the
customers pay directly to the bank; Credit card fees (reported as an operating expense) normally ranges
from 1%-5% of net credit card sales
Upon sale: Dr. Accounts Receivable-bank

Cr. Sales (both at gross)

Upon payment: Dr. Cash (net of service charge)

Dr. Credit card Service charge

Cr. Accounts Receivable-bank (at gross)

*there are some credit card companies that allow the retailer to deposit credit card drafts/receipts directly
to a current account. In effect, they do not establish a receivable. Entry: Dr. Cash (at net)

Dr. Credit Card Service Charge

Cr. Sales (at gross)