[Music] hello everybody welcome to search was accounting lessons ph college edition intermediate accounting one this is discussion number one and we will be talking about cash and cash equivalents and this is part one of the lesson for cash and cash equivalents and we will be talking about cash and cash equivalent items at the end of the video you should be able to define what cash and cash equivalents are and determine inclusions and exclusions on cash and cash equivalents this is our very first video for intermediate accounting 1 and i hope that you will be with me until the end of the semester before anything else please like share and subscribe the search was accounting lessons ph and hit the notification bell button to alert you of the latest video lessons for all of your questions comments and suggestions please put them down in the comments section below and for webinar and speakership invites please send me a message at kevin through the 2194 gmail.com thank you for your utmost support for search was accounting lessons ph and may these videos continue to help students in their online learning and academic development accounting videos in our online learning today more so that we are all at home and learning at home amidst the covet 19 pandemic and thank you for trusting search was accounting lessons ph as your partner in your online learning also may these videos continue to help teachers in enhancing their lesson plans and teaching methodologies salah accounting professors and teachers who are trusting search was accounting lessons ph as a way for them to relate to students the lesson maraming maraming salamat and as of september twenty 21 salamatpo salahatnam six thousand four hundred plus the nagtiwala search was accounting lessons ph and sapang credits page thank you lord for all of these blessings that you are giving not only to me but to everyone who is watching this youtube channel okay some shout outs from uh past videos and other posts that i have so first one we have from kyle segundo for me you are an angel sent by god to help us aspiring accountants may god bless you with more beautiful things in life thank you so much for sharing your knowledge sir kyle segundo for looking at me as an angel sent by god knowledge and wisdom i think search was accounting lessons ph and thank you for your wishes with more beautiful things from ace thank you god bless you for always thank you for reinforcing your learning using search was accounting lessons ph thank you ace and uh from mac grady mendoza sobrang dalipo pagayo nage explained thank you paul um maybe it's a blessing on that i am able to relate the lessons to you very well and uh thank you for trusting search was accounting lessons ph mcgrady and thank you that you find my explanations very easy for you to understand so thank you for choosing search was accounting lessons ph as your online learning partner okay so let's start our lesson for today intermediate accounting one as i've told you in the general orientation is about assets now specifically let's first talk about current assets and for this specific video we are talking about the very first line item in the current asset section of the statement of financial position which is cash and cash equivalents so today we will be talking about what are the items or things that should be included in this account and what are the things that we should not include in this account what are the things that we should report in this account and what are the things that we should not report in this account okay so according to international accounting standard one 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 or there is a realization of the asset within 12 months and then there is a fourth provision which tells us expressly that cash and cash equivalents are current assets unless they are restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period well as we all know current assets include cash accounts receivable inventories prepaid expenses marketable equity securities and office and store supplies and all other current assets fundamentals of abm part two in their senior high school this is something that you already know no but uh although we don't have a specific accounting standard that relates to cash and cash equivalents it is expressly stated in the paragraph 66 of ias 1 that cash and cash equivalents are current assets now the main question is that what items are included in cash and what items are included in cash equivalent we can always say that cash and cash equivalents are current assets that's a no-brainer already even a senior high school can can tell that to you know in your high schools they can already tell you that uh those are current assets and the inclusions and in in exclusions for cash and cash equivalents are somewhat um they have the idea no but uh digging deeper in intermediate accounting one what are the things that we should report as cash and cash equivalents those are the things that we'll be talking about today okay let's talk about cash items first and foremost remember that cash is always measured at face value highly specialized or techniques or methodology or estimations in accounting on how to properly measure cache that's how much you reported in the statement of financial position and the best way to tell it is you measured it at face value now to qualify as cash presented as a current asset the general rule is that these items are generally unrestricted you can easily use it in your operations you can easily use it in the operating activities of the company okay it must be unrestricted now if the cash has restrictions then that's the time that we have things to talk about okay so digging deeper it's like this cash items includes the following number one nahindinho da pat mahalimotan pray anything that the entity is holding as kashon hand yunyukin when the company is holding cash on their own currently on hand automatically that's included as part of cash okay we also have undeposited collections um later because i will be discussing you a system but all other deposits oh sorry all other collections rather independent okay and then reporting customers and managers checks bank drafts and money orders now in any case that the entity maintains cash any bank atm different bank accounts as long as there are no restrictions on withdrawals automatically that cash in bank is reported also as a cash item okay now we also have the following working funds boxing i've been working funds i in the uh cineparecha for a specific purpose but the purpose is just only for operations and it's not really that restricted it was just only set aside for a small purpose of operations for example petit cash fund it's impracticable for a company to release checks paramagbayadnang expenses okay so peta cash fund is a small amount of money set aside for small payments of expenses we also have change fund okay those are still included as cash items restricted is just that it has only a specific purpose but the purpose is just about the company's operating activities no problem with that you still report it as a cash item now the partner of the account title cash and cash equivalent catabilicash is what we call cash equivalents these are short-term highly liquid investments that are readily convertible in tokash okay so indeed but because of its liquidity it's readily convertible into cash it will qualify as a cash equivalent now in cash equivalent always remember to apply the three-month rule so in applying the three-month rule for cash equivalents it's not just counting three months before the date of maturity it's about the duration from the date of purchase to the date of maturity remember the date of purchase count three months up to the date of maturity okay purchase if the cash equivalent is purchased three months before the date of maturity qualify as cash equivalent you will be looking on the date of purchase but if the problem is silent and uh the date of maturity is nearing in three months then that is a cash equivalent so some examples include three months time deposits and commercial papers and also we have bsp or banco central pilipinas treasury bills purchased three months before maturity take note of the phrase purchase three months before maturity because if you are holding a treasury bill the matagalana and by december 31 nearing three months or less than three months okay always remember that it's about the date of purchase so so by motion date of purchase okay i hope you understand that now in any case that a company has excess cash predators entities would rather put it in an investment and then let it earn more income okay and that will be more beneficial to the company however the question is will we report that as cash or not so these are the items that you should take into consideration if there is an investment of excess cash the invested cash will be classified as follows if the term is three months or less then it would class it would be classified as a cash equivalent okay but more than three months so luma passed in three months but it's less than a year it will be classified as a short-term investment as current assets but even though it's reported as a current asset it is not reported as cash and it's not even reported as a cash equivalent okay it will be reported as a short-term investment napa beneficial for the company less than a year or realize it will be the company less than a year although again it's not a cash equivalent and it's certainly more nahindi okay and then more than one year then automatically the hell more than one year nasha it's a non-current asset already it's a long-term investment classified as non-current asset most certainly hindisha short-term india current asset in the sakashi equivalent at maslan hindi okay it's automatically long-term investment reported in the non-current asset section of the statement of financial position that's how you report temporary investments of excess cash now entities usually enter into borrowing arrangements and those borrowing arrangements involves compensating balances if the compensating balances has no rich legal restrictions as to withdrawal then let it be go on report it as cash but if there is a legal restrictions held as compensating balance or long-term investment reporting when can we say that we could record it as cash held as compensating balance and when can we record it as a long-term investment you will look on the loan related to the compensating balance if the related loan on the compensating balance is short term then you report it as a current asset with the account cash held as compensating balance however if the related loan is long term then if the compensating balance would also be classified as a long-term investment so it depends whether the loan is short-term or long-term okay that's where you will be putting it if it's short-term then it's cash as uh held as compensating balance if it's long-term then it's a long-term investment okay but when there are no legal restrictions to withdraw the compensating balance then automatically you can report it as cash casing it's unrestricted you can withdraw it anytime you can use it in your operations no problem then report it as cash how about post dated checks the general rule and post dated checks is it shall be reverted back to cash as at the end of the reporting period before anything else let's discuss what a post data check is okay the premise is that companies are paying for payments for expenses however pakistan post dated check let's say for example the end of the reporting period is december 31 2020 so let's say for example we're reporting for december 31 2020. january 15 2021 okay okay post date and check because financial statements i december 31 2020 the payment will be made in 2021 as far as 2020 is concerned sayupayunkashnayon so when a company issues a post-stated check it shall be reverted back to cash in the reporting sa statement of financial possession periodic domain that's the time that you should not include it in your cash balance because so in problems relating to post dated check you always check because if the entity issues a post dated check that is still the entity's cash because the payment will still be effective at the next accounting period you revert back that tokash you re-add that okay okay but if the company is the one who receives a post-dated check it should not form part of their cash balance okay i hope you understand okay next we have cash shorter over means physical account versus records okay so short or over okay if the cash count is less than the recorded cash recorded cash but the other way around if the cash count is greater than the recorded cash then that is what you call a cash overage sobrano so for example at the end of the day 7 000. okay so this should be investigated now let's first talk about cash shortage cash shortages are initially debited to the cash shorter over account and credited updating records among remember that the cash shorter over is only a temporary evaluation account kelang and yonka chart are over matangal again was a proper account okay so these shortages are then credited to the cash shorter over account where the amount of the shortage is debited to the reason for the shortage for example shorter over account na investigates so that is already a loss for the company so among you debit the reason of the shortage debit loss credit cash short or over okay based on the reason of the shortage and the other way around the month for average so cash overages are initially credited demand to the cash shorter over account and they need these overages are then debited to the cso account where the amount of the overage is credited to the reason of the overage okay so in the day okay let's say for example it's just a matter of basic accounting okay but in any case that the entity will not really be able to to look for the the reason and then so among is cash shortage is a miscellaneous expense and a cash overage is a miscellaneous revenue okay other expense or other losses or and then miscellaneous revenue or other income indiana um [Music] okay the internal control on cache is what we call the impressive stem the impress system presents the following two methods okay first one is if not in some customers or any cash that we receive all together and then payment higher level accounting like your auditing techniques or your principles of auditing is the payment of a company is made through checks however expenses now there are some small expenses that we need to pay for in which check payments are impracticable kaya put a nexus set up payments for small amounts of money no funds petty cash fund okay petty cash fund can be accounted for either through the impressed fund system or the fluctuating fund system okay so let's try your knowledge before we go to problems okay so we have nine items here and maybe you you um get us a little sheet of paper and number your paper one to nine let's try lang young current knowledge from what we have discussed okay so i will be presenting nine items and you classify them by cash or cash equivalent or a current asset not other than cash or cash equivalent non-current asset or current liability so your number your paper one to nine pero eb after nothing represents nine items okay let's start let's have number one and available for immediate use now how about three-month bsp treasury bill how about compensating balances related to short-term borrowings which are legally restricted for number four we have time deposits with maturities more than three months but less than one year let's have number five cash set aside for the payment of dividends we also have cash set aside on december 31 for the purchase of land expected to be executed in the next two months we also have bank overdraft investment in equity securities and lastly bank drops and money orders you can pause the video if you need more time to analyze these nine items but assuming that you have already completed these nine items let's now discuss them one by one cash available for immediate use any cash item the unrestricted po is automatically recorded as cash and problem okay a three-month bsp threshold bill the usage of a three-month rule is applicable for cash equivalent ethernet compensating balances from short-term borrowing not legally restricted illegally restricted if the related borrowing is short-term or long-term since it was given to you that the borrowing is short-term automatically the compensating balance although it will not be reported as cash it will then be reported as a current asset specifically cash held for compensating balance but individual report as long-term or non-current assets is short-term time deposits with maturities more than three months but less than one year yen current asset indeed more than three months operating less than one year in a month months per less than one year so current assets how about the cash set aside for payment of dividends of problems set aside a restricted s since it is set aside for payment of dividends then that is a dividend fund and a dividend fund is also recorded as part of cash how about the cash set aside on december 31 for the purchase of land expected to be executed in the next two months in the next two months at the end of the reporting period it is for the purchase of land and land is a non-current asset so automatically the purpose is for an acquisition of a non-current asset automatically even though it will be executed in the next two months the cash that was set aside on december 31 to purchase a land will be reported as a non-current asset because land is a non-current asset okay how about a bank overdraft pakistan bank overdraft negative balance okay generally in the philippines actually not allowed okay but for accounting purposes you should know about this and generally a bank overdrop is recorded as a current liability you don't uh net it or deduct it to your other account balances but later on in the problem we will be discussing things about bank overall but the general rule is that you report bank overdrafts as a current liability and do not deduct it directly in your cash but we have certain um certain actions that we can do or some exclusions to our ex exemptions to the rule okay and then we also have investment in equity securities which is a non-current asset and that's actually one of our lessons in the future and lastly we have bank drops and money orders which is automatically reported as a cash okay so i hope you get nine points in this small activity so we are now done with our theoretical discussion let's now try to answer some problems and let's work on problem number one the following information was provided to you by west company we have cash on hand of four hundred thousand and then we have uh two accounts nana says the islands bank one is at five hundred thousand and the other one is at one hundred thousand and then we have payroll fund change fund dividend fund petty cash fund and three month bsp transfer bill the question is how much should be reported as cash in the december 31 2020 statement of financial position guys when you are given problems like this it's just a matter of inclusion or exclusion or hindi okay is cash in bank so account one is included and account two is also included and then apparel fund change fund dividend fund petty cash fund how about the three-month bsp treasury bill that is not included look at the question you are being asked only about kash equivalent and remember that the three-month bsp treasury bill of 200 000 is a cash equivalent since the question only asks you about the amount to be reported as cash in the on 200 000 so add everything and the cash to be reported in the statement of financial position is one million one hundred sixty three 000. is how much should be reported as cash and cash equivalents that's the time you add the 200 000 okay screenshot solution so the cash to be reported on december 31 2020 is one million one hundred sixty three thousand awesome okay let's have problem number two the following information was provided to you by riddle company so we have cash on hand and then two account balances in one bank one of which of them is an overdraft and then we also have cash in design bank which is which has a positive 400 000 balance but the cash in resigned bank is an overdraft of 20 000 and then we also have a change fund and then set aside for a payroll payment set aside for equipment set aside for plant expansion and a treasury bill how much should be reported as cash and cash equivalents in the december 31 2020 statement of financial position the same bank malayan bank and then the hound balance is on positive and it's an overdraft general rule is that an overdraft po italian current liability so consulting attention general rule 300.000 current liability however there is an exception to the rule exemption to the rule overdraft i mean or when a company has two account or two or more accounts in the same bank in it again general rule bank overdraft current liability but if an entity is holding two or more accounts in the same bank again in the same bank operating in it okay since same bank malayan bank so internet in 300 000 minus the overdraft of 40 thousand that is two hundred sixty thousand yen how about the one in design bank design bank so four hundred thousand set aside for payment of payroll to be paid on january 2021 again look on the purpose it's set aside for the payment of payroll so that's only a payroll fund that's still part of your cash even though it's set aside now for the next one it's it was set aside for the purchase of an equipment to be paid within one year so look at the purpose since the purpose is for a purchase or acquisition of a non-current asset automatically your 500 000 cash set aside is not included in your cash balance it's already an uncurrent asset because it is for an acquisition of a non-current asset and the same goes here for the cash which is set aside for a plant expansion because plant expansion is a capital expenditure so that's a non-current asset and basically the purpose is on current that's also not included now the question now asks you the total cash and cash equivalents automatically your bsp three month treasury bill is kasama okay so add all of the items that you need and the total amount of cash and cash equivalents at december 31 2020 statement of financial position is two million eighty-five thousand screenshots awesome let's have problem number three skribikin company has cash of six hundred thousand on hand as at december 31 2020. the entity also currently holds a 60-day bsp treasury bill worth two million four hundred thousand items related to the entity's bank accounts are as follows secured enemy security bank one million two hundred thousand bank of the nation account one which is three hundred thousand and an overdraft in the same bank name second account the fifty thousand a check for 300 000 pesos for a payment of an account payable was drawn against the secure enemy bank account the check was dated january 20 2021 which the entity had it delivered to the payee and had the same recorded at year end other items include 60 000 pesos of postal money order and 150 000 pesos customer post dated check both of which are duly recorded by the company as part of cash on hand how much will be reported as cash and cash equivalents in the statement of financial position as of december 31 2020. you can pause the video and try answering the problem first and then let's reveal the answer okay assuming that you have tried answering it and uh you're ready with your answer let's discuss the solution for problem number three okay so in analyzing these kinds of problems it's better if elastomer which is like this [Music] an account balance a secure enemy bank so that's a cash in bank and we have no problem with that restricted or unrestricted on anything then we can add it one million two hundred thousand bank of the nation one is three hundred thousand bank of the nation two same bank account overdraft negative s [Music] a check for 300 000 for a payment of an account payable was drawn against the security bank the check was dated january 20 2021 de nilei vernadonna company young check and then release non company i knock a date napo for next year the payment sounds familiar that is what you call a post dated check i know i think this is a three hundred thousand eight in as far as december 31 2020 is concerned 300 000 okay because the payment will take effect next year okay how about this 60 000 pmo or postal money order 150 000 customer post data check okay what shall we do here both of which are recorded already as part of cash so recorded as part of cash adjustment indeed postal money order no problem no it's rightfully included okay pero poem post dated check not in the 300 000. account okay so let's get the adjusted balances cash on hands cash on hand becomes 450 000 the treasury bill has no adjustments secure enemy bank account benelli attention 300 thousand and then bank of the nation balances is 250 000. even though my overdraft same bank so get the total the total cash and cash equivalents at december 31 2020 is four million six hundred thousand okay you can pause the video and take a screenshot awesome okay so our next lesson will be about bank reconciliation statement and proof of cash or the four column bank reconciliation statement thank you for listening to our discussion number one this is again part one of our discussion on cash and cash equivalents again please like share and subscribe to search who was accounting lessons ph and hit the notification bell button to alert you of the latest video lessons for all of your questions comments and suggestions please put them down in the comment section below and for webinar and speakership invites please send me a message at kevintroy.chua1994 gmail.com this has been search was accounting lessons ph college edition to god be all the glory honor and praise thank you and have a great day [Music] [Music] foreign