Chapter 6 - Module of Financial Assets PDF

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MODULE

ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

CHAPTER 6 FINANCIAL ASSETS

Learning Objectives Define

a

financial

asset

and

give

examples. Account for cash and cash equivalents. Account for receivables. Account for investments.

Definitions 

Financial instrument – is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. (PPSAS 28.9)



Financial asset – is any asset that is: a. Cash; b. An equity instrument of another entity; c.

A contractual right to receive cash or another financial asset from another entity;

d. A contractual right to exchange financial instruments with another entity under conditions that are potentially favorable; or e. A contract that will or may be settled in the entity’s own equity instruments.

Examples of Financial Assets 

Cash and Cash equivalents



Receivables



Investments in equity and debt securities



Derivative assets

MODULE

ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

Initial Recognition 

A financial asset is recognized when an entity becomes a party to the contractual provisions of the instrument. (PPSAS 29.16)

Initial Measurement 

Financial assets are initially measured at fair value plus transaction costs, except for financial assets at fair value through surplus or deficit whose transaction costs are expensed.



Transaction costs are incremental costs that are directly attributable to the acquisition, issue, or disposal of a financial instrument.

Cash 

Cash – comprises cash on hand, cash in bank and cash treasury accounts.

Unreleased & Cancelled Checks 

Unreleased checks are reverted back to cash.

Cash in Bank, Local Currency-Current

xx

Accounts Payable (or other liability account)

xx

 Cancelled checks (e.g., stale, voided or spoiled) are reverted back to cash. The cancelled check pertains to: Current year

Prior period

Cash-Modified Disbursement

Accumulated Surplus/ (Deficit)

System (MDS), Regular Accounts payable

xx

xx xx

Accounts payable

xx

MODULE

ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

Petty Cash Fund 

The Petty Cash Fund of a government entity is: 

Maintained using the imprest system.



Sufficient to defray recurring petty expenses for 1 month.



Used for disbursements not exceeding ₱15,000 per transaction.



Replenished as soon as disbursements reach at least 75% or as needed.

Accounting for Cash Shortage/Overage 

The disbursing officer is liable for any cash shortage while any cash overage that he cannot satisfactorily explain to the auditor is forfeited in favor of the government.



Shortage:

Due from Officers and Employees

xx

Advances for/to...(Appropriate account)

xx

 Overage: Due from Officers and Employees

xx

Advances for/to...(Appropriate account)

xx



Dishonored Checks



A dishonored check is a check that is not accepted when presented for payment, e.g., a check returned by the bank because of lack of sufficient funds - ‘bounced’ check.



Dishonored checks are recorded in the “Other Receivables” account.

Bank Reconciliation 

A government entity prepares monthly bank reconciliations for each of the bank accounts it maintains, using the adjusted balance method.

Cash Equivalents 

Only debt instruments acquired within 3 months before their scheduled maturity date can qualify as cash equivalents....