INTERMEDIATE ACCOUNTING Journal Entries

- Establishment
CASH AND CASH EQUIVALENTS ○ Dr: Petty Cash Fund
Nature and Composition of Cash and Cash ○ Cr: Cash in Bank
Equivalents: - Disbursements
○ No Journal Entry
Financial Instruments: A contract that gives rise to a - Replenishments
financial asset on one entity and financial liability on ○ Dr: List of Expenses
the other. ○ Cr: Cash in Bank
- Year-end Adjustments
Cash: Any item used as a medium of exchange. Must be ○ Dr: List of Expenses
unrestricted and Immediately available for use. ○ Cr: Petty Cash fund
○ *reverse entries*
- Cash on hand:
○ Dr: Petty Cash fund
○ Undeposited Cash Collections: bills, ○ Cr: List of Expenses
coins, and other checks - Increase
○ Working Funds: petty cash fund, change ○ Dr: Petty Cash Fund
fund, payroll fund, dividend fund, tax ○ Cr: Cash in Bank
- Cash Short:
fund, and interest fund
○ Debit: Miscellaneous Expense
- Cash in bank: demand deposits, checking
○ Dr: List of Expenses
accounts, saving accounts ○ Dr: Cash short or Over
○ Cr: Cash in Bank
Cash Equivalents: Highly liquid financial instruments - Cash Over
that are so near their maturity date (3 months or less) ○ Credit: Miscellaneous Income
that there is an insignificant risk in the change of value. ○ Dr: List of Expenses
Presentation and measurement of cash in the ○ Cr: Cash in Bank
○ *next entry*
statement of financial position
○ Dr: Cash in Bank
- Foreign currency: peso exchange rate (cash) ○ Cr: Misc Income
- Cash in closed banks: receivables
- Customer’s post-dated checks, NSF checks, Bank Reconciliation: A statement that brings into
IOUs: receivables agreement the cash balance per book and cash balance
- Postage stamps and advances: prepaid per bank.
expenses
Bank Reconciling Items:
- Bank Overdraft
- Deposit in transit: added to cash balance
○ Account with no offset: liability
- Outstanding checks: deducted to cash balance
○ Account with the right to offset: cash on
- Errors
positive, liability on overdrawn
Book Reconciling Items:
- Undelivered and unreleased checks: cash
- Credit memos: increase the cash balance.
- Company’s post-dated checks: liabilities
- Debit memos: decrease the cash balance
- Compensating balances
- Errors
○ Restricted: current or non-current asses
○ Not restricted: cash
Forms of Bank Reconciliation:
- Sinking funds, expansion funds, and others set
- Adjusted balance method: The book balance and
aside for long-term specific purposes:
the bank balance are brought to a correct cash
non-current asset
balance simultaneously.
Petty Cash Fund: Used for small cash disbursements - Book-to-bank method: The book balance is
under the imprest system. reconciled with the bank balance.
 Book balance xxx Adj xxx xxx xxx xxx
Add: credit memo xxx
Add: outstanding checks xxx
Total xxx Prev R D Current
Less: debit memo (xxx)
Less: deposit in transit (xxx) Bal. Bnk xxx xxx xxx xxx
Add/less: book/bank errors xxx/(xxx)
Bank balance xxx DIT
- prev xxx (xxx)
- Bank-to-book method: The bank balance is - cur xxx xxx
reconciled with the book balance.
OC
Bank Balance xxx - prev (xxx) (xxx)
Add: Debit memo xxx - cur xxx (xxx)
Add: Deposit in transit xxx
Adj xxx xxx xxx xxx
Total xxx
Less: credit memo (xxx) - Book to bank
Less: outstanding checks (xxx)
Add/less: book/bank errors xxx/(xxx) Prev R D Current
Book balance xxx
Bal. Bk xxx xxx xxx xxx

Deposits in Transit and Oustanding Checks CM

- prev xxx (xxx)
- Deposits in Transit - cur xxx xxx
Deposits in transit, beg xxx DM
Add: Cash receipt (excluding xxx - prev (xxx) (xxx)
credit memos) - cur xxx (xxx)
Total xxx
Less: Reflected deposits (xxx) DIT
(excluding credit memorandum) - prev (xxx) xxx
Deposits in transit, end xxx - cur (xxx) (xxx)

- Outstanding Checks: OC
- prev xxx xxx
Outstanding checks, beg xxx - cur (xxx) xxx
Add: Checks drawn (excluding xxx
debit memos) Adj xxx xxx xxx xxx
Total xxx - Bank to book
Less: Checks paid (excluding debit (xxx)
memos) Prev R D Current
Outstanding checks, end xxx
Bal. Bnk xxx xxx xxx xxx

Proof of Cash: expanded reconciliation includes proof DIT

- prev xxx (xxx)
of receipts and disbursements. - cur xxx xxx
Forms of Proof of Cash:
OC
- Adjusted balance method
- prev (xxx) (xxx)
Prev R D Current - cur xxx (xxx)

Bal. Bk xxx xxx xxx xxx CM

- prev (xxx) xxx
CM - cur (xxx) (xxx)
- prev xxx (xxx)
- cur xxx xxx DM
- prev xxx xxx
DM - cur (xxx) xxx
- prev (xxx) (xxx)
- cur xxx (xxx) Adj xxx xxx xxx xxx
RECEIVABLES - Gross Price: both the Accounts Receivable and
Sales are initially recorded at the gross sales
Nature of Receivables and Accounts Receivables: price with no accounting recognition of the
Receivables are financial assets that represent a
discounts until it is taken.
contractual right to receive cash or another financial
- Net Price: both the Accounts Receivable and
asset from another entity. Receivables include:
Sales are recorded at the sales price less the
- Amounts collectible from customers
available cash discount. It is theoretically
- Accrued revenues
superior to the gross method because it initially
- Other items such as loans and advances to
recognizes the accounts receivable at its
officers, affiliated companies, customers or
amortized cost
other parties, suppliers, insurance companies,
- Allowance: the Accounts Receivable is recorded
and other non-recurring transactions.
at the gross sales price, the sales revenue is
Classification of Receivable According to Source: recorded at the net amount and the available
- Trade Receivables: arise from the ordinary cash discount is recorded as a credit in the
course of business valuation account (allowance for sales
- Non-trade Receivables: arise from other discounts).
sources
Credit Card Sales:
○ Loans to officers and employees
○ Advances to affiliates - Results to an accounts receivable in the name
○ Accrued interest and dividends of the credit card-issuing company reduced by
○ Deposits to guarantee performance or credit card fees which is reported as an
payment or to cover possible damages
or losses operating expense in the P/L
○ Subscriptions for the entity’s equity
securities Methods of Accounting for Bad Debts
○ Deposit with creditors - Allowance Method
○ Claims for losses and damages
○ Dr: Bad Debts Expense
○ Claims for tax refunds or rebates
○ Cr: Allowance for Bad Debts
○ Claims against common carriers for
damaged or lost goods ○ *to write off*
○ Dr: Allowance for Bad Debts
Trade Discounts vs. cash Discounts: ○ Cr: Accounts Receivable
- Trade Discounts: are means of converting a ○ *in case of collection*
catalog list price to the invoice price. It is not ○ Dr: Accounts Receivable
○ Cr: Allowance for Bad Debts
recognized for financial accounting purposes. ○ *next entry*
They are deducted from the list before ○ Dr: Cash
recording the accounts receivable arising from ○ Cr: Accounts Receivables
a credit sales transaction. - Direct Write-off Method
- Cash Discount: Sales discounts from the seller’s ○ Dr: Bad Debts Expense
○ Cr: Accounts Receivables
point of view, are reductions from the sales
○ *in case of collection*
price as an inducement for prompt payment of
○ Dr: Accounts Receivable
an account. ○ Cr: Bad Debts Expense
List Price xxx ○ *next entry*
Less: Trade Discount (xxx) ○ Dr: Cash
Total: Invoice Price xxx ○ Cr: Accounts Receivables
LessL: Cash Discount (xxx)
Total: Cash Payable xxx Notes Receivables: A formula claim against another
that is evidenced by a written promise, called
Methods Of Recognition (Timing) Of Cash Discounts:
promissory note, or a written order to pay at a later - A 12-month expected credit loss is recognized
date, called a time draft. CA of Loan xxx
- Interest Bearing: A note or draft that provides Probability of Collection xx%
for the payment of interest for the period Total: Future Cash Flow xxx
PVF xx%
between the issuance date and the due date. Total: PV of Future Cash Flow xxx
- Non-Interest Bearing: When a
non-interest-bearing note is exchanged solely CA of Loan xxx
Less: PV of Future Cash Flow xxx
for cash and no other rights or privileges are Total: ECL xxx
exchanged, the PV 5 of the note on the date is Probability of Default xx%
received is equal to the cash proceeds Total: 12 months ECL xxx
exchanged.
- PV of the note = FMV of the item sold Stage 2
- A lifetime expected credit loss is recognized.
Premium and Discount Amortization: There is a significant increase in credit risk if
- The excess of the FV of the note over its PV is the contractual payments are more than 30
credited to a discount on notes receivable. days past due
Notes Receivable xxx CA of Loan xxx
Less: Discount (xxx) Probability of Collection xx%
Total: Amortized Cost xxx Total: Future Cash Flow xxx
- The excess of the PV of the note over its FV is PVF xx%
Total: PV of Future Cash Flow xxx
charged to the premium on notes receivable.
Notes Receivable xxx CA of Loan xxx
Add: Premium xxx Less: PV of Future Cash Flow xxx
Total: Amortized Cost xxx Total: ECL xxx
Probability of Default xx%
Total: Life Time ECL xxx
Important Formulas and Tables:
−𝑛 Life Time ECL xxx
- PVF: (1 + 𝑟) Less: Allowance for ECL (xxx)
1−(1+𝑟)
−𝑛
Total: Impairment Loss xxx
- PVF of OA: 𝑟
- Amortization Table: Regular
Stage 3
Date Interest Rev Amortized
- This stage covers debt instruments that have
- Amortization Table: Installment (Applied objective evidence of impairment at the
Interest) reporting date
Date Install AI% A to P Bal Principal & Accrued Interest xxx
- Amortization Table: Installment (Nominal and Less: Allowance for ECL (xxx)
Total: CA/NRV xxx
Effective Interest) Less: PV of FCF (xxx)
Date EI% NI% Dis/Prem Prin CV Total: Impairment Loss xxx

Impairment of Receivables: Some receivables will Principal & Accrued Interest xxx
prove uncollectible, such that an amount of accounts or Less: Allowance for ECL (xxx)
Total: CA/NRV xxx
notes receivable must be recognized as an expense in Less: PV of OA of FCF (xxx)
profit or loss. This is called Impairment Loss or Bad Less: PV of OA of Interest (xxx)
Debts Expense. Total: Impairment Loss xxx
Stage 1:
Receivable Financing: It is the financial flexibility or - Discounting Without Recourse: the endorses is
capability of an entity to raise money out of its relieved of the responsibility for the note that is
receivables. dishonored on maturity.
- Secured Borrowing: if the risks and rewards of Principal xxx
ownership from the receivables are not Add: Interest (P*R*T) xxx
substantially transferred Maturity Value xxx
Less: Discount (MV*DR*DT) (xxx)
○ Pledging, Assignment, & Discounting Total: Net Proceeds xxx
with Recourse
- Sale of Receivables - when the transaction is
Factoring: The transfer of receivables without recourse,
recorded as a derecognition of the receivables
and is, therefore, an outright sale of receivables. The
thereby recognizing either gain or loss
factor company assumes the risk of collection and
○ Factoring & Discounting Without
generally handles the billing and collection function.
Recourse
- Factor’s Holdback: portion retained to cover
probable sales discounts, returns, and
Pledging: refers to the use of receivables as collateral
allowances.
for a loan. It is otherwise known as a general
assignment of Accounts Receivable since all receivables Gross Amount of Receivable xxx
Less: Factoring Fee (xxx)
are used as collateral for a loan. Less: Factoring Holdback (xxx)
- Establishment: Total: Net Cash Received xxx
- Dr: Cash - Entries
- Dr: Discount (Principal x Discount %)
- Cr: Note Payable - Bank - Dr: Cash
- Year End Adjustment - Dr: Loss from Factoring
- Dr: Factor Receivable
- Dr: Interest Expense (Discount x Date) - Cr: Receivables
- Cr: Discount - Factor Receivable Received
Assignment: It is a more formal borrowing arrangement - Dr: Cash
- Cr: Factor Receivable
in which specific receivables are identified and used as
security for the loan.
- Non-Notification Basis: Customers are not
notified of the assignment of the A/R and they
make payment directly to the assignor (seller).
- Notification Basis: customers are instructed to
make payments to the assignee (bank), and the
assignee informs the assignor of the collections
- Establishment:
- Dr: AR Assigned
- Cr: AR

Discounting: An entity is endorsing a promissory note

to a bank or a financing company, the latter advancing
the maturity value of the note less a charge called
discount.
- Discounting With Recourse: the company is still
liable to the financing company for the note, in
case the make fails to pay it on maturity date.