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Financial Accounting
prof. Adriana Tiron Tudor- course
assist. Szilveszter Fekete- practice
att
Agenda course
1. Objectives
1. Objectives
3. Treasury instruments
3. Treasury instruments
2. Short term financial investments
2. Short term financial investments
4. Cash
4. Cash
What
Short term financial investments represent
Cash and cash equivalents represent
1. Objectives
1. Objectives
After studying this chapter, you will understand:
How to
Report short term financial investments, cash
and cash equivalents,
Place in the Balance sheet
Non-current assets
intangible assets
tangible assets
financial assets
Current assets
inventory
receivable
short term investments
cash
Regulation assets
pre-payments
short term investments
cash and cash equivalents
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2. Short term financial investments
Contain
the purchased securities with the purpose of a
short term earning.
the shares and debentures held on short term
with the purpose of gaining an earning or a plus
value at the time of their sale.
Them valuation is critical as their value and constantly
changing, thus creating potential ( unrealized) gains or
losses.
The earning or plus value is realized through the
difference between the bigger sell price and the
smaller buy price of these papers.
The difference from the non current financial
investments whichs possession is for a period larger
than a year, consists in the fact that the liquidation
period of the placement securities doesnt exceed one
year.
2. Short term investments
In the category of the short term investments are
included:
Other companys shares purchased with the
purpose of speculative operations throughout
resale;
Debentures issued and repurchased later, in order
to be amortized;
Debentures of the third parties purchased for
obtaining interests or for resale.
2. Short term investments
Represent the acquisitioned securities for protecting the
cash or for realizing speculative operations.
The protection or coverage of the cash against the
inflationist phenomena is realized taking into
account the variation of the purchase power of the
national currency (the exchange risk) and the interest
rate (the interest risk).
In the category of the treasury instruments are
contained:
The treasury bills (T/B)/government bills
The substitutive certificates of the foreign
exchange (f.ex./forex)
3. Treasury instruments
3. Treasury instruments
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The treasury bills are used in the framework of the
credit relations between the state and the population,
banks, economic agents.
The state issues these papers based on which it
borrows money on short term.
The obtained treasury bills are interest carriers.
The substitutive certificates of foreign exchange are
used for the official trips outside the country (treasury or
travel bill).
Their holders benefit of foreign exchange when
they are in another country.
3. Treasury instruments
3. Treasury instruments
Short term investment accounting
Group 50
501 Shares in related parties
505 Redeemed debentures
506 Debentures
508 Other short term investments and related
receivables
509 Amounts payable for short term investments ( debts)
7642 Gains on disposal of short term investments
6642 Losses on disposal of short term investments
Example:
An entity purchases for speculative purposes a set of 1.000 shares
issued by a subsidiary at a cost of 4,3 lei/share. Later 400 shares are
sold for the price of 5 lei/share and 300 shares for 4 lei/share. All
payments are carried out by bank transfer
Purchase of shares of affiliated entities 501= 5091 4.300
Payment of the equivalent of shares 5091=5121 4.300
Sales of shares for 5 lei/share 5121= % 2.000
501 1.720
7642 280
Sales of shares for 4 lei/share % = 501 1.290
5121 1.200
6642 90
Question:
How we record the transaction if the
company intentions is to keep the shares
for long time (over 1 year)
An entity purchases for speculative purposes a set of
1.000 shares issued by a subsidiary at a cost of 4,3
lei/share. Later 400 shares are sold for the price of 5
lei/share and 300 shares for 4 lei/share after two years.
All payments are carried out by bank transfer.
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Example:
800 bonds are purchased for 10 lei/bond, out of which 300 are paid in
cash, the rest later by bank transfer. The entity receives 200 lei interest
in its bank account for the bonds held. Later the entity sells in cash 400
bonds for the price of 12 and 200 for 9 lei/bond.
Purchase of 800 bonds 506 = % 8.000
5311 3.000
5092 5.000
Payment of the rest of 400 bonds 5092 = 5121 5.000
Recording interest 5088 = 766 200
Receiving interest in bank account 5121 = 5088 200
Sales with gain of bonds 5311 = % 4.800
506 4.000
7642 800
Sales with loss of bonds % = 506 2.000
5311 1.800
6642 200
Contain the economic values which are in the form or fulfill the
function of money.
IAS 7 states that cash comprise cash in hand ( coins, banknotes and
currency available) and demand deposits (deposits in bank
accounts that are available on demand.
In this category are contained:
Petty cash (in RON and foreign exchange);
Cash at bank from the current accounts and deposits (in
RON and FOREX);
Letters of credit;
Other treasury values etc.
4. Cash
4. Cash
a. Petty cash represents the money found in the own cash desk
and destined for small payments and emergencies.
b. Other treasury values
The postal and fiscal stamps;
The treatment and rest notes;
The travel tickets and vouchers;
The papers of value and lunch tickets;
Other values.
c. Cash at bank represent the money held at the bank in current
accounts or short term deposits (under one year).
4. Cash
4. Cash
accounting
Group 51 Bank accounts
511 Outstanding values
512 Cash at bank
518 Interest
519 Short term bank loans
Group 53 Petty cash
531 Petty cash
532 Cash equivalents ( other values)
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Example:
An entity transfers 34.000 lei in a separate account in order to purchase
euro. 10.000 euro is purchased at the auction for 3,35 lei/euro, the charge
of operation being 40 lei. The rest of the amount is transferred back to the
current account in lei. At the end of the year the exchange rate
differences are recorded, when the rate is 3,30 lei/euro.
Transferring the amount in a separate account 5125 = 5121 34.000
Purchase of euro (foreign currency) 5124 = 5125 33.500
Payment of charge 627 = 5125 40
Transferring the rest back to current account in lei 5121= 5125 460
Recording exchange rate differences at the end of the year (for the
closing balance of the account in foreign currency) 665 = 5124 500
Example:
An entity purchases fuel coupons for 100 lei, plus VAT 19%, paid in
cash. The coupons are used to purchase fuel (diesel oil), which is
consumed later.
Purchase of fuel coupons % = 5311 119
5328 100
4426 19
Use of coupons to buy diesel oil 3022 = 5328 100
Consumption of fuel 6022 = 3022 100
4. Cash
d. Letters of credit
represent money reserved at the bank in a different
account, opened at the disposal of a certain supplier.
These sums are reserved for that certain supplier for
deliveries of goods, work executions or service
providing.
The letters of credit guarantee their payments to the
supplier.
The letters of credit can be opened in RON or foreign
exchange (FOREX).
accounting
group 54 Letters of credit
541 Letters of credit
542 Cash advances
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Example:
An entity (VAT payer) concludes an agreement (contract) for import of
commodities for 10.000 euro. A 10.000 euro letter of credit is
previously opened for international payment on 3,5 lei/euro.
Commodities are imported for 3,4 lei/euro. VAT in customs is paid by
bank transfer. Payment to the foreign partner is made on 3,6 lei/euro.
Opening the letter of credit in euro on 3,5 lei/euro 581 = 5412 35.000
5124 = 581 35.000
Import of commodities (10.000 x 3,4) 371 = 401 34.000
Payment of VAT in customs (10.000 x 3,4 x 19%) 4426 = 5121 6.460
Payment of foreign supplier on 3,6 lei/euro % = 401 36.000
665 34.000
5412 2.000
Recording exchange rate differences for the letter of credit in euro
5412 = 765 1.000
e. The cash advances
In the category of cash are also included the cash
advances.
These represent the money distributed and used in
order to be endorsed by the subordinated administrators
or employees of the subunits of the territorially dispersed
company.
4. Cash
4. Cash
Example:
A treasury advance is granted to an employee for the amount of lei,
from which the following is paid: consumables, 100 lei ,accomodation
expenses 200 lei. Daily allowance is 100 lei. At return from delegation,
the employee justifies the expenses and returns the unused treasury
advance.
Granting the advance for delegation 542 = 5311 500
Recording justification of expenses at return:
Purchase and settlement of consumables 302 = 542 100
Settlement of accomodation 625 = 542 200
Recording daily allowance expenses 625 = 542 100
Refunding unused treasury advance 5311=542 100
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