CHAPTER 1: CASH AND CASH EQUIVALENTS

Money – is the standard medium of exchange in business 2. Cash in Bank

transactions; currency, coins a. Demand deposit/checking account, Savings account
b. No restriction in withdrawal
An entity shall classify an asset when:
3. Cash Fund
 It expects to realize an asset, or intends to sell or consume a. Payroll fund
it, in its normal operating cycle. b. Change fund
 It holds the asset primarily for the purpose of trading c. Dividend fund
 It expects to realize the asset within twelve months after d. Petty cash fund
the reporting period. e. Change fund, dividend, interest, , revolving, tax,
 PAS 1, Par. 66; The asset should not be restricted from travel, others which are used in current operation.
being exchanged. EXCLUDED:
Current asset includes: 1. Postdated checks received
 Cash 2. IOUS
 Accounts receivable 3. Cash fund not used in the current operation.
 Sinking Fund, Plant Expansion, Depreciation,
 Inventories
Preference share redemption, Contingency,
 Marketable securities
Insurance.
 Office and store supplies
4. Bank Overdrafts
CASH - money and its equivalent that is readily available for 5. Deposit in escrow
unrestricted use. 6. Unused credit line - disclosed only
7. Deposits in bank that went bankrupt - A/R is measured @
INCLUDED:
NRV
1. Cash on Hand 8. Restricted compensating balance
a. Bank drafts
b. Checks drawn (post-dated & undelivered)
c. Certified that are received from customers, cashier, MEASUREMENT: FACE VALUE; CURRENT EXCHANGE RATE FOR
manager, traveller, and personal CASH IN FOREIGN CURRENCY.
d. Money Orders
e. Coins and Currencies.
CASH EQUIVALENT COMPENSATING BALANCE – form of minimum checking or demand
deposit account balance that must be maintained (borrowed 500
 Short term and highly liquid investments.
but u need to maintain a 50 compensating balance.)
 Acquired 3 months before maturity date.
 Take note on the date of purchase it should be 3 months  No legal restrictions to withdraw cash > cash
before maturity.  With legal restriction on withdrawal > cash held as
compensating balance depending if the related loan is short
INCLUDED: term (current) or long term (non current). (excluded in
1. Treasury bills, bonds, notes cash)
2. Money market / Commercial Paper
3. # month time deposit POSTDATED CHECKS – shall be reverted back to cash as at the end
4. Preference Share of the reporting period
5. Investment of excess cash  As long as wala pa yung date na nakalagay sa check nasa
a. Less than or equal to 3 months (cash equivalent) nag-issue pa yung cash.
b. More than 3 months but less than or equal to 1 yr  Always check who issued the check
(current asset or short term investment) not on cash
c. more than 1 yr (noncurrentor long term investment) UNDELIVERED OR UNRELEASED CHECK – recorded but not yet given
certainly not as cash. to the payee before the end of the recording period; this is still
subject to the control of the entity.
EXCLUDED:
 Adjusted as:
1. Equity Securities o Cash xx
2. Treasury Shares Accounts payable/appropriate account xx

STALE CHECK OR CHECK LONG OUTSTANDING – check not

NOTE: ANYTHING RESTRICTED IS EXCLUDED IN CASH AND CASH encashed by the payee within a relatively long period of time or
EQUIVALENT. within six months from time of issuance.

 If the stale check is immaterial accounted for as:

o Cash xx
Miscellaneous income xx
  If it is material and liability is expected to continue, the cash IMPREST SYSTEM – system control of cash that requires the ff:
restored and the liability is again set up:
 Cash receipts – deposited altogether
o Cash xx
 Cash payments/disbursements – made through checks /
Accounts payable xx
pay through checks
CASH SHORTAGE – cash count shows cash less than the balance per
PETTY CASH FUND – payment for small expenses where check
book.
payment are seen impractible
to record cash shortage or overage / recognition:
 Two methods in handling:
 Cash count < recorded cash = cash shortage o Imprest fund system – one usually followed in
o Cash shortage xx handling petty cash.
Cash xx o Fluctuating fund system
 Cash count > recorded cash = cash overage
BANK OVERDRAFT
o Cash xx
Cash overage xx  As a general rule it is a current liability
To allocate why there is a cash overage and cash shortage / report:  But in exception if the bank overdraft have the same
account in one bank it can be net or deducted.
 If the cashier or cash custodian is the responsible for the  Under IFRS; it can be offset against other bank account.
shortage (shortage)
o Due from cashier xx
Cash short or over xx
 If it’s from fail to disclose the cause or the cash was loss
for no reason (shortage)
o Loss from cash shortage xx
Cash short or over xx
 If the overage treated as miscellaneous income (overage)
o Cash short or over xx
Miscellaneous income xx
 If the overage found to be money of the cashier (overage)
o Cash short or over xx
Payable to cashier xx
EXAMPLE PROBLEMS FROM SIR CHUA’S ACCOUNTING LESSON:

Classify the ff if they should be reported as:

Cash, Cash equivalent, Current asset (other than cash), Non current
asset, Current liability.

1. Cash available for immediate use Cash

2. Three-month BSP treasury bill Cash equivalent
3. Compensating balance related to short- Current asset
term borrowings which are restricted.
4. Time deposits with maturities more than Current asset
three months but less than one year
5. Cash set aside for payment of dividends Cash
6. Cash set aside on Dec. 31 for the Non-current
purchase of land expected to be asset
executed in the next two months
7. Bank overdraft Current liability
8. Investment in equity securities Non-current
asset
9. Bank drafts and money orders Cash