CASH AND CASH EQUIVALENTS

 Cash is any item that is generally accepted as medium of exchange and includes bills and coins, bank drafts,
demand credit instruments and demand deposits with banks. Cash equivalents are highly liquid instruments that
are so near their maturity that there is insignificant risk of change in value.

 To qualify for presentation as “Cash” on the statement of financial position, the cash item must be unrestricted
and must be immediately available for use in current operations.

 Because cash is the most liquid of all assets, it is generally presented as the first item under current assets on a
properly classified statement of financial position. Cash and cash equivalents may be combined and presented as
one line item on the statement of financial position using the account title “Cash and Cash Equivalents”.

 Cash is presented on the statement of financial position at face value, being its fair value on that date. Cash
denominated in foreign currency must be translated using the exchange rate in effect on the date of the statement
of financial position.

 Effective cash management requires controls to safeguard cash from loss or theft. Separation of handling and
recording cash transactions, adoption of the imprest system, adoption of the voucher system, internal audits of
cash at irregular intervals, and periodic preparation of bank reconciliation are the most common features of
internal control procedures of safeguarding cash.

 To uncover discrepancies between the bank balance and the depositor’s balance for cash in bank, periodic bank
reconciliation is prepared. The bank reconciliation may be prepared using the adjusted balance method (where
both bank and book balances are brought to correct balance at the end of the month), the book to bank format
(where the unadjusted book balance is reconciled to unadjusted bank balance), and the bank to book format
(where the unadjusted bank balance is reconciled to unadjusted book balance). The first format has the advantage
of showing the correct amount of cash balance to be shown on the statement of financial position.

 A more detailed bank reconciliation may also be prepared following the proof of cash format. A proof of cash
reconciles the bank’s and depositor’s beginning balance of cash, cash receipts and disbursement during the month,
and ending balance of cash.

Keywords:

 Bank draft  Deposit in transit

 Bank overdraft  Drawn against insufficient fund (DAIF) check

 Bank service charge  Imprest system

 Bank reconciliation  Internal controls

 CASH AND CASH EQUIVALENTS

 Bank statement  Money order

 Canceled checks  Not sufficient fund (NSF) check

 Cash  Outstanding checks

 Cash equivalents  Payroll bank account

 Cash over and short  Petty cash

 Check  Post-dated check

 Compensating balance  Proof of cash

 Credit memos  Voucher system

 Debit memos

 Demand deposits