CASH AND CASH EQUIVALENTS
DEFINITION OF CASH
- The term “cash” connotes “money and any
other negotiable instrument that is payable in
money and acceptable by the bank for deposit
and immediate credit”. To be reported as
“cash”, an item must be unrestricted in use.
This means that the cash must be readily
available in the payment of current obligation.
COMPOSITION OF CASH
1. Cash on hand
2. Undeposited currency and coins and negotiable
instruments
3. Demand deposits
4. Unrestricted foreign currencies
a. Should be in pesos using forex rate
b. RESTRICTED foreign currencies should
be among the NON-CURRENT ASSETS
and named as its restriction
5. Bank overdraft (debit balance in bank)
a. Classified as CURRENT LIABILITY
b. Should not be offset against other bank
accounts with credit balances
c. Unless such bank maintains 2 or more
account with credit balances, overdraft
can be offset against them
6. Money order/ money market placement
7. Cash fund for current purpose
a. Petty cash fund
i. Imprest fund system, checks
drawn for replenishment is
EQUAL to the petty cash
disbursement
ii. Fluctuating fund system, checks
drawn for replenishment is NOT
EQUAL to the petty cash
disbursement
b. Payroll fund
c. Travel fund
d. Interest fund
e. Dividend fund
f. Tax fund
g. If NON-CURRENT, should be in LONG
TERM INVESTMENT
i. Sinking fund
ii. Preference share
iii. Redemption fund
iv. Contingent fund
v. Insurance fund
vi. Funds for PPE acquisition
NOTE: if due within a year, CASH
COMPENSATING BALANCE
- A checking account balance that must be
maintained in connection with a borrowing
arrangement with a bank
1. LEGALLY RESTRICTED
a. Short-term borrowing, should be
classified as CURRENT ASSET
b. Long-term borrowing, should be
classified as NON-CURRENT
INVESTMENT
2. UNRESTRICTED, should be part of CASH
AND CASH EQUIVALENT
FRAUD THAT AFFECT CASH
1. WINDOW DRESSING
a. Opens the books beyond the end of the
accounting period
b. Deliberate misstatement of the FS and
IS
c. Recording collections and payments
subsequent to the close of period
2. KITING
a. occurs when a check is drawn against a
first bank and depositing the same
check in a second bank to cover the
shortage in the latter bank
3. LAPPING
a. misappropriation of a collection from
one customer and concealing this
defalcation by applying a subsequent
collection made from another customer
CASH MANAGEMENT
- Excess cash should be invested in a revenue
earning investment such as cash equivalents
1. If the term is 3 months or less, should be
part of CASH AND CASH EQUIVALENTS
2. If the term is more than 3 months but
within 1 year, should be classified as
SHORT-TERM INVESTMENTS (CURRENT
ASSET)
3. If the term is more than 1 year
a. Due within 1-year, SHORT-TERM
INVESTMENTS
b. Due more than 1-year, LONG TERM
INVESTMENTS
DEFINITION OF CASH EQUVALENT
- The term ‘cash equivalent’ is a short term and
highly liquid investments that are readily
convertible into cash and so near their maturity
Prepared by: Jeanette Lampitoc
 CASH AND CASH EQUIVALENTS
that they present insignificant risk of changes in
value because of changes in interest rates

COMPOSITION OF CASH EQUIVALENTS

1. 3 months commercial paper/ money market
instruments
2. 3 months’ time deposit
3. 3 months’ treasury bill
4. Marketable securities/ PF shares acquired 3
months before redemption date
Note: date of purchase should be 3 months or less
before maturity/ redemption

VALUATION
- Cash should be valued at face value
- Cash in foreign currency should be in pesos
using the current forex rate
- If the bank were in financial difficulty/
bankruptcy, should be in estimated realizable
value if the amount recoverable is estimated to
be lower than the face value

Prepared by: Jeanette Lampitoc