CASH AND CASH EQUIVALENTS (SUMMARY NOTES)

by: Rheza

CASH

 Is unrestricted to use/immediately available for use

 It can use for settle obligations
 It could be money/equivalents
 Measured at FACE AMOUNT/VALUE

2 Types of CASH:

 CASH ON HAND – were all undeposited cash or collections are yet to be

deposited/all collections awaiting deposits
 CASH IN BANK – were all cash/collections in bank already and it is
unrestricted to withdraw.

EXAMPLE OF CASH:

 FUNDS:
o Petty cash
o Change fund
o Payroll fund
o ETC.
 Coins and Currencies
 Bank Drafts
 Money orders
 Demand deposits (checking/current/saving accounts)

NOT INCLUDED AS CASH:

 Postdated checks – checks that have future date/- not presently available
for immediate use. (REVERT BACK TO A/R)
 Unused credit line – difference of line credit – and actual money borrowed
at bank. (Disclosed only at notes) Only actual borrowed included to cash
 *line of credit-limit extended to borrower in bank
 Stale check- checks that are delivered but not yet encashed within long of
period of time/ 6 months or more. (REVERT BACK TO CASH)
 Unreleased checks drawn – checks that are drawn but not yet delivered
(REVERT BACK TO CASH)
 Postdated checks drawn – checks drawn that are already delivered but it is
for future date. (REVERT BACK TO CASH)

BANK OVERDRAFT – negative balance/ a current obligations and it could be offset

if it has another account of the same bank.

CONCEPTS:

KINDS INCLIDED/EXCLUDED WHAT TO DO

CASH
Postdated checks Excluded Revert back to A/R
received
Postdated checks drawn Included Revert back to CASH
Undelivered checks Included Revert back to CASH
Stale checks Included Revert back to CASH
Unused credit line Excluded Disclosed to NOTES
Compensating balance Excluded -Disclosed to NOTES
legally restricted
Compensating balance Included -Disclosed to NOTES
not legally restricted

CASH EQUIVALENTS:

 Short-terms investment, highly liquid

 3 months/less
 Readily convertible to cash

EXAMPLE OF CASH EQUIVALENTS:

 Treasury bills acquired 3 months/ 90 days before maturity. (Acquired

January maturity 3 months April)
 Money market instrument/Commercial paper acquired 3 months before
maturity date.
o Money market- short-term investments
o Commercial papers – maturity date is normally 270 days but acquired
3 months/less may qualify as cash equivalent.
 3-month time deposit - bears interest higher than that of regular deposits.