CASH AND CASH EQUIVALENTS (CHAPTER 1)

Cash – money (layman’s term) *BSP treasury bill purchased one year ago cannot qualify
as a cash equivalent
Money – standard medium of exchange in business
transactions

– refers to the currency and coins which are in

circulation and legal tender

Cash – connotes more than money (accounting’s term)

– money and any other negotiable instrument

that is payable in money and acceptable by the
bank for deposit and immediate credit

Postdated checks received cannot be considered as cash

yet because these checks are UNACCEPTABLE by the bank
for deposit and immediate credit or outright encashment

Unrestricted Cash – for an item to be recognized as

“cash”, it must be unrestricted in use

– cash must be readily available in the payment

of current obligations and not be subject to any
restrictions, contractual or otherwise

CASH ITEMS

Cash on Hand Cash in Bank Cash Fund

-undeposited cash -demand deposit (set aside for
-customer’s checks -checking account current
-traveler’s checks -saving deposit purposes)
-bank drafts (unrestricted as -petty cash fund
-money order to withdrawal) -payroll fund
-dividend fund

Cash equivalents – short-term and highly liquid

investments that are readily convertible into cash
and so near their maturity that they present
insignificant risk of changes in value because of
changes in interest rates

Examples of cash equivalent:

-three – month BSP treasury bill

-three-year BSP treasury bill purchased three

months before date of maturity

-three-month time deposit

-three-month money market instrument or

commercial paper

-preference shares with specified redemption

date and acquired three months before
redemption date

Equity securities – cannot qualify as cash equivalents

because shares do not have a maturity date
(some equity securities are issued with a maturity
date)

*what is important is the date of purchase which should

be THREE MONTHS OR LESS BEFORE MATURITY