Cash and Cash Equivalents

Cash- includes money and others negotiable instrument that is payable in money and
acceptable by the banks for deposit and immediate credit. Divided in 3 categories Cash on
hand, Demand deposit and other items that are unrestricted for use in the current operation.
Cash Equivalent- are Short-term and highly liquid investment 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 rate.
Inclusion and exclusion of Cash and cash equivalent

Cash Cash Equivalent

1) Cash on Hand  Time Deposit
 Customer check  Money Market
 Undeposited cash collection  Commercial paper
 Travelers check  Treasury Bill/Bond/Note
 Cashier/Official/Treasurer’s/Manager’s  Redeemable Preference share with
Check mandatory redemption period and
 Postal money order acquired three months before maturity
 Bank Draft
2) Cash in bank
 Demand Deposit/Commercial
Deposit/Current account/Checking
account
 Saving Deposit

3)Cash Fund or Cash unrestricted for use in the

current operation
 Change Fund
 Payroll Fund
 Purchasing Fund
 Revolving Fund
 Interest Fund
 Petty Cash Fund
 Dividend Fund
 Travel Fund
 Tax Fund
 Sinking fund (Only if corresponding Bond
payable is current then Sinking fund is
current)
 Pension Fund (Only if corresponding
liability is current include in cash)
 Unfamiliar Items in problem solving
1) Deposit in foreign Currency- Should be translated to Philippine peso using the closing rate or
spot rate at the reporting date.
2) Deposit in foreign Bank- Unrestricted only include in cash
3) Cash in Closed Bank/ Banks in bankruptcy- Measure it at realizable value (the amount you
can recover from the bank).
4) Bank overdraft- a negative balance in a bank account (Treated as current liability not included
in cash) Notes: If Same bank you can offset with the same bank with positive balance.
5) Compensating balance- a minimum balance in the bank account (Treated as Cash if
unrestricted).
6) Undelivered/unreleased Check- checks made but not yet given to supplier (Included in cash
because it was deducted when drawn to supplier thus added back to cash).
7) Postdated Check- Check dated after reporting period. (treated as addition to cash because
the supplier cannot yet withdraw the cash until the said that has come to pass) Note: if Post
dated was from Customer treatment is deduction to cash if postdated check is included from
Cash.
8) I Owe You (IOU)- when an employee borrows money from the company (treated as Not cash
but part of Accounts receivable).
9) Equity securities- cannot be classified as Cash equivalent for it has no maturity date.
10) NSF/DAUD/DAIF- No Sufficient Funds, Drawn Against Uncleared Deposits, Drawn Against
Insufficient Funds.
11) Expense Advances- Treated as Receivables or prepaid expense.
12) Treasury warrant- A warrant for the payment money into or from public treasury thus
Included in cash.
13) Unrecorded Cash Disbursement- Cash payment not recorded (treated us deduction to cash).
14) Unrecorded Cash Collection/receipts- Collected but not recorded (treated as addition to
cash).
15) Certificated of Deposit- A savings certificate entitling the bearer to receive interest (Treated
as Cash equivalent if invested 3 months before maturity)
16) Postage stamps- treated as supplies.
17) Escrow deposits- Deposits held for 3rd person (Treated as Other current/Noncurrent asset
and reported as liability).
18) Stale check- check that has been outstanding for over 6months (treated addition to cash if
drawn for payable/supplier, Treated as Account receivable if collected from customer thus
NOT included in cash)

Sample Problems (Basic)

Paula Company had the following balances on December 31,2020

Cash in checking account 400,000

Cash in money market account 500,000
Treasury Bill, Purchased November 1,2020
Maturing January 31,2021 1,545,000
Time Deposit purchased December 1,2020
Maturing March 31,2021 2,500,000

Answer: P2,445,000
Melvin Company Had the following balances on December 31,2018
Cash in bank – current account 4,500,000
Cash in bank – Payroll account 1,650,000
Cash on hand 1,000,000
Cash in bank – Restricted account for building
construction expected to be disbursed in 2019 3,550,000
Time Deposit, Purchased December 15,2020
and due March 15,2021 4,950,000

The cash on hand included a P300,000 check payable to Melvin dated January 15,2021

Answer: P11,800,000

At year-end, My love Paula Company reported cash and cash equivalents which comprised the
following.

Cash on hand 60,000

Demand deposit 500,000
Certificate deposit 1,000,000
Postdated customer check 100,000
Petty cash fund 40,000
Travels check 50,000
Mangers check 20,000
Money order 400,000

What total amount should be reported as cash at year end?

What is the amount of Cash equivalent?

Answer: P1,070,000
Answer: P1,000,000

EverlastingLoveforher Company reported the following information at year-end:

 Share investment of P250,000 that are very actively traded in the stock market
 Government treasury bills of P6,000,000 with a 10-year term but purchased on December 31 at
which time they had two months to go until maturity
 Cash of P5,400,000 in the form of coins and currency, saving account and checking account
 Commercial paper of P5,500,000 with term of nine months but purchases on December 31 at
which time they had three months to go to until maturity.
What total amount should be reported cash:
What total amount be reported as Cash Equivalent:
Answer: 5,400,000
Answer: 11,500,000

You noted the following composition of Malabon Company’s “cash account” as of December 31, 2020

Demand deposit account P2,000,000

Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2007) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2007 50,000
Customer’s check outstanding for 18 months 40,000

Total P7,760,000
Additional information follows:

a) Check of P200,000 in payment of accounts payable was recorded on December 31, 2006 but mailed
to suppliers on January 5, 2007.
b) Check of P100,000 dated January 15, 2007 in payment of accounts payable was recorded and mailed
on December 31, 2006.
c) The company uses the calendar year. The cash receipts journal was held open until January 15,
2007, during which time P400,000 was collected and recorded on December 31, 2006.

Question:

The cash and cash equivalents to be shown on the December 31, 2006 balance sheet is

a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000