Cash Cash Equivaients Definition Definition It includes money and any other | These are short-term and highly liquid investments that are readily negotiable instrument that is payable in | convertible into cash and so near their maturity that they present money and acceptable by the bank for | insignificant risk of changes in value because of changes in interest rates. deposit and immediate credit. (PAS 7, par. 6) Only highly liquid investments that are acquired three months before Y Checks maturity can qualify as cash equivalents. Y Bank Drafts Money Orders ¥ 3:month BSP Treasury Bill Y Petty Cash Fund Y BSP Treasury Bill (more than 3 months) purchased 3 months before Y Payroll Fund maturity date Y Travel Fund ¥ _3:month Time Deposit Y Interest Fund ¥3:month Money Market Instrument Y Dividend Fund Y Preference shares (with specified redemption date) purchased 3 Y Tax Fund months before redemption date Sinking Fund % Equity securities ~ no maturity date » Preferred Redemption Fund % Plant Expansion Fund % Insurance Fund Valuation In Local Currency In Foreign Currency If Recoverable Value < Face Value* = Face Value = Current Exchange Rate = Estimated Realizable Value Note: Cash in bank or in Financial institutions having financial ffcuty or in bankruptcy should be shown a its recoverable value Financial Statement Presentation ‘Aggregate cash and cash equivalents should be shown as the 1” line item among the current assets. Details comprising the cash and cash equivalents should be disclosed in the notes to financial statements. Financial Statement Classification Classified as Cash and Cash Equivalents Classified as a separate line item 1. Unrestricted/Current Use Restricted/Noncurrent Use >> Long-term Investment Note: Classification of cash fund as current or noncurrent should parallel the classification ofthe related liailty If material, foreign bank deposits subject to foreign exchange restriction shall be classified separately among noncurrent assets and restriction clearly indicated 2. Investment in Time Deposit, Money Market Instrument and Treasury Bills If Term <3 months 3 months < Term <1 year > Short-term Investment Term > 1 year -> Long-term Investment Note: There isan assumation of 3 month-term when the problem does not specify. S000 ———<—3. General Rule: Bank overdraft (Credit Balance Bank Account) -> Current Liability Exception: It can be an offset against other bank account if the amount is immaterial and/or when the entity maintains 2 or more accounts in 1 bank. 4, Informal Compensating Balance Formal Compensating Balance = not legally restricted — legally restricted If related loan is short-term -> Cash held as compensating balance If related loan is long-term -> Noncurrent Investment Note: Inthe absence of any information, compensating balance i aways considered not available for an unrestricted use Restoration of Cash Balance from: Check as payment Check as receipt Unreleased Check * Cash VAccount Payable Ucash PAccount Receivable Postdated Check * Cash LAccount Payable Ucash Account Receivable Stale Check" * ash LAccount Payable Ucash Account Receivable Note: "A check becomes stale if not encashed within 6 months from the Issuance date. However, the entity may isue a “stop payment order” for cancelation of stale check even for less than 6 months. Misstatement Practices Concerning Cash Balance: 1. Window Dressing is @ practice of opening the books of accounts beyond the close of the accounting period for the purpose of showing a better financial position and performance. 2. Lapping consists of misappropriating a collection from one customer and concealing this defalcation when collection is made from another customer. 3._Kitingis a transfer of cash from one bank to another bank usually employed at the end of the month. Petty Cash Fund 1. Imprest Fund System Petty cash expenses are recorded upon replenishment. Replenishment amount = Petty cash disbursements 2. Fluctuating Fund System Petty cash expenses are immediately recorded. Replenishment amount = or > or < Petty cash disbursements Bank Reconciliation Book reconciling items 1. Credit Memos deposits credited by the bank; not yet recorded as cash receipts in books 2. DebitMemos —checks debited by the bank; not yet recorded as cash disbursements in books Bank reconciling items 1. Deposits in transit — already recorded as cash receipts in books; not yet credited by the bank 2. Outstanding checks ~ already recorded as cash disbursements in books; not yet debited by the bank 1. Adjusted balance method ~ book balance and bank balance -> correct cash balance 2. Book to bank method 3. Bank to book method Proof of cash is an expanded reconciliation in that it includes proof of receipts and disbursements. rh