(Intermediate Accounting 1A)

LECTURE AID

2020

ZEUS VERNON B. MILLAN

Chapter 2 Cash and Cash Equivalents

Learning Objectives

• Define cash and identify the items that are

included in the “Cash and Cash Equivalents”

line item.

• Account for petty cash funds and cash

shortages/overages.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Definition of Cash

• Cash is money or its equivalent that is

readily available for unrestricted use.
Examples:
a. Cash on hand
b. Cash in bank

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Post-dated checks and Unreleased checks

• Postdated checks received from customers are

excluded from cash.

• Postdated checks drawn are included in cash.

• Unreleased checks drawn are included in cash.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Cash equivalents

• Cash equivalents are “short-term, highly liquid

investments that are readily convertible to known

amounts of cash and which are subject to an insignificant
risk of changes in value.” (PAS 7 Statement of Cash Flows)
• Only highly liquid investments that are acquired 3 months

or less before maturity can qualify as cash equivalents.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Financial statement presentation

• Items of cash and cash equivalents are

aggregated and presented in the statement of
financial position under a single line item
described as “Cash and cash equivalents.”

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Measurement

• Cash is measured at face amount.

• Cash denominated in foreign currency is translated at the

current exchange rate as of reporting date.

• Cash maintained in a bank undergoing bankruptcy is

excluded from cash and presented as receivable

measured at realizable value.
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Compensating balance
• Compensating balances that are legally restricted as to

withdrawal by the borrower are excluded from cash.

• Compensating balances that are not legally restricted

as to withdrawal are included in cash.

• Whether restricted or not, compensating balances are

disclosed in the notes.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Bank overdraft

A bank overdraft is presented as a current

liability, unless it qualifies to be offset against
cash.

INTERMEDIATE ACCTG 1A (by:

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Petty cash fund
Petty cash fund is money set aside to defray
relatively small amounts of cash disbursements.

INTERMEDIATE ACCTG 1A (by:

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 APPLICATION OF
CONCEPTS
PROBLEM 6: FOR CLASSROOM DISCUSSION

INTERMEDIATE ACCTG 1A (by: MILLAN)

 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

INTERMEDIATE ACCTG 1A (by: MILLAN)

 END

INTERMEDIATE ACCTG 1A (by: MILLAN)