CASH AND CASH EQUIVALENTS

Cash CASH
Coin and Currency
 Readily available in payment of current obligations Petty Cash Fund
 Unrestricted in use Checking deposit
MEASUREMENT Demand deposit
Customer checks
 Fair value Personal Check
 If foreign, current exchange rate Manager Check
 If under bankruptcy/financial difficulty. Estimated realizable Certified Check
value Money Order
Traveler’s Check

CASH FUND

 For payment of liability due in 1year

o Current = cash
 For acquisition of noncurrent asset even within 1 year
o Noncurrent

CASH EQUIVALENTS

 Short term and highly liquid investment that are readily convertible into cash near their
maturity

CASH EQUIVALENTS
1. Treasury Bills With maturity of 3 months or less from date
2. Money Market of purchase
3. Time Deposit

 If problem is silent, they are assumed as cash equivalents

 Equity securities cannot qualify as cash equivalents
 Preference shares with specified redemption date can qualify as cash equivalent if
acquired 3 months before redemption date

Investment of excess Cash

Term Classification
3 months or less Cash equivalent, current asset
More than 3 months but within 1 year Short term Financial Asset/Temporary
Investment, Current Asset
More than 1 year Long term investment, Noncurrent Asset
 CASH AND CASH EQUIVALENTS

BANK OVERDRAFT
 Current Liability
 Not offset against other accounts
 Exceptions:
o If same bank
o If not material

Compensating Balance
Not legally restricted as to withdrawal Part of Cash

Legally restricted as to withdrawal Classified separately as cash held as

compensating balance, current asset
Long term loan Classified as noncurrent investment ,
Noncurrent asset

PETTY CASH FUND

 Money set aside to pay small expenses
 Two system of handling
o Imprest Fund System – All cash receipts should be deposited intact and all
cash disbursements should be made by means of check
o Fluctuating Fund System – checks drawn to replenish that fund do not
necessarily equal the petty cash fund disbursement