INTERMEDIATE ACCOUNTING – CASH AND CASH EQUIVALENTS

CASH

 money
o medium of exchange
o currency (bills) and coins
o legal tender (Peso)
 
 any other negotiable instruments (payable in money + acceptable by the bank for
deposit and immediate credit)
o checks
o bank drafts
o postal money orders
o currency demand deposits with banks
 
 unrestricted and immediately available for use in current operations
o for payment of operating expenses
o for payment of current liability
o for acquisition of current assets
 
 
 
CASH ITEMS
1. Cash on hand
 undeposited cash collection
o bills
o coins
 
 other cash items awaiting deposit
a. Customer's Check
 check na binayad ng customer sayo
 not sure kung may fund kasi wala namang nag guarantee na may fund
talaga siya
 
* customer’s postdated check
 receivable rather than cash
 
b. Manager's Check
 guaranteed by the manager
 nabawas na nung manager yung pera sa bank
 
 matic na may pondo

c. Cashier's Check
 guaranteed by the cashier (kunware wala yung manager sa bank)
 cashier naman yung nagbawas ng pera sa bank
 
 matic na may pondo ulit
 INTERMEDIATE ACCOUNTING – CASH AND CASH EQUIVALENTS

 
d. Traveler's Check
 check na dala dala ng mga traveler pag mag-aabroad if ayaw nilang may
madami at mabigat na perang dala
 
 matic na may pondo ulit
 
e. Bank draft
 guaranteed by the bank
 document na sinulat ng bank to assure na may pera talaga since bank na
nagsabing may pondo
 
f. Money Order
 other financial institution (papel na yun = cash kasi ieexchange as money if
pumunta ka)
 Western Union
 Cebuana
 Palawan
 G-cash
 
 
Checks (Problems)
a. Undelivered Checks
 already prepared but not yet delivered
 check is pending delivery
 kahit drawn na yung check pero di pa rin nakukuha ng payee di pa rin bawas
CIB
 
b. Postdated Check Delivered (Company)
 check drawn, recorded and already given to the payee but dated subsequently
 kahit drawn na yung check pero yung check di pa pwede for encashment di pa
rin bawas CIB
 
c. Stale Check or check long outstanding
 check not encashed by the payee within a long period of time
 presentment must be made within a reasonable time after issue
 banking practice = within 6 months
 
 
 
2. Cash in Bank
 unrestricted to withdrawal
o demand deposit / checking account
 dito galing mga checks
 
Compensating balance
 minimum checking or demand deposit account balance that must be maintained
due to its borrowing arrangement with bank
 partial compensation for the loan extended
 restriction kasi maintaining balance
 formal/legal restriction - not cash
 INTERMEDIATE ACCOUNTING – CASH AND CASH EQUIVALENTS

 held for short term (current asset)

 held for long term (noncurrent investment)
 
 informal/ not legal restriction
 still part of cash
 If silent problem sa compensating balance
 
o savings deposit
 
Bank overdraft
 CIB account has a credit balance
 Issuance of checks in excess of the deposits
 current liability
 offsetting is not allowed but if there is two or more accounts in one bank, it can
be offset against the other
 not permitted in the Philippines
 
 
 
3. Cash Fund
 set aside for current operation or payment for current obligation; current asset and part
of cash
o petty cash fund (pay small expenses)
o payroll fund
o travel fund
o interest fund
o tax fund
 
 set aside for noncurrent purpose or payment for noncurrent obligation; long-term
investment
o sinking fund - paunti unting ipon/set aside para sa malaking utang (bond
payable)
o preference share redemption fund
o contingent fund
o insurance fund
o fund for acquisition or construction of PPE
 
 
CASH EQUIVALENTS
 short-term and highly liquid investments that are readily convertible into cash and so
near their maturity that they insignificant risk of changes in value because of changes in
interest rate
 
 
Examples:
a. Three-month BSP treasury bill
 
b. xxx year BSP treasury bill purchased three month before maturity date
 
c. Three-month time deposit
 INTERMEDIATE ACCOUNTING – CASH AND CASH EQUIVALENTS

o di pwedeng iwithdraw within 3 months of deposit tapos earn interest

 
d. Three-month money market instrument or commercial paper
o private entity (invest)
 
 Equity securities not qualify as cash equivalent (do not have a maturity date)
 Preference shares with specified redemption date and acquired three months
before redemption date = cash equivalent
 
 date of purchase/acquisition which should be three months or less before maturity
 
 
Time Period of Investment of excess cash
a. 3 months or less -> cash equivalents
b. 3 - 12 months -> short-term investment
c. more than 1 year -> long-term investment