CASH

Cash is a financial asset that represents as primary component of a company’s financial or capital
structure that is unrestricted as to use.

In accounting Cash:

1. Cash on hand – items in the position of the entity

 cash collections
 treasury warrants
 money orders customers’ check
 traveler’s check
2. Cash in banks – deposited in bank institution
 Savings account
 Checking accounts
3. Cash funds – depends on nature; can be on hand or in bank
 Petty cash funds
 Payroll funds
 Interest fund
 Tax fund
 Dividend fund
 Business travel fund

CASH EQUIVALENTS

Cash equivalents are short-term, highly-liquid investments that are readily convertible to known
amounts of cash which have short maturity of, say, three months or less from the date of acquisition.
(PAS 7, paragraph 6-7)

PH Interpretation Committee:

 Items not as mere “investment and other purpose” but held for meeting “short-term cash
commitments”.
 Items that are proven, with strong evidence and in substance, as cash equivalents.
 Example: Treasury bills, Certificate of time deposit, Commercial papers, Short-term government
bonds, Shares with “redemption value” (Check the video again)

Notes to be considered:

 Cash equivalents are not yet “cash” as they do not satisfy the criteria of being
“unrestricted”
 Cash equivalents are “nearly cash” as they satisfy the criteria of “readily convertible to
cash”
 Equity and other investment which do not have maturity date are not cash equivalents,
unless proven and in substance are cash equivalents.

RECOGNITION CRITERIA
Notes to be considered:

 No accounting or reporting Standard is “specific” f or the accounting for cash and cash
equivalent
 PAS 7 provides for definition a

CASH
Generally PH Interpretations Committee
 Unrestricted as to use: or  Items of cash that are “restricted” but
 Readily available; or the restriction does not prevent such
 Immediately accessible item from being used for normal trading
purpose, can still qualify as cash.

CASH EQUIVALENTS
Generally PH Interpretations Committee
 Short term  Other items of deposition or investment
 Highly liquid investment that meet the following concepts can
 With 3-month maturity from acquisition qualify as cash equivalent:
date 1. “Insignificant risk of changes in
value”; and
2. “short-term can commitment”.

MEASUREMENT

Items of “cash and cash equivalents” are measured at the amount or value of assets that are cash or can
be converted into cash immediately.

CASH
Generally Foreign deposits In closed banks
At “face value” which is the At “current exchange rate” At “estimated realizable value”
actual legal value of cash when converted in PH peso. or the amount recoverable.

Example: PH peso Example: $1 = P50.62 Example: PDIC Law

CASH EQUIVALENTS
In accordance with PFRS 9
1. Items of “investment” held for meeting “short-term cash commitments” and other cash
equivalents are measured. In general, at amortized cost – which approximates fair value.
2. Cash equivalents are, in fact, financial assets with maturity date with emphasis on
“insignificant risk or changes in value” within the maturity period.

FS PRESENTATION
 CASH & CASH EQUIVALENTS
Statement of Financial Psition (Balance Sheet)
Under “current assets” section as one line-item account showing the combined total of cash and cash
equivalent items.

NOTES TO FINANCIAL STATEMENTS

The items that compose the one line-item account cash and cash equivalents including the accounting
and management policies are required disclosures

ADJUSTMENTS TO CASH

For purpose of FS presentation, the following may be considered as adjustments to cash:

 Undelivered check – a check that was drawn and recorded by issuer as payment but was not
delivered to the recipient.
 Post-dated check – a check that was drawn, recorded, and delivered, as payment on the part of
the issuer or as collection on the part of recipient, but bears a date subsequent from the date of
issuance or receipt.
 Stale check – a check that was drawn, recorded, and delivered, as payment on the part of the
issuer or as collection on the part of recipient, but remained uncashed longer than the
encashment period (usually within “six months”)

 Bank compensation balance – represents a minimum maintaining balance in a bank account

being maintained as part of the borrowing arrangement with a bank.
 Bank overdraft – represents a “negative balance” in the cash in bank account resulting from
issuance of checks in excess of the deposit. It is a “debit” balance on the bank record.
INVENTMENT OF EXCESS CASH

Excess cash may be invested to earn interests for purposes of additional cash inflows.

This can be part of cash control in order to avoid being idle or subject of theft or embezzlement.

Cash & Cash Equivalent
If maturity period is three
months or less.
Part of current assets
CLASSIFICATION/TREATMENT
Other short-term investment Other long-term investment
If maturity period is more than If maturity period is more than
three months but with one one year
year.
Part of noncurrent assets.
Part of current assets

IMPREST FUND SYSTEM

Imprest Fund System. All cash collection should be remitted intact or deposited intact to the bank and all
cash disbursement should be done through issuance of check.

PETTY CASH FUND

 a company’s working cash fund established for purposes of paying small expenses that cannot
be paid conveniently through issuance of checks or cheques.
 Under the responsibility of cashier or custodian.
 A monthly report is prepared showing details of how the established fund was expended

May be accounted for either under of the following:

1. Imprest fund system

2. Fluctuating fund system
The two-fund system differs when it comes to:

1. Payment of petty expenses – most common

2. Replenishment of the fund – could either 2 or 3
3. Adjustment of the fund in case no replenishment - could either 2 or 3

SAMPLE PROBLEM
Accounting for petty cash fund may involve uncovering or recognizing “shortages” or “overages”.

Shortages or overages are charged to temporary accounting” cash short or over”.

Rules when to Debit or Credit the “cash short or over” account:

 Cash short or over account is Debited if there is a shortage

 Cash short or over account is Credited if there is an overage
Petty cash shortage or overage is computed as follows:

PCF accountabilities xxx

PCF accounted for xxx
Shortage or overage xxx

Where:

 “Accountabilities” is the established fund

 “Accounted for” is the count for coins & bills remaining, unreplenished expense vouchers. And
employee IOUs, if any
 Employee IOUs are term differently as advances to employees, receivable accounts. Arise in
anticipation of the salaries of employees, they make cash advancements.

Rules in determining cash shortage or overage;

 If “accountabilities” is greater than “accounted for”, there is a shortage

 If “accountabilities” is less than “accounted for”, there is an overage

SAMPLE PROBLEM
*BEFORE REPLENISHMENT THE AMOUND OF PRETTY CASH FUND IS 6,900