INTACC1

2nd Meeting
11.25.2021

Continuation of Cash and Cash Equivalents Discussion:

Adjustments To Cash
> For purposes of FS presentation
● Undelivered check
○ Check that was drawn and recorded by the issuer as payment but was not
delivered to the recipient.
● Post-dated check
○ Check that was drawn, recorded and delivered as payment on the part of
the issuer (issued the payment) or as collection (the one who received) on
the part of the recipient, but bears a date subsequent from the date of
issuance or recipient.
● Stale check
○ Check was drawn, recorded, and delivered as payment on the part of the
issuer or as collection on the part of the recipient, but remained uncashed
longer than the encashment period (usually within “six” months).
■ Issuer
■ Recipient

Particulars Perspective Journal entry Adjusting

Undelivered Issuer Liability Cash/Cash in Bank

Cash in Bank Liability

Post-dated Check Issuer Liability Cash/cash in Bank

Cash in Bank Liability

Recipient Cash/Cash in Bank Receivable

Receivable Cash/CIB

Stale Check Issuer (immaterial) Liability Cash/Cash in Bank

Cash/CIB Other Income

Issuer (material) Liability Cash/Cash in Bank

Cash/CIB Liability
 Recipient Cash/Cash in Bank Loss due to stale
(immaterial) Receivable check
Cash/CIB

Recipient (material) Cash/Cash in Bank Receivable

Receivable Cash/CIB
Materiality- the impact on the balance or as a whole in the preparation of the financial
position; it is in the matter of professional judgment, on the policy of the entity on what
amount should be considered as material or immaterial.
- If the problem did not mention any materiality, always assume material.

● Bank Compensating 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 records.

Withdrawal restrictions Accounting FS presentation

Treatment

Bank Not legally restricted Cash and cash Current Asset

Compensating equivalents
Balance

Legally restricted, loan is Cash held as Current Asset

short term compensating
balance

Legally restricted, loan is Non-current Non-current asset

long term investment

Accounting scenario Offsetting rule Accounting

Treatment
Bank Overdraft Generally Not allowed Current Liability

Two bank accounts Allowed Deduction from

maintained in one bank total cash

Amount involved is allowed Deduction from

“immaterial Total cash
 “Management Policy” Allowed Deduction from
total cash
● If form an integral part of a company’s cash management then it is included as a
component of cash and cash equivalents.

Investment on Excess Cash

- Excess cash may be invested to earn interests for purposes of additional cash
inflows.
- This can be a part of cash control in order to avoid being idle or subject of theft or
embezzlement.

In accounting; classification/treatment
Cash and Cash Other short-term Other long term
equivalent investments investments

If the maturity period is If maturity period is more If maturity period is more

three months or less than three months but than one year
within one year
Part of current assets Part of noncurrent assets.
Part of current assets