FAR REVIEWER PRELIMS PART 1

Cash

It includes money and any other negotiable instrument that is payable in money and acceptable by
the bank for deposit and immediate credit.

✓Checks ✓Travel Fund ✘Sinking Fund

✓Bank Drafts ✓Interest Fund ✘Preferred Redemption

Fund
✓Money Orders ✓Dividend Fund
✘Plant Expansion Fund
✓Petty Cash Fund ✓Tax Fund
✘Insurance
✓Payroll Fund

COMPOSITION:

1) Cash on Hand

- Bank drafts

- Checks drawn (postdated & undelivered), certified that are received from customers, cashier, manager,
traveller, and personal, Money Orders, Coins and Curriencies.

2) Cash in Bank

-Demand deposit/checking account, Savings account

3) Cash Fund

-Change fund, dividend, interest, payroll, petty cash, revolving, tax, travel, others which are used in
current operation.

EXCLUDED:

1) Postdated checks received

2) IOUs

3) Cash fund not used in the current operation.- Sinking Fund, Plant Expansion, Depreciation, Preference
share redemption, Contingency, Insurance.

4) Bank Overdrafts

5) Deposit in escrow

6) Unused credit line - disclosed only

7) Deposits in bank that went bankcrupt - A/R is measured @ NRV

8) Restricted compensating balance

MEASUREMENT: Face Value; Current exchange rate for cash in foreign currency

Cash and Cash Equivalents (CCE)

These are short-term and highly liquid investments that are readily convertible into cash and so
near their maturity that they present insignificant risk of changes in value because of changes in
interest rates. (PAS 7, par. 6)

Only highly liquid investments that are acquired three months before maturity can qualify as cash
equivalents.

✓3-month BSP Treasury Bill

✓BSP Treasury Bill (more than 3 months) purchased 3 months before maturity date

✓3-month Time Deposit

✓3-month Money Market Instrument or Commericial Paper

✓Preference shares (with specified redemption date) purchased 3 months before redemption date

✘Equity securities – no maturity date

✘Treasury Shares

NOTE: Anything restricted is EXCLUDED in cash and cash equivalent.

Note: *A check becomes stale if not encashed within 6 months from the issuance date. However, the
entity may issue a “stop payment order” for cancelation of stale check even for less than 6 months.

Financial Statement Presentation

Aggregate cash and cash equivalents should be shown as the 1st line item among the current assets.
Details comprising the cash and cash equivalents should be disclosed in the notes to financial
statements.

General Rule: Bank overdraft (Credit Balance Bank Account) → Current Liability

Exception: It can be an offset against other bank account if the amount is immaterial and/or when
the entity maintains 2 or more accounts in 1 bank.

Informal Compensating Balance

─ not legally restricted

Formal Compensating Balance

─ legally restricted

If related loan is short-term → Cash held as compensating balance

If related loan is long-term → Noncurrent Investment

Note: In the absence of any information, compensating balance is always considered not available for an
unrestricted use.

Petty Cash Fund

1. Imprest Fund System

Petty cash expenses are recorded upon replenishment.

Replenishment amount = Petty cash disbursements

2. Fluctuating Fund System

Petty cash expenses are immediately recorded.

Replenishment amount = or > or < Petty cash disbursements

Bank Reconciliation

Book reconciling items

1. Credit Memos – deposits credited by the bank; not yet recorded as cash receipts in books

2. Debit Memos – checks debited by the bank; not yet recorded as cash disbursements in books

Bank reconciling items

1. Deposits in transit – already recorded as cash receipts in books; not yet credited by the bank 2.
Outstanding checks – already recorded as cash disbursements in books; not yet debited by the bank

Forms

1. Adjusted balance method – book balance and bank balance → correct cash balance

2. Book to bank method

3. Bank to book method

CASH AND CASH EQUIVALENTS

Cash
Includes money or its equivalent that is readily available for unrestricted use.

In accounting parlance, it includes money and any other negotiable instruments that is payable in
money and acceptable by the bank for deposit and immediate credit.

Cash includes:

1. Cash on Hand 2. Cash in Bank 3. Cash Fund

Examples of items included as cash:

1. Coins and currencies 4. Money orders

2. Demand deposits 5. Checks

3. Bank drafts 6. Cash funds set aside for use in current

operations

Examples of items not included as cash

•Postdated checks received

-Postdated checks drawn and unreleased checks drawn should be reverted back to cash

•IOUs and advances to employees

•Cash funds not available for current operation

-Sinking fund

-Depreciation fund

-Plant expansion fund-Contingency fund

-Insurance fund

•Postage stamps

•Unused credit line

Stale checks

-Is a check not encashed by the payee within a relatively long period of time

-It should be reverted back to cash

Cash Equivalents
-Short-term, highly liquid investments that are readily convertible to known amount of cash and which
are subject to insignificant risk of changes in value

-Only highly liquid investments that are acquired three months before maturity can qualify as cash
equivalents

-Equity securities cannot qualify as cash equivalents.

-However, redeemable preference share that are acquired 3 months or less before their redemption
date can qualify as cash equivalents.

Examples:

1. Treasury bills, notes or bonds acquired 3 months before maturity

2. Three-month time deposit

3. Money market instrument or commercial paper acquired 3 months before