Cash and

Cash Equivalents
“ Cash includes money or its equivalent
that is readily available for unrestricted
use.
➢ Cash on hand
➢ Cash in bank

2
Cash and cash equivalents
Samples of Cash
• Coins and currencies
• Demand deposits
• Checks
• Cash funds for current
operations such as petty
cash fund and revolving fund
Not included in Cash
• Post dated (and unreleased)
checks
• IOUs (I owe you)
• Depreciation fund
• Other restricted funds
3
Concepts to remember

▰ Post-dated check received from customer – exclude from cash

▰ Undelivered check drawn – include in cash
▰ Postdated check drawn – include in cash
▰ Stale checks – include in cash
▰ Compensating balances (minimum amount maintained in the banks)
Not legally restricted – include in cash
Legally restricted – exclude from cash
4
“
Cash equivalents are short-term, highly
liquid investments that are readily
convertible to known amounts of cash.

These are debt instruments acquired

within 3 months or less before their
maturity date.

5
Examples of cash equivalent
(with 3 months maturity dates)

a. Treasury bills, notes or bonds acquired 3 months before

maturity date

▰ Treasury bill – short term obligations issued by the

government with maturity of 90 days to less than a
year.
▰ Treasury notes and treasury bonds – long term
obligations by the government with maturity of 1 year
to less than 10 years
▰ Treasury bonds – with maturity of 10 years or more
6
Examples of cash equivalent

b. Money market instrument or commercial paper acquired 3

months before maturity date – short-term securities and
notes payable issued by companies to other companies
and institutional investors.

c. 3-month time deposits – these are bank deposits made in

fixed denomination, bears interest higher than regular
deposits and has pre-agreed maturity, evidenced by a
certificate of deposit.
7
 Measurement and Presentation

Presentation – Statement of the Financial

Measurement
Position
▰ Cash is measured at face amount or ▰ Unrestricted – combined and presented in a
face value
single line item as “Cash and cash
▰ Cash denominated in foreign
equivalents” in the current assets
currency is translated at the current
exchange rate at the end of the
▰ With restriction of 12 months - presented as
other assets in the Current Assets section
reporting date
▰ Cash maintained in a bank
▰ With restriction of more than 1 year -
presented in the Non-current Assets section
undergoing bankruptcy – exclude
from cash and present as receivable
measured at realizable value. 8
Illustration 1: Cash balance In Peso Account
Cash on hand 100,000.00
Cash in bank - current account 350,000.00
Cash in bank - peso savings deposit 2,000,000.00
The books of ABC Co. show the Cash in money market account 250,000.00
following balances at December 31, Treasury bill
2021: purchased December 1, 2021, maturing February 28, 2022 800,000.00
Treasury bond
purchased March 1, 2021, maturing February 28, 2022 500,000.00
Treasury note 200,000.00
Unused credit line 2,000,000.00
Redeemable preference shares
purchased December 1, 2021, due on March 1, 2022 370,000.00
Treasury shares,
purchased December 15, 2021, to be reissued on March 5, 2022 50,000.00
Sinking fund 200,000.00

In Dollar Account
Cash in bank - dollar deposit (unrestricted) 100,000.00
Cash in bank - dollar deposit (restricted) 20,000.00
6- month Time deposit 60,000.00 9
Illustration 1: Cash balance

Additional information:

a. Cash on hand includes a P20,000.00 check payable to ABC Co. dated January 10, 2022
b. During December 2021, checks amounting to P60,000.00 and P40,000.00 were drawn
against the Cash in bank- current account in payment of accounts payable. The P60,000.00
check is dated January 15, 2022. The P40,000.00 check is dated December 31, 2021 but
was delivered to the payee only on January 18, 2022.
c. The Cash in bank- peso savings deposit includes a deposit in escrow in the amount of
P340,000.00 and a compensating balance amounting to P250,000.00 which is legally
restricted.
d. The Cash in bank- dollar deposit (unrestricted) account includes interest of $2,000.00
directly credited to ABC Co.’s account. The exchange rate at year-end is P40.00.

Requirement: Compute for the amount of cash and cash equivalents to be reported in the 2021
financial statements. 10
Illustration 1: Cash balance

In Peso Account
Cash on hand (a. 100k – 20k postdated customer check) 80,000.00 Included
Cash in bank - current account (b. 350k + 60k postdated check + 40k undelivered check) 450,000.00 Included
Cash in bank - peso savings deposit (c. 2M – 340k deposit in escrow – 250k restricted compensating balance) 1,410,000.00 Included
Cash in money market account 250,000.00 Included
Treasury bill, purchased December 1, 2021, maturing February 28, 2022 800,000.00 Included
Treasury bond
purchased March 1, 2021, maturing February 28, 2022 (1 year maturity date – Presented in line item Other asset
in Current assets section. 500,000.00 Excluded
Treasury note (Long-term obligations and do not meet the 3-month maturity criterion) 200,000.00 Excluded
Unused credit line (Disclosed only in the notes) 2,000,000.00 Excluded
Redeemable preference shares
purchased December 1, 2021, due on March 1, 2022 370,000.00 Included
Treasury shares,
purchased December 15, 2021, to be reissued on March 5, 2022 (Not an asset but a contra-equity account –
deduction in shareholder’s equity) 50,000.00 Excluded
Sinking fund (Restricted fund to pay off a debt) 200,000.00 Excluded

In Dollar Account
Cash in bank - dollar deposit (unrestricted) (d. 2k interest already included in the balance at December 31, 2021.
No need to add. Convert dollar to peso $100k x P40) 4,000,000.00 Included
Cash in bank - dollar deposit (restricted) 20,000.00 Excluded 11
6- month Time deposit (do not meet the 3-month maturity criterion)) 60,000.00 Excluded
Illustration 1: Cash balance

Computation
Cash on hand 80,000.00
Cash in bank - current account 450,000.00
Cash in bank - peso savings deposit 1,410,000.00
Cash in money market account 250,000.00
Treasury bill,
purchased December 1, 2021, maturing February 28, 2022 800,000.00
Redeemable preference shares
purchased December 1, 2021, due on March 1, 2022 370,000.00
Cash in bank - dollar deposit (unrestricted) 4,000,000.00
Cash and cash equivalents – adjusted balance 7,360,000.00

12
“ Petty cash funds is money set aside
for small amounts of cash
disbursements.

13
 Accounting for Petty cash fund

Establishment Disbursement Replenishment

Check drawn to the order of a petty No journal entries are made for It is made through checks,
cash custodian. disbursements out of the petty supported by a check
cash funds. disbursement voucher and
Petty cash fund xx documents will be submitted to
Cash in bank xx Petty cash payments are initially the Accounting department.
recorded in a petty cash register
and supported by signed petty Various expense xx
cash vouchers. Cash in bank xx

14
Accounting for Petty cash fund

Subsequent changes in balance of

Adjustment for unreplenished fund
PCF
When preparing FS, unreplenished
To increase the PCF
PCF should be adjusted in order not
to overstate cash and not to Petty cash fund xx
understate expenses. Cash in bank xx

Various expense xx To decrease the PCF

Petty cash fund xx
Cash in bank xx
Petty cash fund xx

15
ANY QUESTIONS?

16
 THANKS!
Next Topic: Bank Reconciliation

17