CASH & CASH EQUIVALENTS

CASH
General: Cash/Money
◦ medium of exchange, legal tender.

Accounting: Cash
◦ includes money and negotiable instruments
◦ unrestricted in use

Kinds of Cash
1. Cash on Hand
2. Cash in bank
3. Cash fund for current operations
 Cash on Hand Cash in Bank
a) Customer’s Check awaiting deposits a) Current Account/Checking/Demand
b) Undeposited cash collections Deposit/Commercial Deposits
b) Savings deposits
c) Traveler’s check
d) Cashier’s/Official/Treasurer’s or Manager’s
Check
e) Postal Money Orders
f) Bank drafts
 Cash fund for current operations
a) Change fund i) Tax fund
b) Payroll fund
c) Purchasing fund
d) Revolving fund Example of funds for non-current operations
(not included in cash)
e) Interest fund o Pension fund
o Preferred redemption fund
f) Petty cash fund
o Acquisition of PPE fund
g) Dividend fund o Contingent funds
o Insurance funds
h) Travel fund o Sinking funds
CASH EQUIVALENTS
• Short term and highly liquid investments
• Insignificant risk in change in value

Examples:
a. Time deposits*
b. Money market instrument or commercial papers
c. Treasury bill, notes, bonds, and warrants
d. Redeemable preference shares with mandatory redemption

NOTE: 3-month rule shall apply. (Originally invested* or acquired for three months before maturity.)
Investment of excess cash
• Total cash accumulated – cash needed for current operations = EXCESS CASH

Classification of investment of excess cash

Term or Maturity Classification

3 months or less Cash and Cash equivalents
More than 3 months but within one year Current Assets/Short-term Assets
More than one year Long-term Assets/ Non-Current Assets
Measurement and FS Presentation
General rule: Face value
Exceptions:
◦ Foreign Currency : current exchange rate
◦ Deposits in a bankrupt institutions : estimated net realizable value

Cash and Cash equivalents – first item among the current assets
Detailed presentation – disclosed in the notes to financial statements
Special Classifications and treatments
ITEMS REMARKS
Deposits in Foreign Banks • Unrestricted – CASH
• Restricted and Material – Non-current Assets as receivables with proper disclosure
of restrictions

Cash Fund • Current operations – cash fund is current assets

• Liability is current – Cash fund is current assets
• Liability is non-current – Cash fund is non-current assets
• To purchase non-current assets – ALWAYS current (regardless of the year of
disbursement)

Bank overdraft • General Rule: Current Liability

• Exception: Multiple bank accounts in the same bank - netted against other
accounts with positive balance
Special Classifications and treatments
ITEMS REMARKS
Compensating balance • Not legally restricted – Cash
• Legally restricted for short term loans – Current asset (separate line item)
• Legally restricted for long term loans – Non-current assets (investment)
Note: If silent – assumed as not legally restricted

Undelivered or unreleased • Upon drawing the check

checks Dr: Accounts Payable xxx
Cr: Cash xxx

• At period close (revert to cash)

Dr: Cash xxx
Cr: Accounts Payable xxx
Postdated Checks • Company’s own PDC – reverted to cash
• Customer’s PDC – will remain as receivable
Special Classifications and treatments
ITEMS REMARKS
Stale checks or checks long • Reverted to cash
outstanding Dr: Cash xxx
Cr: Misc. Income xxx (if immaterial)
Cr: Accounts Payable xxx (if material)

Cash Shortage or overage Offsetting account : Cash short or over

-shortage (deduction from cash)

o Responsibility of cash custodian ( Receivable from Cashier)
o Unknown reason (Losses)

-overage (addition to cash)

o Money of cashier (Payable to Cashier)
o Unknown reason (Miscellaneous Income)
Special Classifications and treatments
ITEMS
Equity Securities
IOU’s (I owe you)
Returned/NSF Checks
Temporary investments in
shares of stocks
Unused credit line
Unrecorded cash disbursement
Unrecorded cash collections
Postage Stamps
REMARKS
• Not classified as cash equivalents except Redeemable Preference Share
Revert to Receivables
Revert to Receivables
Investment either as FVPL or FVOCI but never treated as cash
Disclosures only
Deduction to cash by recording correct disbursement
Dr: Expense or Account Payable
Cr: Cash
Addition to cash by recording proper collection
Dr: Cash
Cr: Accounts Receivable or Income account
Expense or Supplies
Petty Cash
Imprest Fund System Fluctuating Fund System
To establish Fund
• Petty cash fund xxx • Petty cash fund xxx
Cash in Bank xxx Cash in Bank xxx
Payment of Expenses
• Memo entry • Expenses xxx
Petty cash fund xxx
Replenishment of petty cash payments
• Expenses xxx • Petty cash fund xxx
Cash in Bank xxx Cash in Bank xxx
To adjust unreplenished expenses
• Expenses xxx No adjusting entry
Petty cash fund xxx
Increase in fund
• Petty cash fund xxx • Petty cash fund xxx
Cash in Bank xxx Cash in Bank xxx
Decrease in fund
• Cash in Bank xxx • Cash in Bank xxx
Petty cash fund xxx Petty cash fund xxx
Imprest Fund System Fluctuating Fund System
Dec 1: The entity established 10,000 petty cash fund
• Petty cash fund 10,000 • Petty cash fund 10,000
Cash in Bank 10,000 Cash in Bank 10,000
Dec 10: Petty Cash items include (2000 Coins and Currencies, 5000 Supplies, 1800 Telephone, 1200 Postage)
• Memo entry – Expenses for supplies 2000, Telephone 1800 and Postage • Supplies Expense 5000
1200 Telephone Expense 1800
Postage Expense 1200
Petty cash fund 8000
Dec 15: Replenishment of petty cash payments
• Supplies Expense 5000 • Petty cash fund 8000
Telephone Expense 1800 Cash in Bank 8000
Postage Expense 1200
Cash in bank 8000
Dec 28: Petty Cash expenses (Miscellaneous Expenses 3,000)
• Memo entry – Miscellaneous expenses paid 3000 • Miscellaneous Expense 3000
Petty cash fund 3000
Dec 31: The fund was not replenished
• Miscellaneous Expense 3000 No adjusting entry
Petty cash fund 3000
Jan 1: Reversal of year end adjustment
• Petty Cash Fund 3000 No entry
Miscellaneous Expense 3000
Problem 1
Identify the correct amount of cash and cash equivalents (36 points)
Problem 2