CHAPTER 1

CASH AND CASH EQUIVALENTS

CASH
CASH
 Includes money and any other negotiable instruments that is payable in money and
accepted by the bank for deposit and immediate credit.
 Exception to the condition that cash must be unrestricted and immediately available
is Cash Fund.
 If restriction if for current operation, this equates to cash fund, which equates to
cash.

CASH IN THE STATEMENT OF FINANCIAL POSITION

1) Cash on Hand
 Undeposited Cash Collections
 currencies such as bills and coins
 checks (it is part of cash on hand because the check is still on the hand
of the entity and not yet deposited)
 Customer’s check is payment of customers to entity that
hasn’t been deposited yet.
 Manager’s check is when a payor asks for manager’s check
to the bank, and the value of the check is immediately be
deducted from the payor’s account even if not yet
withdrawn by the payee. Hence, with this, the payee is
guaranteed that the check has value.
 Cashier’s check is approved by cashiers. (same concept as
manager’s check)
 Traveler’s check is check on the hands of travellers for
convenience.
 Other checks
1) Undelivered checks – check has been crafted already but weren’t
delivered to the payee (babayaran).

Crafting of Check
Date Description P/R Debit Credit
Mar 8, 2020 Accounts Payable 120,000
Cash in Bank 120,000

Adjusting Entry
Date Description P/R Debit Credit
Mar 8, 2020 Cash in Bank 120,000
Accounts Payable 120,000

2) Post-dated checks – checks for future use. An entity isn’t

considered paid from A/P until the day indicated in the check.
 3) Stale Checks – checks that are not valid due to long time of non-
encashment. There is no specific timeframe. It depends on the
bank whether or not they will allow the payee to encash.

Crafting of Check
Date Description P/R Debit Credit
Mar 8, 2020 Accounts Payable 120,000
Cash in Bank 120,000

Non-encashment
Date Description P/R Debit Credit
Mar 8, 2020 Cash in Bank 120,000
Miscellaneous Income 120,000

 Bank draft (Same concept with manager’s check but it is the bank itself
certifying that the check has value)
 Gcash
 Bank Overdraft
 It is not cash but current liability.
 It is when the bank allows a person to withdraw
more than the deposited amount in the bank
because the two parties have built relationship
throughout the years.
 This is not legally allowed in the Philippines. The
person who wrote the check will be penalized.
 In presentation of SFP, offsetting is not allowed
due to Bank overdraft. The overdraft shall be
presented as liability.

Exception: If the entity has different accounts in

the same bank.

Example: Overdraft of P200,000 from Bank A,

Cash in Bank of P100,000 from Bank B, Cash in
Bank of P250,000 from Bank C. The Cash
presented must be P350,000, and not P150,000.
 Money Order (Same concept as “check” but can be issued by any
institutions except bank)

 Working Funds
 Funds segregated for current use in the ordinary conduct of the
business
 petty cash fund, change fund, payroll fund, dividend fund, tax fund,
interest fund
2) Cash in bank
 Demand deposits (can be deposited thru demand)
 Checking account
 Savings account

3) Cash fund
 This is classified as cash, but it has restrictions (this is an exception).
  Change fund
 Example: The business have separate cash that must only be used as
change to customers . The restriction is for current operation.
 Tax fund
 Payroll Fund
 Dividend Fund

CASH NON-CASH
Customer’s check Post-dated customer checks (from customer)
Manager’s check No Sufficient Funds (NSF) check
Cashier’s Check IOUs
Traveler’s Check Stale check
Undelivered Checks Bank overdraft under different banks (L)
Issued post-dated check Cash in closed banks or bankrupted banks (AR)
Bank Draft Postage Stamps
Bank Overdraft under the same bank Expense Advances
Money Order Compensating Balances (legally restricted)
Cash in Bank Cash set-aside for long-term specific purpose
Demand Deposits Sinking Fund
Checking Account Plant Expansion Fund
Savings Account Certificate Time Deposit (More than 90 days)
Cash Fund Emergency Fund
Change Fund Unreplenished Petty Cash Vouchers
Tax Fund
Payroll Fund
Dividend fund
Compensating Balances (not legally restricted)
Certificate Time Deposit (90 days or less)

CASH EQUIVALENT
CASH EQUIVALENT
 Short-term (three months or less) and highly liquid investments (depends on company
where entity invested) that are readily convertible into cash and so near their maturity
that they present insignificant risk of change in value because of changes in interest
rates.
 Cash is medium of exchange; Cash equivalent is an investment.
 All of these have interest rates.
 Examples:
 Three-month BSP Treasury bill
 Bangko Sentral ng Pilipinas Treasury Bills means an entity
is investing in BSP. It’s like the BSP is borrowing money
from the entity and will return it with interest. It’s a
government debt obligation.
 Considered highly liquid because it is easy to resell and the
company will not bankrupted in foreseeable future.
 Three-month time deposit
 Remember that entity will be dealing with a bank, although
not BSP. These banks will not be bankrupted in three month
only.
 Three-month money market instrument or commercial paper
  Commercial paper has same concept with treasury bill.
The difference is commercial paper are issued by business
entities, not BSP.
 If local companies in barangay are those who issued the
commercial paper, they are not highly liquid, hence not cash
equivalents.
 Money market instrument is when a bank invested an
entity’s or person’s money to another entity as share. Hence,
it is not deposit, rather investment.
 XXX-year BSP treasury bills/commercial paper/ redeemable
preference share purchased three-months or less before maturity date.
 When a treasury bill has more than 90 days maturity date,
but a person purchased it three months before maturity date
from the original owner, it is still considered short-term.

Example: Person A has treasury bills with 5-year maturity

date. Person B bought the treasury bills from Person A three
months before the maturity date. It is considered short-term
from the perspective of Person B.

 Redeemable preference shares are shares in form but is

liability. Remember that shares does not have maturity date,
but redeemable shares do. (If three months and highly
liquid, then it’s cash equivalent).

INVESTMENTS MORE THAN 3 MONTHS

 Short-term investments – more than 3 months but not more than 12 months)
 Long-term investments – more than 12 months

PETTY CASH FUND

CASH
 Includes money and any other negotiable instruments that is payable in money and
accepted by the bank for deposit and immediate credit.