Cash and Cash Equivalent

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

Money – Standard medium of exchange in business transactions. It also refers to the currency and coins
which are in circulation and legal tender

But postdated checks received cannot be considered as cash yet because it is unacceptable by the
bank for deposit and immediate credit or outright encashment.

The cash must be Unrestricted in Use

Cash on hand includes undeposited cash collections and other cash items awaiting deposit such as
customer’s checks, cashier’s or manager’s checks, traveler’s check.Bank drafts and money orders.

Cash in bank included demand deposit or checking account and saving deposit which are unrestricted as
to withdrawal.

Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and
so near their maturity. The standard further states that only highly liquid investments acquired three
months before maturity can qualify as cash equivalents

Examples of cash equivalents:

a. Three-month BSP treasury bill
b. Three-year BSP treasury bill purchased three months before date of maturity
c. Three-month money market instrument or commercial paper

Equity securities is not considered as cash equivalents because it has no maturity date

But Preference shares with specified redemption date and acquired three months before redemption
date can qualify as cash equivalents

Classifications of investment of excess cash

a. If the term is three months or less, such instruments are classified as cash equivalents.
b. If the term is more than three months but within one year, such investments are classified as short-term
financial assets or temporary investments.
c. If the term is more than one year, such investments are classified as noncurrent or long-term
investment

Measurement of cash
Cash is measured at face value
Cash in foreigncy is measured at the current exchange rate

The caption cash and cash equivalents should be shown as the first item under the current asset.

Deposits in foreign countries which are not subject to any foreign exchange restriction are
considered as cash.
If the cash fund is set aside for use in current operations or for the payment of current obligations , it
is a current asset.Examples are:
Petty cash fund
Tax fund
Payroll fund
Travel fund
Interest fund
Dividend fund

But if the cash fund is set aside for noncurrent purpose or payment of noncurrent obligations, it is
shown as long-term investment
Sinking fund
Preference share redemption fund
Contingent fund
Insurance fund
Fund for acquisition of PPE

Bank overdraft occurs when there is a credit balance in the account. It is also classified as current
liabilities

Compensating balance is an account balance that must be maintained in connection with the borrowing
arrangement with a bank

ITEMS INCLUDED AS CASH and CASH EQUIVALENTS

I. Coins and Currencies
II. Demand Deposits
a. Checking accounts
b. Current accounts
III. Savings accounts
IV. Bank drafts
V. Money orders
VI. Three months BSP treasury bill
VII. Three-year BSP treasury bill purchased three months before date of maturity
VIII. Three months’ time deposit
IX. Three months money market instruments
X. Three months commercial paper
XI. Checks
a. Cashier’s checks
b. Personal checks
c. Manager’s checks
d. Traveler’s checks
e. Certified checks
XII. Cash funds set aside for use in current operations
a. Petty cash fund
b. Revolving fund
c. Payroll fund
d. Change fund
e. Dividend fund
f. Tax fund
g. Travel fund
h. Interest fund

ITEMS EXCLUDED AS CASH and CASH EQUIVALENTS

I. Post Dated checks
II. Stale checks
III. IOU’s (Receivables)
IV. Advances to Employees
V. Bond sinking fund
VI. Sinking fund
VII. Plant Expansion fund
VIII. Depreciation Fund
IX. Preference share redemption fund
X. Contingency fund
XI. Insurance fund
XII. Postage stamps

Compute the total amount of cash and cash equivalents that should be reported on December 31,
2021
Coney Island Company provided the following information with respect to its cash and cash
equivalents on December 31, 2006