Cash and Cash Equivalent

Money is the standard medium of exchange in business transactions.

Money refers to the currency and coins which are in circulation and
legal. However, in accounting terms, cash has a special and broader
meaning and implies that it is more than money

An entity shall consider an asset as current asset when the said asset is
cash or cash equivalent, unless that is restricted from being exchanged
or use to settled its liability within one year of accounting period -PAS

In accounting, cash includes money and any other negotiable instrument

that is payable in money and acceptable by the bank for deposit and
immediate credit
Specific items that may be considered as cash
1. Cash on hand
2. Checks - Considered as cash if it is received on or before the period
and dated on or before the period
a) Customer’s Check - should be received on or before and dated on
or before the period
b) Traveler’s Check
c) Manager’s Check
d) Cashier’s Check
3. Company’s Undelivered Check - merely drawn and recorded but
wasn’t given to the payee before the period Cash In bank
a) Savings Account
b) Checking Account
c) Bank Accounts in Foreign currency
4. Working Funds
a) Funds that are set aside for current purposes
i. Petty Cash Fund
ii. Change Fund
iii. Payroll Fund
iv. Dividend Fund
v. Tax Fund

Cash/working funds is set aside for use in current operation or for

payment of current obligation is considered as current asset and
considered as cash. Otherwise, it is considered as long-term investment
Understanding of Illustration:
On Dec 15, the company prepared to settle its liability and it was
recorded on that same period and since its recorded during the period
its considered as cash (as defined in Check)

On Dec 31, the cash and check is still found in the treasury and its still
under the company’s property. And since theres no outflow of cash, the
adjustment is occurred to correct the amount of the company’s asset

This illustration is an example of Undelivered/Unreleased check

Understanding of Illustration:
The company prepared and delivered the check and it was recorded by
the accountant at the date of Dec 15 2020. Except the check wasn’t
encashed by the payee while the payable was already due in January 5
2022. Therefore the check is now Stale

Company’s Stale Check - It becomes stale when the payee did not
encashed checks for more than 6 months

Same process at the previous illustration (adjusted since theres no

payment yet therefore no outflow of cash)

This illustration is an example of Postdated Check and Stale Check

Cash Equivalent
 PAS 7 defines cash equivalents as “short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value
 Investment considered as Cash Equivalent if it lasted for 3 months or
less
 Treasury bills (3 month)
 Treasury bills (purchased 3 months before maturity date; As long
as it was purchased 3 months before maturity date. Regardless if
it has a 3 year term or more)
 Time deposit (3 months)
 Money market (3 months)

Note that what is important that it has a 3 month before maturity or less
from the date purchase

Specific Item NOT considered as Cash

1. Receivables
2. Prepaid Asset
3. Temporary Investment
4. Non-Current Asset
5. Current Liability
6. Expenses

 Postdated Checks are delivered checks, recorded and already given

to the payee but it bears a date subsequent to the current
reporting/accounting period
 Stale Check is a check not encashed by the payee within a relatively
long amount of time. In banking practice, checks becomes stale if not
encashed within 6 months. Of course this matter on the entity’s
policy.
 Restricted cash are cash that are inaccessible due to legal reasons.
Therefore not considered as cash
 Overdraft when the company’s bank account has a credit balance.
Therefore, it is considered as Current Liability; Offsetting is not
applicable when it is two separate accounts from a different bank
unless if its in the same bank with two different account. Offsetting is
necessary even if its not material
 Generally, overdrafts are not permitted in Philippines

Imprest System
a method of managing cash flow that mandates that all cash payments
be made via checks and that all cash receipts be deposited in their
entirety

While internal control ideally requires all payment should be made in

checks, sometimes this is impossible.

There are occasions when the issuance of check becomes impractical

such as when paying small amounts or things are hurriedly bough or
customers are entertained

In such instances, it may be more economical and convenient to pay in

cash than checks

Petty cash fund

Money that is set aside for current purposes and small
expenses that is not necessary to be paid through checks. There are two
methods in handling petty cash such as;
 Imprest fund system - is the one usually followed in handling petty
cash
 Fluctuating fund system - its called a fluctuating fund system
because the checks drawn to replenish the fund do not necessarily
equal the petty cash disbursement. Replenishment are simply drawn
upon the request of the petty cashier

Impresent Fund system

A cash account that a business relies on to pay for routine, small
expenses. All expenses are recorded and paid in single cost.

Accounting procedure
 Establishment of the fund - Where a petty cashier will draw a check
to withdraw certain amount of cash and transfer into Petty Cash
Funds

Petty cash fund xx

Cash in bank xx
 Payment of expenses - there will be no journal entry for this
transaction but it will be a memorandum, and signed petty cash
vouchers for such payments made by the petty cashier.

 Replenishment of cash payment - Check drawn to replenish the fund.

The replenishment check is usually equal to the petty cash
disbursement.

During replenishment, this is also the time where it is necessary to

make a journal entry with all of the vouchers, memorandum signed
by the petty cashier. This is because under imprest fund system,
where all expenses are recorded at a single cost

Expense xx
Cash in bank xx

The reason there is no journal entry for petty cash it is because the
balance of the petty cash did not decrease during the entire month.
The cash in bank is credited equal to the petty cash that has been
disbursed

 Increase or decrease of funds - When the petty cashier is often

replenishing the petty funds, he will request to increase the petty
cash fund. Reverse the entry for decreasing the value

Petty cash xx
Cash in bank xx

 End of reporting period - it is necessary to adjust the

“unreplenished” expenses in order to state the correct balance of
the petty cash to report the actual balance of the petty cash and the
expenses occurred

Reverse the entry on the beginning of the subsequent period

Fluctuating System fund

Under this system, unlike the complication from imprest fund system,
expenses are recorded as they occur. Therefore, decreasing the value of
the Petty Cash Fund account in every payment of expenses.

Replenishing the petty cash fund is not necessarily equal to the petty
cash disbursement but is stated how much it was replenished and will be
recorded accordingly.

In the ending period, it is not necessary to adjust the petty cash since it
is always up to date every time expenses are paid