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Cash and Cash
Definition of Cash
In a viewpoint of a layman, cash is simply
means money.
In accounting parlance, the term cash has
special and broader meaning. It connotes
more than money.
Cash includes checks, bank drafts and money
orders because these are acceptable by the
bank for immediate encashment or deposit.
Postdated checks received cannot be
determined as cash. Because simply its not
yet acceptable by the bank.

The following are included in
a) Cash on Hand, these are the cash on your possession.
Obviously these are the cash that are not yet
deposited on the bank. Includes: travelers checks,
customers checks, managers or cashiers checks,
bank drafts and money orders.
b) Cash in bank, this is the total amount of your cash in
the bank. Simply the balance of your bank account.
Includes: Checking and savings account which are
unrestricted as to withdrawal.
c) Cash fund, this are funds that were set aside for
current purposes like petty cash fund, payroll fund and
dividend fund.
Cash Equivalents
Cash equivalents are short-term and highly
liquid investments that are readily
convertible into cash and so near their

The Standard (PAS 7) states that only high
liquid investments that are acquired three
months before its maturity can qualify as
Cash and Cash equivalent.
Examples of Cash Equivalents
1. Three-Month BSP Treasury bill.
2. Three-year BSP Treasury bill purchased
Three months before its maturity.
3. Three-Month Time Deposit.
4. Redeemable Preference share, maturing
in three months.
Ordinary shares will never be considered as Cash Equivalent.
Because it has NO MATURITY. The Purchase date and the maturity
date is very important.
Cash fund for a certain purpose
If the cash fund is set aside for use in current operations or
for payment of current obligations, it is a current asset and
is included in Cash and Cash equivalents.

On the other hand, if the fund is set aside for use in non-
current operations or set aside for future expansion,
employees insurance etc.. It is a long term investment.
Current: If the Asset or liability is used/maturing within
one year.
Non-Current: If the Asset or Liability is used/maturing
more than one year
Bank overdraft
This happens when you have a credit balance on your
bank account. The credit balance in the bank is a result of
excessive issuance of check.. For example the balance of
the bank is 100,000 and you issued 120,000 check. The
new balance of your bank now is -20,000 this is the
overdraft. Gets?
NOTE: A bank overdraft is classified as current liability and
should not be offset against other bank accounts in
different bank. You are allowed to offset the overdraft
only when you maintain two accounts in the same bank. If
your account X has a overdraft of 20,000 while your
account Y has a debit balance of 200,000 you can offset
your account X to account Y.

Cash on Bank X 20,000
Cash on Bank Y 20,000
Compensating balance
Compensating balance generally takes the form of
minimum checking or demand deposit account
balance that must be maintained in connection with
the borrowing arrangement with a bank.

If it is not legally restricted, includes in cash.
If it is legally restricted, it is classified as Current or Non-
current asset depends on the nature of the loan.
Undelivered checks issued by the entity
are part of CASH.
Postdated checks issued by the entity are
part of CASH.
Stale Checks issued by the entity are
either miscellaneous income or accounts
payable appropriated. (to be considered
stale, it must be at least 6months from the
date of issuance.

Petty cash fund
Petty cash funds is set aside for small expenses which cannot be paid
conveniently by means of checks.

Transaction Imprest Fund Fluctuating Fund
Establishment of petty
cash fund
Petty cash fund
Cash in bank
Petty cash fund
Cash in bank

Payment of expenses NO ENTRY Expense
Petty cash fund
Replenishment of PCF Expense
Cash in Bank
Petty cash fund
Cash in bank
Increase the fund Petty cash fund
Cash in bank

Petty cash fund
Cash in bank

Decrease the fund Cash in bank
Petty cash fund
Cash in bank
Petty cash fund

Adjustment Expense
Cash in Bank
You can observe that the two methods has the
same entry when they establish the fund.

Imprest fund dont require any entry when PCF is
used because the only time you record the
transaction is when you replenish the fund. At this
time instead of debiting PCF, you debit expense

Fluctuating fund always records its PCF account.
Every transaction using Petty cash, you should
increase or decrease your PCF.
Special notes
Cash and Cash equivalents: acquired 3 months
before its maturity.
Cash: should be unrestricted
Bank overdraft: Cannot offset against other bank
account from different banks.
Postdated checks received: Not included in CASH
Postdated checks issued: return to CASH account
Undelivered checks: return to cash account