CASH

• MONEY OR ITS EQUIVALENT THAT IS READILY

AVAILABLE FOR UNRESTRICTED USE.

• a) readily convertible to known amounts of

cash
• (b) so near their maturity that they present
insignificant risk of changes in value because
of changes in interest rates.
PART 1: CASH EQUIVALENTS
 3 MONTH RULE
• 3 MONTHS FROM PURCHASE TO MATURITY
• TREASURY BILL, NOTES OR BONDS
Issued by the Government
• MONEY MARKET OR COMMERICIAL PAPER
Issued by Commercial Companies with good credit
rating
• TIME DEPOSIT
 Interest-bearing bank deposit account that has a
specified date of maturity,
• REDEEMABLE PREFERENCE SHARES
SPECIFIC FUNDS
CASH NOT UNDER CASH
• PETTY CASH FUND • SINKING FUND
• REVOLVING FUND ( EXCEPT IF LOAN RELATED TO
• PAYROLL FUND FUND WILL MATURE NEXT
• CHANGE FUND YEAR)
• DIVIDEND FUND • DEPRECIATION FUND
• TAX FUND • PREFERENCE SHARE
REDEMPTION FUND
• TRAVEL FUND
• CONTINGENCY FUND
• INTEREST FUND
• INSURANCE FUND
• PLANT EXPANSION FUND
CHECKS
“ DISBURSEMENT “ “ RECEIPT “

• UNDELIVERED/ POSTDATED • POSTDATED

(INCLUDE IN CASH) (EXCLUDE FROM CASH)
• STALE ( DUE OF MORE
THAN 6 MONTHS)
(EXCLUDE FROM CASH)
• NSF CHECK
(EXCLUDE FROM CASH )
PERSPECTIVE IS IMPORTANT !!!!
COMPENSATING BALANCE
“That portion of any demand deposit (or any
time deposit or certificate of deposit)
maintained by a corporation which constitutes
support for existing borrowing arrangements of
the corporation with a lending institution. Such
arrangements would include both outstanding
borrowings and the assurance of future credit
availability.”
GENERAL RULE: EXCLUDE THE COMPENSATING
BALANCE FROM CASH IF THERE IS A LEGAL
RESTRICTION
BANK OVERDRAFTS
• Bank overdrafts occur when a company writes
a check for more than the amount in its cash
account
GENERAL RULE: OFFSETTING NOT ALLOWED

• EXCEPTIONS:
• IF BOTH ACCOUNTS ARE FROM THE SAME
BANK AND BOTH ARE CURRENT ACCOUNTS
 TIP: ALWAYS READ THE PROBLEM
• THERE IS A DIFFERENCE BETWEEN “ THE
FOLLOWING ITEMS ARE INCLUDED AND
EXCLUDED”
BANK RECONCILIATION
 REASON:
• TIMING ERRORS
• ERROR IN RECORDING BY THE BANK, BOOK OR
BOTH
 DISCLAIMER: NOT EXHAUSTIVE
BANK BOOK
• UNADJUSTED: • UNADJUSTED
+ DEPOSIT IN TRANSIT + COLLECTION FROM NOTE
- OUTSTANDING CHECK + INTEREST INCOME
+/- BANK ERRORS - NSF CHECK*
- BANK CHARGES
+/- BANK ERRORS
How cash is presented in book and bank

BOOK BANK

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Reason: BANK sees cash as a LOAN

TRANSACTION with the depositor
• DEBIT MEMOS • CREDIT MEMOS

DEDUCTIONS BY THE ADDITIONS BY THE BANK

BANK TO THE ENTITY’S TO THE ENTITY’S BANK
BANK ACCOUNT ACCOUNT