GOOD AFTERNOON

CLASS!!!
Cash and Cash
Equivalent
By: Edelwin Fajutagana
INTENDED LEARNING OUTCOME:
Students will be able to:
• understand the nature of cash and cash equivalents;
• identify and describe the items to be included as cash and cash equivalents;
• demonstrate the processes for petty cash fund;
• analyze various internal controls for cash such as imprest system and
fluctuating system

Cash and Cash Equivalent

Cash and Cash Equivalent:
“Cash and cash equivalents” is a financial item on the
balance sheet, stating the amount of all cash or other assets
that are readily convertible into cash. Any items falling
within this definition are classified within the current asset
category in the balance sheet.

Cash and Cash Equivalent

Cash and Cash Equivalent:
Characteristics of Cash and Cash Equivalents:
a. Not Restricted
b. Used to pay for current operation or current obligation

Cash and Cash Equivalent

 Cash and Cash Equivalent:
Components of Cash:
1. Cash on Hand – consist of currencies such as coins or money in the company. Not deposited
collection. (If the problem is silent it is recognized as “Not Restricted”)
• Bank drafts
• Manager’s check
• Customer’s check
• Money orders
• Traveler’s check
• Undeposited cash collections
2. Cash in Bank
• Demand Deposit / Current Account / Checking Account
• Savings Deposit (if the problem is silent, then it is considered as “Not Restricted”)

Cash and Cash Equivalent

Cash and Cash Equivalent:
Components of Cash:
3. Cash Fund (Purpose of Cash Fund)
a) Petty cash fund, payroll fund, dividend fund – cash
b) Plant expansion fund – non-current asset
c) Sinking fund – to settle the company’s current liability
• If the problem is silent, it is recognized as non-current asset

Cash and Cash Equivalent

 Cash and Cash Equivalent:
Cash Equivalents
These are securities that are easily convertible into cash or instruments that can easily
converted into cash and so near their maturity that they present insignificant risk of
changes in value because of changes in interest rates.

Time Deposit/Money Market Placements/Commercial Papers/Treasury Bills These are

all Investment Account (From the date of purchase until the investment matures)
a. Three (3) months or less – Cash Equivalent and if there is a significant change in
value
b. More than three (3) months but within one (1) year – Short Term Investment
c. More than one (1) year – Long Term Investment

Cash and Cash Equivalent

Cash and Cash Equivalent:
Examples of cash equivalents are:
• 3 month Commercial paper
• 3 month Marketable securities
• 3 month Money market funds
• 3 month/Short-term government bonds
• 3 months BSP Treasury bills
Only highly liquid investments that are acquired three months before maturity can
qualify as cash equivalent. Note that what is important is the date of purchase which
should be three months or less before maturity
10/22/2021 01/22/2022

01/22/2021 12/31/2021

Cash and Cash Equivalent

Cash and Cash Equivalent:
Measurement of Cash:
• Cash is measured at face value
• Cash in foreign currency is measured at current exchange rate.
• If a bank holding the fund of an entity is in financial difficulty, cash
should be written down to estimated realizable value if the amount
recoverable is estimated to be lower than the face value

Cash and Cash Equivalent

 Cash and Cash Equivalent:
Other items that might be considered as cash and cash equivalents:
• Bank Overdraft
• Compensating balance (maintaining balance)
• Undelivered check
• Postdated check
 Delivered
 Received
• NSF Check
• IOU/Advances to employees
• Stale Check
 Delivered
 Received
• Postage stamp
Cash and Cash Equivalent
Cash and Cash Equivalent:
Illustration I:
Identify the cash and cash equivalent from the below example:
GCQ had the following account balance on December 31, 2019:
• Cash on hand, including a customer check P100,000
dated January 31,2020 500,000
• Cash in Bank, current account 5,000,000
• Cash in bank, restricted account for plant addition
expected to be disbursed in 2020 500,000
• Cash in sinking fund set aside for bond payable
due December 31,2020 1,500,000
• Three-month time deposit 2,000,000
• Travelers Check 200,000
• Managers Check 300,000
• Money Order 100,000
1. How much should be reported as cash under current assets?
2. How much should be reported as part of cash equivalent?

Cash and Cash Equivalent

Cash and Cash Equivalent:
Solution:
Cash
Cash: Cash on hand (500K-100K) 400,000
Cash in Bank 5,000,000
Cash in sinking fund (considered as current asset) 1,500,000
Travelers Check 200,000
Managers Check 300,000
Money Order 100,000
Total Cash – Current Asset 7,500,000

Cash Equivalent:
Three-Month Time Deposit 2,000,000

Cash and Cash Equivalent

Cash and Cash Equivalent:
Illustration II:
At year-end, Swab Company reported cash and cash equivalent which comprised the following:
Cash on hand 500,000
Demand Deposit 4,000,000
Postdated customer check 300,000
Petty cash fund 50,000
Traveler’s check 200,000
Manager’s check 100,000
Money Order 150,000
What is the amount of cash reported at year-end?

Cash and Cash Equivalent

Cash and Cash Equivalent:
Solution:
Cash on hand 500,000
Demand Deposit 4,000,000
Petty cash fund 50,000
Traveler’s check 200,000
Manager’s check 100,000
Money Order 150,000
Total Cash 5,000,000
*Postdated customer check is reverted to account receivable

Cash and Cash Equivalent

Cash and Cash Equivalent:
Petty Cash Fund
• Small amount of bills to pay for the minor expenditures
 Imprest Fund System
 Fluctuating Fund System

Cash and Cash Equivalent

Cash and Cash Equivalent:
Petty Cash Fund

Cash and Cash Equivalent

 Cash and Cash Equivalent:
Imprest Fund System – this one is usually followed in handling petty cash transactions.
Here are the pertinent accounting procedures:
a) A check is drawn to establish the fund. The check is given to the petty cashier or any
responsible officer.
Petty cash fund XXX
Cash in bank XXX
b) Payment of expenses out of the fund – No formal journal entries are made. The petty cashier
generally prepares memorandum entry in the petty cash journal.
c) Replenishment of petty cash payment – a check is drawn to replenish the petty cash fund.
The replenishment check is usually equal to the petty cash disbursement
Expenses (various) XXX
Cash in bank XXX

Cash and Cash Equivalent

 Cash and Cash Equivalent:
Here are the pertinent accounting procedures:
d) At the end of accounting period, it is necessary to adjust the unreplenished expenses in
order to state the correct petty cash balance as follows:
Expenses XXX
Petty cash fund XXX
The adjustment is to be reversed at the beginning of the next accounting period.

e) An increase in the fund is recorded as follows:

Petty cash fund XXX
Cash in bank XXX
f) A decrease in the fund is recorded as follows:
Cash in bank XXX
Petty cash fund XXX
Cash and Cash Equivalent
 Cash and Cash Equivalent:
Illustration III:
Lala Company provided the following chronological transactions in relation to petty cash fund.
1. October 10, 2019 – The company established a petty cash fund of P10,000
2. October 15, 2019 – Petty cash custodian paid the following from petty cash fund: Supplies 5,000;
Telephone 1,800 and Postage 1,200
3. October 29, 2019 – Replenished the fund. The petty cash items include the following currency and
coins, P2,000; Supplies, P5,000; Telephone P1,800; Postage P1,200.
4. December 15, 2019 – Petty cash custodian paid the ff: Supplies P1,500; Postage P500; Miscellaneous
expense P1,000
5. December 31, 2019 – End of Accounting period. The fund was not replenished. The fund is composed of
the following; Currencies and coins, P7,000; Supplies P1,500; Postage P500; Miscellaneous expense
P1,000.
6. January 15, 2020 – The petty cash custodian paid the following: Representation 1,800; Office
Supplies 1,500 and Transportation 200
7. January 20, 2020 – the custodian submitted the vouchers from December 2019 to January 15, 2020. A
checking amounting to 6,500 was issued to petty cash fund to replenish it.
Prepare all entries to record the transaction under Imprest fund system.
Cash and Cash Equivalent
 Cash and Cash Equivalent:
Imprest Fund Fluctuating Fund

October 10, 2019 – The company established a petty cash fund of P10,000
10/10 Petty Cash Fund 10,000 10/10 Petty Cash Fund 10,000
Cash in Bank 10,000 Cash in Bank 10,000
October 15, 2019 – Petty cash custodian paid the following from petty cash fund: Supplies 5,000;
Telephone 1,800 and Postage 1,200
10/15 (No journal entry is made) 10/15 Supplies Expense 5,000
Telephone expense 1,800
Postage expense 1,200
Petty Cash Fund 8,000
October 29, 2019 – Replenished the fund. The petty cash items include the following currency and
coins, P2,000; Supplies, P5,000; Telephone P1,800; Postage P1,200.
10/29 Supplies Expense 5,000 10/29 Petty Cash Fund 8,000
Telephone expense 1,800 Cash in Bank 8,000
Postage expense 1,200
Cash in Bank 8,000 Cash and Cash Equivalent
 Cash and Cash Equivalent:
Imprest Fund Fluctuating Fund
December 15, 2019 – Petty cash custodian paid the ff: Supplies P1,500; Postage P500; Miscellaneous
expense P1,000
12/15 (No journal entry is made) 12/15 Supplies Expense 1,500
Postage Expense 500
Misc. Expense 1,000
Petty Cash Fund 3,000
December 31, 2019 – End of Accounting period. The fund was not replenished. The fund is composed of the
following; Currencies and coins, P7,000; Supplies P1,500; Postage P500; Miscellaneous expense P1,000.

12/31 (No journal entry is made)

12/31 (Adj) Supplies Expense 1,500
Postage Expense 500
Misc. Expense 1,000
Petty Cash Fund 3,000 2020
2020 01/01 (No journal entry is made)
01/01 (Reversal)
Petty Cash Fund 3,000
Supplies Expense 1,500
Postage Expense 500 Cash and Cash Equivalent
Misc. Expense 1,000
 Cash and Cash Equivalent:
Imprest Fund Fluctuating Fund
January 15, 2020 – The petty cash custodian paid the following: Representation 1,800; Office
Supplies 1,500 and Transportation 200
01/15 (No journal entry is made) 1/15 Supplies Expense 1,500
Representation Expense 1,800
Transpo. Expense 200
Petty Cash Fund 3,500
January 20, 2020 – the custodian submitted the vouchers from December 2019 to January 15, 2020. A
checking amounting to 6,500 was issued to petty cash fund to replenish it.

01/20 Supplies Expense 3,000 1/20 Petty Cash Fund 6,500

Postage Expense 500 Cash in Bank 6,500
Misc. Expense 1,000
Representation Expense 1,800
Transpo. Expense 200
Cash in Bank 6,500
Cash and Cash Equivalent
 Cash and Cash Equivalent:
Imprest Fund Fluctuating Fund
10/10 Petty Cash Fund 10,000 10/10 Petty Cash Fund 10,000
Cash in Bank 10,000 Cash in Bank 10,000
10/15 (No journal entry is made) 10/15 Supplies Expense 5,000
10/29 Supplies Expense 5,000 Telephone expense 1,800
Telephone expense 1,800 Postage expense 1,200
Postage expense 1,200
Petty Cash Fund 8,000
Cash in Bank 8,000
10/29 Petty Cash Fund 8,000
12/15 (No journal entry is made)
12/31 (Adj) Supplies Expense 1,500 Cash in Bank 8,000
Postage Expense 500 12/15 Supplies Expense 1,500
Misc. Expense 1,000 Postage Expense 500
Petty Cash Fund 3,000 Misc. Expense 1,000
2020 Petty Cash Fund 3,000
01/01 (Reversal) 12/31 (No journal entry is made)
Petty Cash Fund 3,000
Supplies Expense 1,500 2020
Postage Expense 500 1/1 (No journal entry is made)
Misc. Expense 1,000
1/15 Supplies Expense 1,500
01/15 (No journal entry is made)
Representation Expense 1,800
01/20 Supplies Expense 3,000
Postage Expense 500 Transpo. Expense 200
Misc. Expense 1,000 Petty Cash Fund 3,500
Representation Expense 1,800 1/20 Petty Cash Fund 6,500
Transpo. Expense 200 Cash in Bank 6,500 Cash and Cash Equivalent
Cash and Cash Equivalent:
Cash and Cash Equivalents (Problem Solving)
Chacha Inc. had the following details for its balances on December 31, 2020:
Petty Cash 50,000
Cash in bank (Current account) 4,000,000
Cash in bank (Payroll account) 1,200,000
Cash in bank (Sinking Fund) 2,000,000
Cash on hand 500,000
Cash in bank (restricted for plant expansion and
expected to be disbursed in 2021 1,500,000
Treasury bill 1,000,000
The petty cash fund included unreplenished December 2020 petty cash expense voucher of P5,000 and
employee IOU of P5,000.
The cash on hand included a P100,000 customer check payable to Chacha dated January 15, 2021.
In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance of
P200,000 in the unrestricted current bank account.
Sinking fund is set aside to settle a bond payable that is due on June 30, 2021
What is the total amount to be reported in balance sheet for “cash and cash equivalent” on December
31, 2020?
Cash and Cash Equivalent
Cash and Cash Equivalent:
Answer:
Petty Cash Fund* 40,000
Cash on Hand** 400,000
Current Account 4,000,000
Payroll Account 1,200,000
Sinking Fund 2,000,000
Treasury bills 1,000,000
Total cash and cash equivalent 8,400,000
*Petty Cash Fund 50,000
Unreplenished petty cash voucher (5,000)
Employee IOU (5,000)
Petty Cash balance 40,000

**Cash on hand 500,000

Customer check (postdated: 1/31/21) (100,000)
Cash on hand balance 400,000

Cash and Cash Equivalent

END
Thank you
And
keep safe
“ Be not afraid of growing slowly, be
afraid only of standing still”
- Chinese Proverb