Cash and Cash Equivalents

Definition of Cash

• Cash is money or its equivalent that is readily available for unrestricted use.

Examples:

a. Cash on hand

b. Cash in bank

Post-dated checks and Unreleased checks

• Postdated checks received from customers are excluded from cash.

• Postdated checks drawn are included in cash.

• Unreleased checks drawn are included in cash.

Cash equivalents

• Cash equivalents are “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.” (PAS
7 Statement of Cash Flows)

• Only highly liquid investments that are acquired 3 months or less before maturity can qualify as
cash equivalents.

Financial statement presentation

• Items of cash and cash equivalents are aggregated and presented in the statement of financial
position under a single line item described as “Cash and cash equivalents.”

Measurement

• Cash is measured at face amount.

• Cash denominated in foreign currency is translated at the current exchange rate as of reporting
date.

• Cash maintained in a bank undergoing bankruptcy is excluded from cash and presented as
receivable measured at realizable value.
Cash and Cash Equivalents

Compensating balance

• Compensating balances that are legally restricted as to withdrawal by the borrower are
excluded from cash.

• Compensating balances that are not legally restricted as to withdrawal are included in cash.

• Whether restricted or not, compensating balances are disclosed in the notes.

Bank overdraft

A bank overdraft is presented as a current liability, unless it qualifies to be offset against cash.

Petty cash fund

Petty cash fund is money set aside to defray relatively small amounts of cash disbursements.

Bank reconciliation

Balance per books, end. xx Bal. per bank statement, end. xx

Add: Credit memos (CM) xx Add: Deposits in transit (DIT) xx
Less: Debit memos (DM) (xx) Less: Outstanding checks (OC) (xx)
Add/Less: Book errors xx Add/Less: Bank errors xx
Adjusted balance xx Adjusted balance xx
Cash and Cash Equivalents

Proof of cash - Per books

Nov. 30 Receipts Disbursements Dec. 31

Per books xx xx
CM
November xx (xx)
December xx xx
DM
November (xx) (xx)
December xx (xx)
Book errors:
November
December
Adjusted balances xx xx xx xx

Proof of Cash Per Bank