Student Name: VENTURA, TRISHA ANNE R.

Student Number: 191543 Section: BA3MA

SELF-CHECK PR-1.1.1
“Cash and Cash Equivalent”

Answer the following questions in your own words.

1. How cash are being classified?
Cash is the most liquid of the financial assets and is commonly classified as coins and currency,
funds and deposits in bank accounts, and some negotiable instruments. And cash is also classified as a
long-term asset, long-term debt, and or as collateral.
2. What is petty cash fund?
The petty cash fund is classified as cash because these funds are used to meet current operating
expenses and to pay current liabilities as they come due. Even though petty cash has been set aside for a
particular purpose, its balance is not material, so it is included in the cash balance in the financial
statements.
3. What are the items not included in cash?
 Post-dated cheques from customers and IOUs (informal letters of a promise to pay a debt), which are
classified as receivables
 Travel advances granted to employees, which are classified as either receivables or prepaid expenses
 Postage stamps on hand, which are classified as either office supplies (asset) or prepaid expenses
(asset)
4. What is restricted cash and compensating balance?
Restricted cash and compensating balances are reported separately from regular cash if the
amount is material.
Any legally restricted cash balances are to be separately disclosed and reported as either a
current asset or a long-term asset, depending on the length of time the cash is restricted and whether the
restricted cash offsets a current or a long-term liability. In practice, many companies do not segregate
restricted cash but disclose the restrictions through note disclosures.
A compensating balance is a minimum cash balance in a company’s chequing or savings account
as support for a loan borrowed from a bank (or other lending institution). By requiring a compensating
balance, the bank can use the restricted funds that must remain on deposit to invest elsewhere resulting
in a better rate of return to the bank than the stated interest rate (also called a face rate) of the loan itself.
5. What is foreign currency?
Foreign currency is the currency printed in a different country. And foreign currency cannot be
used to buy anything from any other country.
6. What are bank overdrafts?
Bank overdrafts are the negative bank balance. It can be netted and reported with cash on the
balance sheet if the overdraft is repayable on demand and there are other positive bank balances in the
same bank for which the bank has a legal right of access to settle the overdraft. Otherwise, bank
overdrafts are to be reported separately as a current liability.
7. What is cash equivalent?
Cash equivalents are short-term, highly liquid assets that can readily be converted into known
amounts of cash and with little risk of price fluctuations.
8. How cash and cash equivalent are being disclose?
Cash equivalents can be reported at their fair value, together with cash on the balance sheet. Fair
value will be their cost at acquisition plus accrued interest to the date of the balance sheet.
9. What are marketable securities?
Marketable securities are assets that can be liquidated to cash quickly. Marketable securities include
common stock, Treasury bills, and money market instruments, among others. These securities tend to
mature in a year or less and can be either debt or equity.