Cash and Cash Equivalents

It includes money and any other negotiable instrument that is payable in money and
acceptable by the bank for deposit and immediate credit

Cash items include:

1. Cash on hand. Includes undeposited cash collections and cash items awaiting
deposits.
2. Cash on bank. Includes demand deposits or checking account and saving
deposit which are unrestricted as to withdrawal
3. Cash fund. Cash set aside for current pruposes such as petty cash fund, payroll
fund and dividend fund.

Cash equivalents, short term and highly liquid investments that is readily convertible into
cash
 Three-month BSP treasury bill
 Three-year BSP treasury bill purchased three months before date of maturity
 Three-month time deposit
 Three-month money market instrument.
Any bills purchased three months or less before maturity.

Investment of excess cash

If the investment is good for three months or less maturity, it is classified as cash and
cash equivalents. If it is good for three months to one year maturity, it is called short
term investments. When the investment will mature in more than one year, it is
classified as long term investment.

Measurement of Cash
It is measured at face value. Cash in foreign currency is measured at the current
exchange rate. If the bank is in bankruptcy, cash should be written down to estimated
realizable value.
Example: TheirCompany has a deposits of P2,000,000 in Banco Filipino. Unfortunately,
Banco Filipino filed for bankruptcy. In this case, TheirCompany can only account for
cash worth P500,000 because it is the maximum amount PDIC will pay for every
account holders.

Cash Fund
If it is use in current operation, it is treated as cash and cash equivalents. When use
for noncurrent purposes, it is classified as long term investment.

Bank overdraft is the credit balance in a bank account. It is treated as current liability. It
can be offset if the company has two or more accounts in the same bank or if the
amount is immaterial.

Compensating balance
It takes form of minimum checking or demand deposit account balance that must be
maintained in connection with a borrowing arrangement with a bank. If the
compensating balance is not restricted, it is treated as cash. When it is legally restricted
for short term period, it can be classified as cash held as compensating balance. If
the compensating balance is restricted for long term loan, it is classified as noncurrent
investment.

Undelivered check
Check drawn and recorded but not given to payee before the end of the reporting period
Example: MyBusiness prepares a check worth P10,000 to pay YourBusiness on
December 27, 2019. However, the said check was left undelivered
Entry when Check is Prepared Adjusting Entry
Accounts Payable 10,000 Cash 10,000
Cash 10,000 Accounts Payable 10,000

Post-dated checks delivered

Check drawn, recorded and given to payee but it bears a date subsequent to the end of
reporting period.
Example: MyBusiness paid YourBusiness with a check amounting to P10,000 on
December 27, 2019. However the check was dated January 6, 2020.
Entry when Check is Prepared Adjusting Entry
Accounts Payable 10,000 Cash 10,000
Cash 10,000 Accounts Payable 10,000

Stale check
Check not encashed by the payee within a relatively long period of time. Commonly, it is
six months from the date imprinted in the check.
Example: MyBusiness paid YourBusiness with a check amounting to P10,000 on
December 27, 2019. However, YourBusiness has forgot to encash the check

Entry when Check is Prepared Adjusting Entry (immaterial)

Accounts Payable 10,000 Cash 10,000
Cash 10,000 Miscellaneous Income 10,000

Entry when Check is Prepared Adjusting Entry (material)

Accounts Payable 10,000 Cash 10,000
Cash 10,000 Accounts Payable 10,000

Accounting for Cash Shortage

When cash count is less than book balance
Cash short or over xx
Cash xx

If the cashier is responsible for the cash shortage

 Due from cashier xx
Cash short or over xx

Fail to disclose cause of shortage:

Loss from cash shortage xx
Cash short or over xx

Accounting for Cash Overage

When cash count is more than book balance
Cash xx
Cash short or over xx

If the cashier is the owner of excess cash

Cash short or over xx
Payable to cashier xx

Fail to disclose cause of overage:

Cash short or over xx
Miscellaneous income xx

Petty cash fund. It is the money set aside to pay small expenses which cannot be paid
conveniently by means of a check.
1. Imprest fund system. It is normally used in practice. A system of cash control
which requires that all cash receipts should be deposited intact and all cash
disbursements should be made by means of check
2. Fluctuating fund system. It has a fluctuating fund balance from time to time.

Imprest fund system Fluctuating fund system

The entity established a petty cash fund of P10,000
Petty cash fund 10,000 Petty cash fund 10,000
Cash in bank 10,000 Cash in bank 10,000
The petty cash items include the following: postage P1,500; supplies, P5,500;
transportation, P1,200 and miscellaneous expense P 800.
Postage expense 1,500
Supplies expense 5,500
No entry Transportation expense 1,200
Miscellaneous expense 800
Petty cash fund 9,000
Replenished the fund and increased by P5,000
Postage expense 1,500 Petty cash fund 6,000
Supplies expense 5,500 Cash in bank 6,000
Transportation expense 1,200
Miscellaneous expense 800
Petty cash fund 5,000 Petty cash fund, beginning 10,000
Cash in bank 14,000 Less: petty cash fund expenses (9,000)
 Add: increase in the fund 5,000
The cash in bank of P14,000 is the 6,000
balancing figure for the total debits.
The petty cash items: currency and coins 9,000; postage 2,000; supplies 3,000 and
deposit for 20 cases of softdrinks, P1,000. It was not replenished at the end of the
reporting period.
Postage expense 2,000 Postage expense 2,000
Supplies expense 3,000 Supplies expense 3,000
Container’s deposit 1,000 Container’s deposit 1,000
Petty cash fund 6,000 Petty cash fund 6,000
Reversing entries
Petty cash fund 6,000
Postage expense 2,000 No entry
Supplies expense 3,000
Container’s deposit 1,000