Advanced Review Solutions

Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS It is assumed that the journal entry for payment is already made when the check was drawn. But because the check
(cash) is still in your control as of reporting date, the entry for payment should be reversed.
FREQUENTLY ASKED QUESTION(S): Assumed entry when drawn: Entry to reverse since the check is still in your control:
1. What is the amount of cash and cash equivalents to be presented in the financial statements? Dr. Accounts Payable XX Dr. Cash XX
Cr. Cash XX Cr. Accounts payable XX

Cash and Cash Equivalents CASH IN BANK

→ some cash in bank is included in cash, some are excluded from cash.
1. Checking Account Included as Cash
2. Savings Account Included as Cash
Cash Cash Equivalents Excluded from Cash
3. Time Deposit
(treated as cash equivalents)
If the question is:
How much is Cash? How much is Cash & CE
Cash on Cash Cash Exclude Include
Hand in Bank Funds Legally restricted – Excluded from cash.
(treated as other current asset if related loan is short term
CASH ON HAND 4. Compensating Balance treated as other non-current asset if related loan is long term)
1. Currencies and coins Not legally restricted – Included as Cash
2. Money order Included as Cash Silent – Included as Cash
3. Bank drafts Legally restricted – Excluded from cash (treated as non-current
4. Checks (some are included as cash some are 5. Deposit in Foreign Bank asset
excluded from cash) Not legally restricted – Included as Cash
a. Cashier’s check Excluded from Cash
b. Certified check 6. Deposit in Closed Bank
(treated as other current asset)
c. Customer’s check Included as Cash Different Bank – Excluded in the computation of cash (treated as
d. Manager’s check current liability
e. Personal check 7. Bank Overdraft Same Bank – Included as Cash (included in the computation as a
f. Traveler’s check deduction)
Silent – Excluded in the computation of cash (different bank)
a. Customer’s postdated check
b. Customer’s NSF / DAIF check
Excluded from Cash
c. Customer’s stale check
(treated as receivable)

Checks drawn by the company:

1. Company’s unreleased check
Add back to Cash
2. Company’s postdated check
3. Company’s stale check

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Advanced Review Solutions
Advanced Review Solutions
Cash and Cash Equivalents

CASH IN FUNDS 1. Time deposit (a.k.a. certificate of deposit)

→ Sub-divided into two (2) categories: (1) cash fund for operations and (2) cash fund not for operation: 2. Money market (a.k.a. commercial paper) Within 3 months – Included as Cash Equivalents
a. Petty cash fund 3. Treasury bills Beyond 3 months – Excluded as Cash Equivalents
b. Revolving fund 4. Investment in preference share with redemption Silent – Included as Cash Equivalents
c. Change fund date
Cash fund for d. Payroll fund If not classified as cash equivalents, the proper classification would be:
Included as Cash of Fund
operation: e. Tax fund → Other current assets if from reporting date to maturity date is within 12 months.
f. Interest fund → Other non-current assets if from reporting date to maturity date is beyond 12 months;
g. Dividend fund
h. Travel fund
Within 12 months –
a. Sinking fund
Included as cash
b. Pension fund When is the The counting of three months is from date of acquisition of CE to the date of maturity of CE.
Beyond 12 months –
c. Preference share redemption disbursement?
excluded from cash
Cash fund not for fund
Silent– excluded from cash
operation:
d. Plant acquisition fund
e. Depreciation fund Always excluded from Cash (Items that are NOT considered as cash)
f. Contingency fund (treated as non-current asset) 1. I Owe You (IOUs) – treated as receivables
g. Insurance fund 2. Postage stamps – treated as supplies
3. Credit memo from suppliers – treated as contra purchase account
4. Cash surrender value – treated as investment
Cash and Cash Equivalents 5. Investment in shares (equity securities) – treated as investment

Cash Cash Equivalents

Cash on Cash Cash

Hand in Bank Funds

CASH EQUIVALENTS
→ PAS 7, paragraph 6, defines cash equivalent as short-term and highly liquid investments that are readily
convertible into cash and so near their maturity that they present insignificant risk and changes in value
because of changes in interest rate. Recognition only debt instrument acquired within 3 months or less before
their maturity date can qualify as cash equivalents.

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Advanced Review Solutions