Cash and Cash Equivalents PFRS 9 – Financial Instruments (Related Standard)

I. Composition of Cash and Cash Equivalents

CASH
Definition: Cash includes money (coins and currency) and other negotiable instruments that is payable in money and acceptable by the bank for deposit and
immediate credit.
Q: All cash items are in legal tender A: FAR – True; RFBT – False
Recognition: (PAS 1 par.66) An asset is current when it is a cash or cash equivalent unless it is restricted for being exchange or use for settlement of liability for at
least 12 months after the end of the reporting period. “UNRESTRICTED”
Measurement: Local currency Face Values
Foreign Currency Spot Rate or Closing rate (Translated Value)
Financial Institution (bankruptcy) NRV (PDIC - Max. of P500k per account)
Composition: A. Cash on Hand B. Cash in Bank C. Cash Fund
1. Cash on Hand Included as Cash?
 Coins and currencies YES
 Checks
o Normal Checks YES
o Traveler’s checks YES
o Manager’s checks YES
o Cashier’s check YES
Entity?
o Postdated Checks Maker Payee
o Undelivered Check YES No
o Stale Checks
 Others
o Bank drafts YES – good as checks
o Money orders YES – good as checks

2. Cash in Bank “Deposits” Included as Cash?

 Demand Deposit / Current Account / Checking Account (NIB) YES
 Savings Deposit (IB) YES
 Time Deposit (IB) NO – Cash Equivalent / Short-term Investment
 Escrow Deposit (NIB) NO – Long Term Investment
 Compensating Balance
o Formal (Restricted) NO

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 o Informal (Unrestricted) *SILENT* YES
 Bank Overdraft
GR: Current Liability
XPN: a. 2 or more accounts in the same bank (Offset)
b. Immaterial (Explicitly Stated)

3. Cash Fund Included as Cash?

 Asset Acquisition CA / CL YES
 Liability Settlement* NCA / NCL NO
 Day-to-day Operation
a. Petty Cash fund YES
b. Revolving fund YES
c. Change fund YES
d. Travel fund YES

*What are current and non-current liability?

Current liability: Non-current liability:
1. Payroll fund 1. Insurance fund
2. Interest fund 2. Pension fund
3. Dividend fund 3. PS redemption fund
4. Bond sinking fund**
**GR: Non-current liability XPN: Currently maturing
TOPICS
Petty Cash Fund - money set aside to defray relatively small amount of cash disbursements; may be accounted using imprest fund system or fluctuating fund system

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 Imprest Fund System (intact) Fluctuating Fund System
Establishment PCF XX PCF XX
CIB XX CIB XX
Payment of expenses No JE (memo only) Expenses XX
PCF XX
Replenishment Expenses XX PCF XX
CIB XX CIB XX
Adjusting entry for unreplenished fund Expenses XX No AJE
PFC XX
Increase or decrease in fund` PCF XX PCF XX
CIB XX CIB XX

CIB XX CIB XX
PCF XX PCF XX
Fraudulent Activities
1. Window dressing – intentional manipulation of financial records
2. Lapping – misappropriating of collection from one customer and concealing this defalcation; AR confirmation to uncover
3. Kiting – cash from one bank to another. Maximization of clearing days and usually appear in the end of the reporting period

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