Cash and Cash Equivalents

CASH
Definition
Cash includes money and any other negotiable instrument that Is payable in money and acceptable by the bank
for deposit and immediate credit.

Recognition
Since there is no specific standard governing cash and cash equivalents, the related standard is “PAS 1, paragraph
66, which provides that an entity shall classify an asset as current when it Is cash or a cash equivalent unless it is being
restricted from being exchanged or used to settle liability for at least twelve months after the end of reporting period.” In
conclusion, to report an item as part of cash, it should be UNRESTRICTED IN USE.

Measurement

Item Measurement
Cash in local currency At face value
Cash in foreign currency At face value but translated to Philippine Peso
Using closing rate at year-end
Cash in closed bank or banks in bankruptcy Estimated realizable value

Composition
To properly understand the composition of cash, we will group its parts into three (3): Cash On Hand (COH), Cash
In Bank (CIB) and Cash Fund (CF).

1. Cash On Hand - is the amount of cash a business or individual has immediately available. Cash on hand is
considered a liquid asset, meaning it can be easily converted into cash.
a. Coins and Currencies
b. Checks
i. Normal Customer’s checks -
ii. Cashiers’, Managers’ and Travelers’ check
iii. Undelivered – An undelivered or unreleased check is one that is merely drawn and recorded
but not given to the payee before the end of reporting period.
iv. Post-dated checks – a check drawn, recorded and already given to the payee but it bears a
date subsequent to the end of reporting period.
v. Stale checks – a check not encashed by the payee within a relatively long period of time. In
banking practice, a check becomes stale if not encashed within aix months from the time of
issuance.
c. Other instruments
i. Money order – Similar to bank drafts but are drawn from post office or other financial
institutions.
ii. Bank drafts – Guarantees by bank to advance funds on the demand by the party to whom the
draft was directed.
2. Cash In Bank - Cash in bank is a term that refers to money that a business has deposited in a bank account.
Cash in bank is different from cash on hand, which is the money that a business has on its premises or with
its employees
a. Demand Deposit (Non-Interest bearing)
b. Savings Deposit (Interest bearing)
c. Escrow deposit (interest bearing) – Restricted amount held in trust for another party.
d. Time Deposit (Interest bearing)
e. Compensating balance – is the minimum checking or demand deposit account balance that must be
maintained in connection with a borrowing arrangement with a bank.
f. Bank overdraft – when the cash in bank has a credit balance, it is said to be an overdraft. The credit
balance in bank account in the cash in bank account results from the issuance of checks in excess of
deposits. Legally, bank overdrafts are not permitted in the Philippines.

3.

Cash Fund - refers to cash that is taken out of the business and put in a restricted fund, meaning it is set aside
for a specific function or future plans.
a. For asset acquisition
i. Current asset
ii. Non-current asset
b. For use in operations
c. For settlement of liabilities
i. Current asset
ii. Non-current asset