CASH AND CASH

EQUIVALENTS
CHAPTER I
CASH

comprises cash on hand and demand deposits

ITEMS INCLUDED IN “CASH”

CASH ON HAND CASH IN BANK CASH IN FUND

Undeposited Company’s own; For Current Purpose,
Collections; such as;
- Bills and Coins - Savings Account - Petty Cash Fund
- Customers’ - Checking/ Current/ Demand- - Revolving Fund
Personal Checks deposit Account
- Cashier’s Checks - Foreign Currency Deposit - Payroll Fund
- Manager’s Checks - Compensating Balance - Change Fund
- Traveler’s Checks - Undelivered Checks - Dividend Fund
- Bank Drafts - Delivered but Post-dated or Stale - Interest Fund
Checks
- Money Orders - Tax Fund
- Travel Fund
CASH EQUIVALENTS

• are short-term, highly liquid investments that are readily

convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value
ITEMS TO BE TREATED AS “CASH EQUIVALENTS”

- Three-month Treasury Bill

- 90-day Money Market Instrument
- 90-day Commercial Paper
- Three-month Time Deposit
- One year Treasury Bill acquired three months (or less) before
maturity
- Redeemable preference shares that are acquired three months or
less before their specified redemption date.
GENERAL RULE FOR RECOGNITION, MEASUREMENT, AND DISCLOSURE

• The item should be UNRESTRICTED for use.

• Items of cash and cash equivalents are measured at their FACE
VALUES.
• Foreign Currency – if it is unrestricted, then it should be
translated to Philippine currency using the current exchange rate.
• Cash and Cash equivalents are disclosed as one and the first line
item in the current asset section on the FACE OF THE BALANCE
SHEET.
CLASSIFICATION

• CASH EQUIVALENT
• matures 3 months or less from the date of acquisition
• SHORT-TERM/TEMPORARY INVESTMENT
• matures more than 3 months but within 1 year from the date
of acquisition
• LONG-TERM INVESTMENT
• matures more than 1 year from the date of acquisition
Example of funds that are typically for noncurrent purposes are;
SINKING FUND
PREFERRED REDEMPTION FUND
CONTINGENCY FUND
INSURANCE FUND
DEPRECIATION FUND
PLANT EXPANSION FUND.
Customer’s Postdated Checks, NSF(No Sufficient
Fund) Checks, IOU’s (I Owe You” Notes)

- reported as receivables rather than cash

- NSF checks in the Philippines are often described as DAIF (Drawn
Against Insufficient Funds)checks
Bank Overdraft

When the Cash in Bank account has a credit balance, it is said to be

an “overdraft”
- Classified as current liability.
- This overdraft can be offset to other account with debit balance
only if both accounts are maintained in one bank.
The cash balance of ABC Co. comprises the following:

Cash on hand 100,000

Cash in bank – savings –BPI 200,000
Cash in bank – current –BPI (80,000)
Cash in bank – deposit in escrow-Metrobank 100,000
Cash in bank – current -Metrobank (20,000)
Cash in bank – current-BDO (30,000)
Total 270,000

• Cash on hand includes undeposited collections of 20,000.

• The cash in bank –savings –BPI includes a 50,000 compensating balance which
is not restricted.

Requirement:
Compute for the total cash to be reported in the financial statements.
Undelivered or Unreleased Checks

• Are the company’s checks drawn and recorded as disbursed but

are not actually given or delivered to the payees as of the
reporting date. These checks should not be deducted from the
cash balance until they have been given to the payee. Therefore,
these checks should be reverted to the cash balance.
Entry:
Cash in Bank xxx
Accounts Payable xxx
Postdated Checks Delivered

• Checks which has been recorded as issued and delivered to the

payee but it bears a date subsequent to the end of reporting
period. There is no payment until the check can be presented to
the bank for encashment thus it should be reverted to cash.
Entry:
Cash in Bank xxx
Accounts Payable xxx
Compensating Balance

• Are minimum amounts that agrees to maintain in a bank

checking account as support or collateral for a loan by the
depositor
• Not legally restricted – the amount is reported as “Cash”
• Legally restricted – because of formal compensating balance
agreement, it is classified separately as “cash held as
compensating balance” either as current asset or noncurrent
asset depending on the nature of the loan.
Stale Check or Check Long Outstanding

These are checks not encashed by the payee within six months from
the time of issuance. This is a matter of entity policy. Thus, even
after three months only, the entity may issue a “stop payment order”
to the bank for the cancellation of previously issued check
Entries:
If the amount of stale check is immaterial
Cash xxx
Miscellaneous Income xxx
If the amount of stale check is material and liability is expected to continue
Cash xxx
Accounts Payable xxx
Petty Cash Fund

• Money set aside to pay small expenses which cannot be paid

conveniently by means of check.
• Under Imprest System, cash control requires all cash receipts
should be deposited intact and all cash disbursements should be
made by means of check.
The books of Philmo Co. show the following balances at December 31, 2020:
Cash on hand P100,000
Cash in bank -current account 350,000
Cash in bank – peso savings account 2,000,000
Cash in bank – dollar deposit (unrestricted) $100,000
Cash in bank – dollar deposited (restricted) $20,000
Cash in money market account P250,000
6-month time deposit 60,000
Treasury Bill, purchased 12/1/2020, maturing 2/28/2021 800,000
Treasury Bill, purchased 3/1/2020, maturing 2/28/2021 500,000
Treasury Note 200,000
Unused Credit Line 2,000,000
Redeemable preference shares,
purchased 12,/1/2020 due on 3/1/2021 370,000
Treasury shares,
purchased 12,/15/2020 due on 3/5/2021 370,000
Sinking fund 200,000

• The Cash on hand includes a P20,000 check payable to Philmo Co. dated January 10, 2021.
• During December 2020, checks amounting to P60,000 and P40,000 were drawn against the
Cash in bank-current account in payment of accounts payable. The P60,000 check is dated
January 15, 2021. The P40,000 check is dated December 31, 2020 but was delivered to the
payee only on January 18, 2021.
• The Cash in bank – peso savings deposit includes a deposit in escrow in the amount of
P340,000 and a compensating balance amounting to P250,000 which is legally restricted.
• The cash in bank – dollar deposit(unrestricted) account includes interest of $2,000, net of tax,
directly credited to Philmo Co.’s account. The exchange rate at year-end is $1 is to P40.
 Transaction Imprest Fund System Fluctuating Fund System
The entity established a petty Petty Cash Fund 20,000 Petty Cash Fund 20,000
cash fund of P20, 000. Cash in Bank 20,000 Cash in Bank 20,000

Incurred supplies, NO ENTRY – Prepared memorandum Supplies Expense 8,000

transportation expenses of entry in PCF Journal Transportation Expense 5,000
8,000 and 5,000 respectively Petty Cash Fund 13,000
Replenished the petty cash Supplies Expense 8,000 Petty Cash Fund 13,000
fund Transportation Expense 5,000 Cash in Bank 13,000
Cash in Bank 13,000

Incurred supplies, NO ENTRY – Prepared memorandum Supplies Expense 5,000

transportation expenses of entry in PCF Journal Transportation Expense 3,000
5,000 and 3,000 respectively Petty Cash Fund 8,000

At the end of accounting Supplies Expense 5,000 NO ADJUSTING ENTRY REQUIRED –

period Transportation Expense 3,000 Petty cash expenses are recorded
Petty Cash Fund 8,000 outright
Accounting for Cash Shortage

Entry when cash count shows cash is less than the balance per book:
Cash short or over xx
Cash xx

(The “Cash short or over” account is only a temporary or suspense

account. It means that when financial statements are prepared the
same should be adjusted.)
Accounting for Cash Shortage

Adjustment entry if the cashier or cash custodian is held responsible for

cash shortage:
Due from Cashier xxx
Cash short or over xxx
Adjustment entry if reasonable efforts fail to disclose the cause of
shortage:
Loss from cash shortage xxx
Cash short or over xxx
• (If the amount of cash shortage is not material, it can be debited to
miscellaneous expense.)
Accounting for Cash Overage

• Entry when cash count shows cash which is more than the balance of the
book:
Cash xx
Cash short or over xx
• Adjustment entry if the cash overage is found to be the money of the cashier:
Cash short or overxx
Payable to Cashier xx
• Adjustment entry if the cash overage has no claim:
Cash short or overxx
Miscellaneous income xx
As of December 31, 2020, the petty cash fund of ABC Co. with a general
ledger of P5,000 comprises the following:
Coins and currencies P850
Petty cash vouchers:
Gasoline for delivery equipment 1,000
Medical supplies for employees 680 1,680
IOU’s:
Advances to employees 740
Checks:
Check drawn to the order of the petty
cash custodian 1,000
Personal check drawn by the petty cash
custodian 800

Requirement:
How much petty cash fund will be included as part of cash in the December
31, 2020 statement of financial position?
Thank you!!!