Chapter 7

CASH AND CASH EQUIVALENTS

DEFINTION OF CASH

 From the point of view of a layman, "cash" simply means money.

 Money is the standard medium of exchange in business transactions.
 Money refers to the currency and coins which are in circulation and
legal tender. However, in the accounting parlance, the term "cash" has
a special and broader meaning. It connotes more than money.
 As contemplated in accounting, cash includes money and another
negotiable instrument that is payable in money and by the bank for
deposit and immediate credit.
 CASH ITEMS INCLUDED IN CASH
 A. Cash on hand - This includes undeposited cash collections and other cash items awaiting
deposit such as customers' checks, cashier's or manager's checks, traveler's checks, bank drafts
and money orders.
 B. Cash in bank - This includes demand deposit or checking account and saving deposit which
are unrestricted as to withdrawal.
 C. Cash fund - set aside for current purposes such as petty cash fund, payroll fund and
dividend fund.
Cash equivalents
-PAS 7, paragraph 6, defines "cash equivalents" as short-term and highly liquid investments that
are readily convertible into cash and so near their maturity that they present insignificant risk of
changes in value because of changes in interest rates. "The standard further states that "only
highly liquid investments that are acquired three months before maturity can qualify as cash
equivalents".
 Examples of cash equivalents are:
 (a). Three-month BSP treasury bill.
 (b). Three-year BSP treasury bill purchased three months before date of maturity.
 (c). Three-month time deposited.
 (d). Three-month money market instrument or commercial paper.
MEASUREMENT OF CASH
 Cash is measured at face value.
 Cash in foreign currency is measured at the current exchange rate.
 If a bank or financial institution holding the funds of an entity is in
bankruptcy or financial difficulty, cash should be written down to
estimated realizable value if the amount recoverable is estimated to
be lower than the face value.

Bank overdraft
 When the cash in bank account has a credit balance, it is said to be
an overdraft. The credit balance in the cash in bank account results
from the issuance of checks in excess of the deposits.

 A bank overdraft is classified as a current liability and should not be

offset against other bank accounts with debit balances..
UNDELIVERED OR UNRELEASED
CHECK
 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

Postdated check delivered

 A postdated check delivered is a check drawn, recorded and already
given to the payee but it bears a date subsequent to the end of
reporting period.

Stale check or check long outstanding

 A stale check is a check not encashed by the payee within a relatively
long period of time.
 Imprest system

 The imprest system is a system of control of cash which requires that

all cash receipts should be intact and all cash disbursements should be
by means of check.

Petty cash fund

 The petty cash fund is money set aside to pay small expenses which
cannot be paid conveniently by means of check.