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Cash and Cash Equivalents Cash includes money and any other negotiable instrument that is payable in money

and acceptable by the bank for deposit or immediate encashment. Unrestricted Cash PAS 1 provides that an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the end of the reporting period. An item must be unrestricted in use to be reported as cash. Cash must be readily available in the payment of current obligations and not be subject to any restrictions, contractual or otherwise. Cash items included in cash : a. Cash on Hand undeposited cash collections and other cash items awaiting deposit (customers checks, cashier s or manager s checks, traveller s check, bank drafts and money orders.) b. Cash in Bank includes demand deposits or checking account and saving deposit which are unrestricted as to withdrawal. c. Cash Fund set aside for current purposes ( petty cash fund, payroll fund, and dividend fund) Cash Equivalents PAS & 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. It further states that only highly liquid investments that are acquired three months before maturity can qualify as cash equivalents. Examples of Cash Equivalents: a. 3-month BSP treasury bill b. 3-year BSP treasury bill purchased 3 months before date of maturity (take note of date of purchase) c. 3-month time deposit d. 3-month money market instrument Equity Security cannot qualify as cash equivalents because shares do not have maturity date. Preference Shares with specified redemption date and acquired 3 months before redemption date can qualify as cash equivalents. Measurement of Cash Cash is measured at face value. Cash in foreign currency is measured at current exchange rate.

If bank or financial institution 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. Financial statement presentation Cash and cash equivalents should be shown as the first item among the current assets. Includes: cash on hand, cash in bank, petty cash fund, and cash equivalents which are unrestricted in use for current operations. Details should be disclosed in the notes to financial statements. Investment of excess cash Any cash accumulated in excess of that needed for current operations should be invested even temporarily in some type of revenue earning investment (time deposits, money market instruments and treasury bills for purposes of earning interest income). Classification: a. If the term is 3 months or less such instruments are classified as cash equivalents and therefore included in the caption cash and cash equivalents b. If the term is more than 3 months but within one year classified as short-term financial assets or temporary investment presented separately as current assets. c. If the term is more than one year, such investments are classified as noncurrent or long-term investments. However, if it becomes due within one year from the end of reporting period, they are reclassified as current or temporary investments. Foreign Currency Cash in foreign currency must be translated to Philippine pesos using current exchange rate. Deposits in foreign countries which are not subject to any foreign exchange restriction are included in cash . Deposits in foreign bank which are subject to foreign exchange restriction, if material, should be classified separately among noncurrent assets and the restriction clearly indicated. Cash fund for a certain purpose If set aside for use in current operations or for the payment of current obligation, it is current asset, included as part of cash and cash equivalents. Examples are petty cash fund, payroll fund, travel fund, interest fund, dividend fund and tax fund. If set aside for noncurrent purpose or payment of noncurrent obligation, it is shown as long term investment. Examples are sinking fund, preference share redemption fund, contingent fund, insurance fund and fund for acquisition or construction of PPE.

Classification of cash fund as current or noncurrent should parallel the classification applied to the related liability. Bank Overdraft Exception to the rule on overdraft Compensating Balance Classification of Compensating Balance Undelivered or Unreleased Checks Postdated checks delivered Stale checks or checks long outstanding Window dressing Lapping Used for concealing a cash shortage. It consists of misappropriating a collection from one customer and concealing this defalcation by applying a subsequent collection made from another customer. It involves a series of postponements of the entries for the collection of receivables. Possible when bookkeeper and cashier are one and the same person. Kiting Accounting for cash shortage Cash count is less than balance per book there is shortage. Cashier or cash custodian is held responsible for the cash shortage. Entry: Cash short or over Cash Adjustment: Due from cashier Cash short or over Or Loss from cash shortage Cash short or over If not material Miscellaneous Expense Cash short or over xxx xxx xxx xxx xxx xxx xxx xxx

Accounting for cash overage Cash count is more than the balance per book there is overage. Entry: Cash Cash short or over If no claim: Cash short or over Miscellaneous income If claimed by cashier: Cash short or over Payable to cashier Imprest System Is a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check. Petty cash fund is money set aside to pay small expenses which cannot be paid conveniently by means of check. Imprest fund system a. Petty cash fund Cash in bank xxx xxx xxx xxx xxx xxx xxx xxx

b. Payment of expenses out of fund no formal journal entries only signed petty cash voucher and memorandum entries in the petty cash journal. c. Replenishment of petty cash payments Expenses xxx Cash in Bank xxx d. At the end of accounting period, it is necessary to adjust the unreplenished expenses in order to state the correct petty cash balance Expenses xxx Petty Cash Fund xxx e. Increase in fund Petty cash fund xxx Cash in Bank xxx f. Decrease in fund Cash in Bank xxx Petty Cash fund xxx