Cash and Cash Equivalents

1Timothy 6:10 For the love of money is a root of all kinds of evil: which some reaching after
Cash items
Unrestricted

have been led astray from the faith, and have pierced themselves through with many
sorrows. Cash on hand Cash in bank Cash funds
Outline

Definition, Nature, Definition, Nature, Financial

Composition, Composition,
Measurement of Measurement of
Statement
Cash Cash Equivalents Presentation
What is cash?

“Money”
Cash on hand
 is a term most commonly used to describe cash,
 Undeposited cash collections
 the paper currency and coins in circulation,
• bills and coins
 which is the standard medium of exchange used to buy goods,
services, and to pay obligations.  Cash awaiting deposits

 To an accountant, cash includes money and any other • customer’s checks, travelers’
negotiable instrument that is payable in money and and managers checks, bank
acceptable by the bank for deposit and immediate credit.” drafts and money orders

 money in other forms like checking account, traveler’s check, Cash and Cash Equivalents
bank draft, money orders and the like
1Timothy 6:10

For the love of money is a root of all kinds of evil: which some reaching after have
been led astray from the faith, and have pierced themselves through with many
sorrows.

Negotiable instruments included as cash

Ordinary check (customer’s check)

Cashier’s check
Bank draft
Certified check
Traveler’s check
Money orders

Negotiable instruments - Ordinary check

PAS 1, paragraph 66 interpretation

 To be reported as cash, an item must be unrestricted in use.

 This means that the cash must be readily available

in the payment of current obligation and not to be subject to any

restrictions, contractual or otherwise.
PAS 1, paragraph 66 A check is a negotiable instrument that calls for a bank to pay the
“an entity shall classify an asset as current when the asset is cash or a cash amount shown from the maker’s account.
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.” Negotiable instruments - Certified check
 1 2 3

A check for which the issuing bank guarantees payment by certifying Recognition Measurement Presentation
that there are sufficient funds available in the account from which the Debit - receipts Face value Classification -
check is drawn to cover it. Credit - Current assets
disbursements Line item - CASH &
Negotiable instruments - Cashier’s check CASH EQUIVALENTS

Cash in bank

If the cash items mentioned in cash on hand are already deposited in the
bank, they are called cash in bank.

To be classified as cash, they should be unrestricted and immediately

available for use in the current operations. This includes demand
It is an instrument of payment generally considered the same as cash; it deposit or checking account and savings deposit.
is drawn on the bank’s own funds and signed by an officer of the bank.
Cash in bank
Negotiable instruments - Traveler’s check
 Savings Deposit

 Checking/Demand Deposit

 Current Account

CASH IN BANK

Debit - deposits / net interest on deposit

Recognition Credit - withdrawals / services charges
A check or draft issued by an express company or bank bearing the
signature of the purchaser and to be cashed when countersigned in the
presence of a payee. At face or
Negotiable instruments - Bank draft Measurement At estimated realizable value (if bank is in
bankruptcy)

Classification - Current assets

Presentation Line item - CASH & CASH EQUIVALENTS

Accounting treatment of other cash in bank related items

⌘ Foreign Currency

⌘ Deposits in foreign countries

It refers to a bill of exchange drawn by a bank on another bank.
⌘ Cash from closed banks
Negotiable instruments - Money orders
⌘ Bank overdraft

⌘ Compensating balance

⌘ Undelivered or unreleased checks issued by the company

⌘ Postdated Checks issued by the company

An order granted upon payment of a sum and a small commission, by ⌘ Postdated checks received from customer
one post office, bank or telegraph company, and payable at another.
⌘ Stale Checks
CASH ON HAND
Foreign currency

Translated to Philippine pesos using current exchange rate

Deposits in foreign countries

  Translated to Philippine pesos using current exchange rate
Cash Not subject to foreign exchange
restrictions
Non-current Subject to foreign exchange restrictions
financial assets
Cash from closed banks
part of receivables up to recoverable amount
Bank overdraft
 Cash in bank account having a credit balance
 Issuance of check in excess of the deposit
 It is classified as current liability
 It should not be offset against other bank accounts
Exception to the rule of overdraft
 When the company maintains two or more account in one
bank and one account results in an overdraft such overdraft
may be offset.
 Overdraft may also be offset against the other bank account if
the amount is not material.
Compensating balance
Minimum checking or demand deposit account balances that must be
maintained in connection to borrowing arrangement with the bank.
Classification of compensating balance
Accounting treatment of other cash related items - Undelivered or
unreleased checks issued by the company
 Checks have been merely drawn and recorded but
not given to the payees.
 Adjusting entry to restore cash balance and set up
liability:
Accounting treatment of other cash related items - Postdated Checks
issued by the company
 Checks are drawn, recorded and already given to the
payees but bear a date subsequent to the balance
sheet date.
Accounting treatment of other cash related items - Postdated checks
received from customer
 Treated as receivables
Accounting treatment of other cash related items - Stale Checks
 checks not encashed by the payees within a
relatively long period of time.
 Within 6 months from the time of issuance; a matter
of company policy.
To record stale checks
 Immaterial amount:
 Material amount and liability is expected to
continue:
Receivables
Accounting treatment of other cash related items - NSF/ DAUD/DAIF
checks