CASH AND CASH

EQUIVALENT

Group 1
Sample Footer Text 1
CASH
• Any item that is acceptable by bank or
other financial institution for deposit at
face value
• Cash Items :
CASH ON HAND
• It includes undeposited collections such as bills and coins,
customer’s checks, manager’s checks, traveler’s checks, cashier’s
checks, bank drafts and money order.

CASH IN BANK
• Includes demand deposit or checking account and saving deposit
which are unrestricted as to withdrawal.

CASH FUND
• Working funds segregated for current purposes such as petty cash
fund, change fund, payroll fund, dividend fund, tax fund, and
interest fund
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 CASH
ITEM

Unrestricted and
Restricted and for
immediately
use other than for
available for use in
current operations.
current operation.

Reported as “cash” Reported as “cash” Reported under

in the current asset in the current asset other non current
section. section. financial assets.

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 CASH
EQUIVALENTS
• Short term highly liquid financial instruments that are
so near their maturity and that there is insignificant
risk of change in value due to fluctuation of interest
rates.
• Only high liquid investments that are acquired three
months before maturity can qualify as cash
equivalents.
Example: 3-month BSP Treasury Bill, 3-month
Time deposit, 3-month money
market instrument or commercial
paper.
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 SHORT TERM/
CASH LONG TERM
TEMPORARY
EQUIVALENT INVESTMENT
INVESTMENT
• Matures 3 months or • Matures less • Matures more
less from the date of than 1 year from than 1 year from
acquisition.
the date of the date of
acquisition. acquisition.

NOTE:
“Temporary investments in equity shares are not included as part of cash equivalents
because these securities do not have maturity dates. Except for redeemable preference
share (considered as debt instrument), it can be reported as cash equivalents if purchased
within 3 months or less before redemption date.”

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 Presentation and
Measurement

• Cash is generally measured at face value, which is its fair value.

• The caption “Cash and Cash Equivalent” should be shown as the first item among the current
assets.
• Considerations in reporting cash balance in the balance sheet:
 FOREIGN CURRENCY
-if it is unrestricted, then it should be translated to
Philippine currency using the
exchange rate at the end of the reporting period. However, if it is restricted as to
withdrawal, they should be reported as non-
current asset.
 CASH IN CLOSED BANK OR IN BANKS HAVING FINANCIAL DIFFICULTY OR
IN BANKRUPTCY
-it should be reclassifies as receivable and should be 6
written down to its recoverable amount.
 Presentation and Measurement

 CUSTOMER’S POST-DATED CHECKS, NSF(No Sufficient Fund Checks), IOU’s (I Owe You
notes)
- they should be reported as receivables rather than cash. NSF checks in the Philippines are
often described as DAIF (Drawn Against Insufficient Funds) and DAUD (Drawn
Against Unclear Deposits) checks.

Entry:
Receivables xxx
Cash in Bank xxx

 POSTAGE STAMPS AND EXPENSE ADVANCES

- They are not cash, but they are reported as prepaid expenses.

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 ANSWER

The credit balance of (P5,000) should be recorded

under liabilities.

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 Presentation and Measurement

 UNDELIVERED OR UNRELEASED CHECKS

- are the company’s checks drawn and recorded as disbursed but are not
actually issued or delivered to the payees as of the reporting
date. These checks should not be deducted from the company’s
cash balance until they have been nailed or otherwise delivered.
Therefore, these checks should be reverted to the cash balance.
As a result, liabilities that the checks are intended to liquidate
still exists and should be reported as current payables.

Entry:
Cash in Bank xxx
Accounts Payable xxx
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 Presentation and Measurement

 COMPANY’S POSTDATED CHECK

-are company’s check which has been recorded as issued
and delivered to payee before or at the end of the reporting
period should be reverted to cash and the corresponding
liability shall continue to be recognized, because there is no
actual payment yet, as of that date.

Entry:
Cash in Bank xxx
Accounts Payable xxx 10
 Presentation and Measurement

 COMPENSATING BALANCES
- are minimum amounts that a company agrees to maintain in a
bank checking account as a support or collateral for a loan by the
depositor.

• Not legally restricted-the amount is reported as part of Cash.

The nature of the arrangement is disclosed in the notes of the
financial statements.

• Legally restricted- the amount should be classified separately

either as current asset or non-current asset depending on the
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 Presentation and Measurement

Entries:
• If the amount of stale check is immaterial
Cash xxx
Miscellaneous Income xxx

• If the amount is material and liability is expected to continue

Cash xxx
Accounts Payable xxx

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 CASH MANAGEMENT
• Effective cash management requires control to protect cash from loss through theft or fraud.
The following are steps of cash control:

 Segregation  Voucher System

of  Periodic Bank
duties for -all disbursements
must be supported by Reconciliation
handling cash and
recording cash  Imprest System properly approved
transactions vouchers, which must
- characterized by  Internal
be recorded in the
daily deposit of all Audits at
voucher register
cash receipt intact to Irregular
the bank and making
Intervals
disbursements through
issuance of checks.
Expenditures involving
small amounts are
made from Petty Cash
Fund
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 LAPPING

• Is a practice • Consists of
used for misappropriating • Involves series
concealing a collection from of
cash shortage. one customer postponements
and concealing of the entries for
this defalcation the collection of
by applying receivables.
subsequent
collection made
from another
customer.
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 KITING

• Is another • It is possible • It occurs when a

device used to when an entity check is drawn
against a first
conceal a cash maintains bank and
shortage. current accounts depositing the
in different same check in a
banks. Kiting is second bank to
usually cover the
employed at the shortage in the
end of the latter bank. No
entry is made for
month. both the drawing
and deposit of
the check.
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 Accounting for Cash Shortage

• Entry when cash count shows cash is less than the balance per
book:
Cash Short or Over xxx
Cash xxx

Note:
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.
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 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
the shortage:
Loss from cash shortage xxx
Cash short or over xxx

Note:
If the cash shortage is not material, it can be debited to
miscellaneous expense. 17
 Accounting for Cash Overage

• Entry when cash count shows cash which is more than the balance book:
Cash xxx
Cash short or over xxx

• Adjusted entry if the cash overage is found to be the money of the cashier:
Cash short or over xxx
Payable to cashier xxx

• Adjusted entry if the cash overage has no claim:

Cash short or over xxx
Miscellaneous expense xxx

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 PETTY CASH FUND IMPREST FUND SYSTEM

• Is a money set aside to pay small • A system of cash control which

requires all cash receipts should
expenses which cannot be paid be deposited intact and all cash
conveniently by means of check. disbursements should be made by
means of check.
• Two methods of handling the • However, an enterprise considers it
petty cash: impractical to write checks for
small items such as taxi fares,
a. Imprest Fund System postage, express charges, and
-the one usually followed minor supplies. A company usually
by many. pays for these kind of items from a
petty cash fund.
b. Fluctuating Fund System • It provides simple but effective
control over small amounts of
expenditure.

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 PFC – IMPREST FUND SYSTEM

• Entry for establishment of PCF:

Petty Cash Fund xxx
Cash in Bank xxx

• Entry for payment of expenses out of the fund

NO ENTRY

• Entry for replenishment of petty cash payments:

Various Expenses xxx
Cash in Bank xxx

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 THANK YOU !!!

Sample Footer Text 21

GROUP 1

CAMILLE PATUBO
APRILLE LEIGH MACALOPE
LEONA MAE UY
RHINA FLOR SOMERA
MARBELYNNE BARROGA
ANGEL JOYCE SABUYAS
RHEN VERGEL COLLADO
ALVIN PALATTAO
JERMEIGN GOMEZ
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