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
Accounting treatment of other cash related items - Undelivered or
part of receivables up to recoverable amount unreleased checks issued by the company
Bank overdraft Checks have been merely drawn and recorded but
not given to the payees.
Cash in bank account having a credit balance
Adjusting entry to restore cash balance and set up
Issuance of check in excess of the deposit liability:
It is classified as current liability
It should not be offset against other bank accounts
Exception to the rule of overdraft
Accounting treatment of other cash related items - Postdated Checks
When the company maintains two or more account in one issued by the company
bank and one account results in an overdraft such overdraft
Checks are drawn, recorded and already given to the
may be offset.
payees but bear a date subsequent to the balance
Overdraft may also be offset against the other bank account if sheet date.
the amount is not material.
Accounting treatment of other cash related items - Postdated checks
received from customer
Treated as receivables
Accounting treatment of other cash related items - Stale Checks
Compensating balance
checks not encashed by the payees within a
Minimum checking or demand deposit account balances that must be relatively long period of time.
maintained in connection to borrowing arrangement with the bank.
Within 6 months from the time of issuance; a matter
Classification of compensating balance 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
