CASH AND CASH EQUIVALENTS

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.

• includes checks, bank drafts and money orders because these are acceptable by the bank for deposit or immediate encashment

UNRESTRICTED CASH

• Accordingly, 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 obligations and not be subject to any restrictions, contractual or otherwise.

Cash on hand

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. 

Cash in bank

includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal.

Cash fund

set aside for current purposes such as petty cash fund, payroll fund and dividend fund.

CASH EQUIVALENTS

According to PAS 7, paragraph 6, it is a 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 rate. The standard further states that only highly liquid investments acquired three months before maturity can qualify.

Examples of this include:

1. Three-month BSP treasury bill

2. Three-year BSP treasury bill purchased three months before date of maturity

3. Three-month time deposit

4. Three-month money market instrument or commercial paper

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.

• Accordingly, excess cash may be invested in time deposits, money market instruments and treasury bills for the purpose of earning interest income.

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

FINANCIAL STATEMENT PRESENTATION

This caption includes all cash items, such as cash on hand, cash in bank, petty cash fund and cash equivalents which are unrestricted in use for current operations.

FOREIGN CURRENCY

Cash in foreign currency should be translated to Philippine pesos using the current exchange rate.

Deposits in foreign countries which are not subject to any foreign exchange restriction are included in "cash"

Deposits in foreign banks which are subject to foreign exchange restriction should be classified separately among noncurrent assets and the restriction clearly indicated.

CASH FUND FOR A CERTAIN PURPOSE

is set aside for use in current operations or for the payment of current obligations, it is a current asset.

Examples of this fund are petty cash fund, payroll fund, travel fund, interest fund, dividend fund and tax fund.

BANK OVERDRAFT

classified as a current liability and should not be offset against other bank accounts with debit balances

UNDELIVERED OR UNRELEASED CHECK

is one that is merely drawn and recorded but not given to the payee before the end of reporting period.

Accordingly, an adjusting entry is required to restore the cash balance and set up the liability.

Dr. Cash                         XX

Cr. Accounts payable               XX

POST DATED 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.

Dr. Cash XX

Cr. Accounts payable XX

STALE CHECK

•  is a check not encashed by the payee within a relatively long period of time.

• If not encashed within six months from the time of issuance. Of course, this is a matter of entity policy.

• Thus, even after three months only, the entity may issue a stop payment order to the bank for the cancellation of a previously issued check.

• If the amount of this check is immaterial, it is simply accounted for as miscellaneous income.

Dr. Cash XX

Cr. Miscellaneous Income XX

• However, if the amount is material and liability is expected to continue, the cash is restored and the liability is again set up

Dr. Cash XX

Cr. Accounts Payable XX

ACCOUNTING FOR CASH SHORTAGE

• Where the cash count shows cash which is less than balance per book, a cash shortage is to be recorded.

Dr. Cash Short or Over XX

Cr. Cash XX

• if the cashier or cash custodian is held responsible for the cash shortage, the adjustment should be:

Dr. Due from cashier XX

Cr. Cash short or over XX

• However, if reasonable efforts fail to disclose the cause of the shortage, the adjustment is:

Dr. Loss from cash shortage XX

Cr. Cash short / over XX

ACCOUNTING FOR CASH OVERAGE

• Where the cash count shows cash which is more than the balance per book, a cash overage is to be recorded.

Dr. Cash XX

Cr. Cash short/over XX

• cash overage is treated as miscellaneous income if there is no claim on the same.

Dr. Cash short/over XX

Cr. Misc. Income XX

• But where the cash overage is properly found to be the money of the cashier, the journal entry is:

Dr. Cash short/over XX

Cr. Payable to cashier XX

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

money set aside to pay small expenses which cannot be paid conveniently by means of check.

IMPREST FUND SYSTEM

The one usually followed in handling petty cash transactions.

FLUCTUATING FUND SYSTEM

• because the checks drawn to replenish the fund do not necessarily equal the petty cash disbursements. The replenishment checks are simply drawn upon the request of the petty cashier.

• Under this system, the disbursements from the petty cash fund are immediately recorded in contradistinction with the imprest fund system where the disbursements are recorded upon the replenishment of the fund.