Cash and Cash Equivalent
first line item in current asset.
| Layman's Terms | Accounting Term |
|---|---|
| Money | Cash |
Cash
must be unrestricted in use.
Cash on Hand
- undeposited checks
- traveler's check, manager's check,
- money order
Cash in Bank
- demand or saving account
- checking account
compensating balance
its like a mininum checking balance/demand deposit to be maintain on your account
why? /
if unrestricted.
- cb is part of the cash
if restricted
- cb is not part of the cash, hence you deduct it
Cash Fund
set aside for something
- petty cash fund
classification of cash fund
depends on what it is set aside for / for certain purpose.
- cash
set aside for current operations - current asset / liability
set aside for current operations
- short term
- non-current asset / liability
set aside for non-current operations
- long term investment
Example:
- Sinking fund set aside for bond payable due in 6 months
- \
Stale check
when the issued check is not deposted to the bank within long period of time.
when? according to negotiable law instrument it depends. usually, banks give atleast 6 months to deposit it
When not encashed/deposted in the bank --> it will go back to cash.
Cash Equivalents
highly liquid short term investment
purchase date is important and must be less than 3 months before maturity
- money market instrument
- treasury bills
- commercial paper (?)
- preference share with redemption date
not classified as CE
- Equity securities
- postdated check
- unreleased check
Bank Overdraft
when you have a credit balance in cash in bank account
checks > deposits
is a current liability
Cannot be offset to another bank so classify them seperately into
- current asset
- current liability
Can be offset if you have 2 accounts in 1 bank
- bank overdraft, net (?)
- part of cash
postdated check
issued check given to a payee and already recorded but has subsequent date later on.
not part of cash (customer)
- since it is still in control of the payor (company) even if its already in the hands of the payee (customer)
- cannot encash the check because it has a date to do so
unreleased check
issued check and already recorded but hasn't delivered it yet to the payee.
part of cash (pov of company)
- since its still within the control of the company
- not yet given to the payee, still in the hands of the company
imprest system
all transaction must be through with checks.
for internal cash control.
petty cash fund
is fund set aside for small payment without the use of check all the time.
why? because it is inconvenient for small payments to use checks
two ways
imprest fund system
most use by firms
- Establishment of PCF (JE)
- Cash disbursement (no JE required)
- Replenishment (JE for all cash disbursements recorded here)
- Unreplenished expenses (to be revered the next accounting period)
- increase/decrease PCF
fluctuating fund system
PCF if not equal to the cash disbursement
- Establishment of PCF (JE)
- Cash disbursement (immediately recorded JE)
- increase/decrease PCF