[ACYFAR1] Cash and Cash Equivalents and Petty Cash Funds

• Petty cash funds are small amounts of money kept on hand to pay for minor expenses without the need for receipts or detailed documentation.
• Cash equivalents are short-term, highly liquid investments that can be quickly converted into cash.
• Cash includes money or its equivalent that is readily available for unrestricted use.
• Cash includes (1) cash on hand and (2) cash in bank
• Examples of cash include: 1. Coins and currencies, 2. Demand deposits and savings account, 3. Checks, 4. Bank Drafts, 5. Money orders, 6. Cash funds set aside for current operations.
• Examples cash funds for current operations: 1. Petty Cash fund, 2. Change fund, 3. Interest fund, 4. Payroll Fund, 5. Dividend fund, 6. Tax Fund, 7. Revolving Fund, 8. Travel Fund.
• Cash funds for non-current operations are not included in cash. Examples include: Pension fund, fund for acquisition of PPE, and plant expansion fund. These are usually recognized as "other assets."
• Cash sinking funds and Preference Share Redemption funds can be either current or non-current depending on the nature of the transaction.
• Posted dated checks received are not included in cash.
• Postdated checks delivered are counted as cash until the date they are encashed.
• Unused postage stamps are assets under office supplies.
• IOU's or advances to employees are not included in cash.
• Postdated checks received and IOUs are considered as receivables.
• To record postdated checks received, they are recorded at the date they are received but they are adjusted and reverted from cash back to accounts receivable.
• Unused credit lines are not included in cash but rather are disclosed in the notes.
• Unreleased checks are considered as cash.
• Stale checks are those delivered to payees and are not encashed within 6 months. These are considered as cash.
• Only debt instruments acquired within 3 months or less before their maturity date can qualify as cash equivalents.
• Examples of cash equivalents are (1) Treasury bills, notes, bonds; (2) money market instruments or commercial papers; (3) and time deposits; all with a maturity date in 3 months or less.
• Equity securities cannot qualify as cash equivalents because shares of stocks do not have a maturity date.
• Redeemable preference shares that are acquired 3 months or less before they specified redemption date can qualify as cash equivalents as these are debt instruments rather than equity instruments.
• Cash is measured at face value.
• Cash maintained at a bank undergoing bankruptcy is excluded from cash and presented as a receivable measured at realizable value.
• Unrestricted deposits from foreign banks are included in cash.
• Compensating balance is the minimum amount that must be maintained in an entity's bank account to support for funds borrowed from the bank.
• Compensating balances legally not restricted are included in cash.
• Bank overdraft is a negative balance in the cash in bank account resulting from overpayment of checks in excess of the amount of deposit.
• Bank overdrafts are payable on demand; thus, they are presented as current liabilities, except in the cases where offsetting is permitted.
• When 2 or more bank accounts are maintained in the same bank and one account results to an overdraft, the overdraft may be offset by the bank account with a positive balance.
• The imprest system requires all cash receipts to be deposited intact and all cash disbursements to be made through checks.
• No journal entries are recorded when disbursements are made out of the petty cash fund. Instead, petty cash payments are initially recorded in a petty cash register and supported by signed petty cash vouchers.
• Replenishment is the checks issued to the petty custodian when petty cash funds are low.
• Expenses do not decrease petty cash fund balance when incurred, only when replenishment occurs.
• Deposit in escrow is a restricted amount held in trust for another party. Therefore, this is excluded from cash.
• Restricted compensating balances are recorded as other assets.
• Restricted deposits from foreign banks are recorded as receivables.
• Time deposits that are closed means that they are restricted and are under non-current assets.