cash and cash equivalents

• Cash and cash equivalents include money and negotiable instruments payable in money and acceptable by the bank for deposit and immediate credit
• Cash items included in cash:

  • Cash on hand includes undeposited cash collections and other cash items awaiting deposit like customer's 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 is set aside for current purposes such as petty cash fund, payroll fund, and dividend fund
• Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and present insignificant risk of changes in value due to interest rate changes
• Investments of excess cash:

  • Excess cash should be invested temporarily in revenue-earning investments like time deposits, money market instruments, and treasury bills
  • Investments in time deposits, money market instruments, and treasury bills should be classified based on their term length
• Measurement of cash:

  • Cash is measured at face value
  • Cash in foreign currency is measured at the current exchange rate
  • Cash should be written down to estimate realizable value if held by a bankrupt or financially troubled institution
• Financial statement presentation:

  • The caption "cash and cash equivalents" should be the first item among current assets
  • Details of cash and cash equivalents should be disclosed in the notes to financial statements
• Foreign currency:

  • Cash in foreign currency should be translated to the local currency using the current exchange rate
  • Deposits in foreign countries without exchange restrictions are included in cash
• Cash fund for a certain purpose:

  • Cash funds set aside for current operations are classified as current assets and included in cash and cash equivalents
  • Cash funds set aside for non-current purposes are shown as long-term investments
• Classification of cash fund:

  • The classification of a cash fund as current or non-current should match the related liability
  • Cash funds set aside for specific purposes should be classified accordingly
• Bank overdraft accounting for cash overage:

  • Debit cash short or over, credit miscellaneous income
• Imprest system:

  • Control of cash requiring all receipts to be deposited intact and all disbursements made by check
  • Two methods for handling petty cash: imprest fund system and fluctuating fund system
• Petty cash fund:

  • Money set aside to pay small expenses that cannot be conveniently paid by check
  • Two methods of handling petty cash: imprest fund system and fluctuating fund system
• Imrest fund system:

  • Check drawn to establish the fund
  • Payment of expenses without formal journal entries
  • Replenishment of petty cash fund when low
• Fluctuating fund system:

  • Replenishment checks do not necessarily equal petty cash disbursements
  • Petty cash disbursements immediately recorded, resulting in fluctuating petty cash balance
• Cash in bank includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal
• Cash fund is set aside for current purposes such as petty cash fund, payroll fund, and dividend fund
• Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and present insignificant risk of changes in value
• Examples of cash equivalents include three-month BSP treasury bill, three-year BSP treasury bill purchased three months before maturity, three-month time deposit, and three-month money market instrument or commercial paper
• Excess cash should be invested in revenue-earning investments like time deposits, money market instruments, and treasury bills
• Investments in time deposit, money market instruments, and treasury bills should be classified based on their term length
• Cash is measured at face value and in foreign currency at the current exchange rate
• The caption "cash and cash equivalents" should be shown as the first item among the current assets
• Cash fund set aside for current operations is a current asset and included in cash and cash equivalents
• Cash fund set aside for non-current purposes is shown as a long-term investment
• Bank overdraft with a credit balance is classified as a current liability and should not offset against other bank accounts with debit balances
• A compensating balance must be maintained in connection with a borrowing arrangement with a bank
• Undelivered or unreleased checks are drawn or recorded but not given to the payee before the end of the reporting period
• Accounting for cash shortage involves debiting due from cashier and crediting cash short or over
• Accounting for cash overage involves debiting cash short or over and crediting miscellaneous income
• The Imprest System requires all cash receipts to be deposited intact and all cash disbursements to be made by means of a check
• The petty cash fund is money set aside to pay small expenses that cannot be paid conveniently by means of a check
• The two methods of handling petty cash are the Imprest fund system and the Fluctuating fund system
• In the Imprest fund system, a check is drawn to establish the fund, payments are made out of the fund, and replenishment is done when the fund runs low
• In the Fluctuating fund system, checks drawn to replenish the fund do not necessarily equal the petty cash disbursements, resulting in a fluctuating petty cash balance per book from time to time
• Cash and Cash Equivalents:

  • Cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit
  • Cash items included in cash are cash on hand, cash in bank, and cash fund set aside for current purposes such as petty cash fund, payroll fund, and dividend fund
• Cash Equivalents:

  • Short-term and highly liquid investments that are readily convertible into cash and near their maturity with insignificant risk of changes in value due to changes in interest rates
  • Examples of cash equivalents include three-month BSP treasury bill, three-year BSP treasury bill purchased three months before maturity, three-month time deposit, and three-month money market instrument or commercial paper
• Investments of Excess Cash:

  • Excess cash should be invested temporarily in revenue-earning investments such as time deposits, money market instruments, and treasury bills to earn interest income
• Classification of Investment of Excess Cash:

  • Investments with a term of three months or less are classified as cash equivalents and included in "cash and cash equivalents"
  • Investments with a term of more than three months but within one year are classified as short-term financial assets or temporary investments
• Measurement of Cash:

  • Cash is measured at face value
  • Cash in foreign currency is measured at the current exchange rate
  • Cash should be written down to estimate realizable value if held by a bank or financial institution in bankruptcy or financial difficulty
• Financial Statement Presentation:

  • The caption "cash and cash equivalents" should be shown as the first item among the current assets
  • Details of "cash and cash equivalents" should be disclosed in the notes to financial statements