Cash and Cash Equivalents

• An asset is a present economic resource controlled by the entity as a result of past events.
• Financial assets entitles the holder to receive cash or receive another financial asset.
• Financial assets are the group of assets evidenced by financial instruments.
• Non-financial assets are not traded in financial markets and derives value from its physical form.
• Recognition


  Recognize a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument.
• Example of Non-Financial Assets

  1. Property and Equipment
  2. Land
  3. Buildings
  4. Inventory
• Examples of Financial Assets

  1. Cash and Cash Equivalents
  2. Receivables
  3. Investment in equity instruments
  4. Contractual rights to receive from another entity of cash or another financial asset
  5. Investments in debt instruments of other entity classified by the other entity as financial liabilities
  6. Investments in bonds and commercial papers
  7. Derivatives held by the entity - options, warrants
• IAS 7 Statement of Cash Flows


  Cash comprises cash on hand and demand deposits.
• IAS 1 Presentation of Financial Statements


  Cash and Cash Equivalents are to be presented in the statement of financial position under the current assets.
• Initial Measurement of Cash and Cash Equivalents

  Cost
• Subsequent Measurement of Cash and Cash Equivalents

  Face Value
• Identifying Cash

  For a cash item to be considered as cash it should be unrestricted (immediately available for use) and not earmarked (for use in current operations).
• Key Cash Items:

  1. Cash on Hand
  2. Cash in Banks
  3. Checks
  4. Cash Fund
• Cash on Hand

  1. Bills
  2. Coins
• Cash in Bank

  1. Demand deposits
  2. Savings account
  3. Checking account
  4. Payroll account
• Demand Deposits


  A normal bank account in which deposited funds can be withdrawn in "demand" or anytime.
• Checking Account


  Allows deposits and withdrawals and is typically used for payments especially those issuing checks.
• Savings Account


  Allows deposits and withdrawals and holds funds intended to save.
• Payroll Account


  A separate fund account typically used for payroll of employees.
• Compensating Balance


  Part of the cash in bank wherein a minimum balance must be maintained in a depositor's account.
• Unrestricted Compensating Balance


  Not legally restricted to be maintained but penalties could be imposed.
• Unrestricted Compensating Balance

  Classified as cash and not added to cash in bank as it is already part of cash in bank balance.
• Restricted Compensating Balance


  Legally restricted to be withdrawn by an individual or entity.
• Restricted Compensating Balance

  It is classified as other assets and its amount is separated from the related cash in bank.
• Checks

  1. Customer check
  2. Manager/Treasurer/Cashier check
  3. Traveler’s check
  4. Bank Drafts
  5. Money Order
  6. Unreleased/undelivered checks
• Checks

  1. Customer check
  2. Manager/Treasurer/Cashier check
  3. Traveler’s check
  4. Bank Drafts
  5. Money Order

  Generally unrestricted as long as it is not postdated, expired, insufficient funds, etc.
• Customer Check


  A check payment of customers.
• Manager's Check


  Also called a treasury or cashier's check and is always guaranteed by the bank.
• Traveler's Check


  Used for traveling to foreign countries and can be used to buy goods or services or be exchanged for cash.
• Bank Drafts


  Payment issued by bank on behalf of the payer. They are less likely to bounce because the bank checks if there is sufficient funds in the payer's account before issuing. It is exclusive to banks and caters more significant amount of money.
• Money Order


  Purchased by a payer and does not bounce or cannot be returned due to insufficient funds. It can be bought in various channels.
• Undelivered/Unreleased Checks


  Are company's check drawn and recorded but are not issued or delivered to the payees as of the reporting date. The check is still within the company and cannot be deposited yet by the payee.
• Undelivered/Unreleased Checks


  Classified as: added back to (dr.) cash and (cr.) payable
• Issued PDC


  Post-dated check issued by the company that cannot be used yet by the payee.
• Issued PDC

  Classified as: added back to (dr.) cash and (cr.) payable
• Cash Funds

  1. Petty cash fund
  2. Working fund
  3. Payroll fund
  4. Tax fund
• Payroll Fund


  Funds set aside for payroll/salaries of employees.
• Working Fund


  Funds used for working capital or day-to-day operations, payments of current assets and current liabilities.
• Change Fund


  Funds used to provide change for customers with payments in excess of price of goods/service.
• Petty Cash Fund


  Small amount of cash to cover minor, incidental, or petty expenses.