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CASH

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CASH
Cash – money and other negotiable instrument that is payable in money and acceptable by the
bank for deposit and immediate credit. It includes cash on hand other items that are unrestricted
for use in the current operations.
1. Cash on Hand (CUTCMoBa)
C
Customer’s checks awaiting deposit
U
Undeposited cash collections (Currencies such as bills and coins)
T
Traveler’s check
C
Cashier’s / Official / Treasurer’s / Manager’s checks
Mo Postal money orders (a demand credit instrument issued and payable by a post office)
Ba Bank drafts (a written order addressed to the bank to pay an amount of money to the order
of the marker)
2. Cash in bank
a. Demand deposit / Commercial deposit / current account / checking account
- Covered by deposit slips
- Non-interest bearing
- Withdrawable by checks against bank
b. Savings deposit (SA)
- Generally interest bearing
- Evidence by passbook
3. Cash fund (for current operations) (CP2RintPeDiT2)
C Change Fund
P Payroll Fund
Purchasing Fund (for purchasing of inventories)
R Revolving Fund (fund that is used for limited or specific purpose set by management)
Int Interest Fund
Pe Petty Cash Fund (for minor disbursements)
Di Dividend Fund
T Travel Fund
Tax Fund
Fund for Noncurrent operations should not be included as part of Cash
P2ACIS
General noncurrent investment but
P
Pension fund
If related liability is current, then pension fund is current, thus
part of CASH.
Preferred
Noncurrent investment (unless the preferred share capital has a
redemption fund mandatory redemption (redeemable preference shares) and the
redemption is already within one year from the reporting period
in which case this fund is already part of CASH.)
A
Acquisition of Always noncurrent even of expected to be disbursed next year
Property, plant
and equipment
C
I
S
Contingent fund
Insurance fund
Sinking fund
Noncurrent investment
Noncurrent investment
If related bonds payable is current, then sinking fund is current,
thus part of CASH.
Note: Classification of cash fund as current or noncurrent should parallel the classification
applied to the related liability. Thus, an entity should reclassify such noncurrent asset if the related
liability becomes current.
CASH EQUIVALENTS
Cash equivalents are short-term and highly liquid investments that are readily convertible into
cash and so near their maturity that they present insignificant risk of change in value because of
changes in the interest rates. Only highly liquid investments that are acquired three months before
maturity can qualify as cash equivalents.
1. Time Deposit
2. Money Market Instrument of Commercial Paper
3. Treasury Bills
4. Redeemable preference shares with mandatory redemption acquired three months before
maturity.
TIME DEPOSIT, MONEY MARKET INTS., T-BILL
1. Originally invested/acquired for more than three months before maturity date
a) Remaining term is three months
-short-term investments
or less from the BS date.
b) Remaining term is more than three
-short-term investments
months but within one year
c) Remaining term is more than one year
-short-term investments
2. Originally invested/acquired for three months
or less before maturity date
-cash and cash equivalents
Comparison among T-Bills, T-notes and T-bonds
Differences in Maturity date Similarities
Treasury Bills
90-days – less than 1 year
All are issued
government
Treasury Notes
1 year – less than 10 years
Treasury Bonds
10 years or more
by
the
Note: If an item cannot be included as cash equivalent because it did not qualify the cut-off time
period (ie. three months), it will always be classified as investments (short-term or long-term)
depending on the period up to maturity.
Note: If the problem is silent with regard to:
1. Treasury Note-assumed investment
2. Cash in Money market account-cash and cash equivalent
3. Time Deposit-cash and cash equivalent
Some measurement issues on cash
Items
Remarks
Cash
Measured at face value
Cash in foreign currency
Should be translated to Phil. peso using the current
exchange rate (spot rate) at B/S date
Deposit in foreign bank
a. Unrestricted – included as cash
b. Restricted – if material, classified separately among
non-current assets as receivables
Cash in closed bank/ Banks in Measured at estimated realizable value and be included
Bankruptcy
among noncurrent assets if the amount recoverable is lower
than face value.
Bank overdraft
The company is maintaining two accounts in
a. Different banks – current liabilities or may be netted
against other bank if immaterial.
b. Same bank – maybe netted against the account with
positive amount but you cannot offset against
restricted account.
Note: An overdraft may also be netted against other
account if it is part of cash management.
Compensating balance
Compensating balance are minimum checking or demand
deposit account balance that must be maintained in
connection with a borrowing agreement with a bank
a. Not legally restricted – part of cash
b. Legally restricted – if the account is legally restricted as
to withdrawal, check the related loan:
1) Short-term – presented as “cash held as
compensating balance” (current receivable)
2) Long-term – presented as “cash held as
compensating balance” (noncurrent receivable)
Note: If the problem is silent with regard to compensating
balance, it is assumed not legally restricted.
Effect of compensating balance on:
a. Yield rate (lender) – increase
b. Effective rate (borrower) – increase yield rate
(Effective rate) = Net interest income (expense)
Net Proceeds
Undelivered/unreleased check
Reverted back to cash by a
Cash
XXX
Accounts Payable
XXX
Stales
checks/checks
long -checks not encashed by the payee with a relatively long
outstanding
period of time (identification if a check is stale should be
based in the company’s policy regarding encashment of
check)
-reverted to cash by a
Cash
XXX
Accounts Payable
XXX (if material)
Miscellaneous income XXX(if not material)
Postdated checks
a. Company’s own – reverted to cash
Cash XXX
Accounts Payable
XXX
b. Customer’s check – not yet cash ( Accounts
Receivable)
IOUs
Included as part of receivable, not cash and cash equivalents
Equity securities
Cannot be classified as cash equivalents because shares do
not have a maturity date (with the exception of redeemable
preference shares)
Redeemable Preference shares
Preference shares with specified redemption date and
acquired three months before redemption date is classified
as cash equivalents
Callable preference shares
Not classified as cash equivalents
NSF/DAUD/DAIF
Included as part of receivables
NSF – no sufficient fund
DAUD – drawn against unclear deposits
DAIF - drawn against insufficient funds
Expense Advances (ex. travel Receivables or prepaid expense
advances, postage stamps)
Temporary Investments in Shares Either trading securities or AFS but never to be included as
of stocks
part of cash
Unused Credit Line
Disclosed in the notes (Difference between the amount of
line of credit applied for and approved by a bank and the
amount actually borrowed)
Treasury Warrants
A warrant for the payment of money into or from public
treasury. Classified as cash
Escrow Deposit
Part if other current/noncurrent asset and reported as
liability (Restricted amount held in trust for another party,
e.g., a deposit required by a court of law for a pending case)
Postage stamps on hand
Should be reported as office supplies or as a prepaid
expenses
Unrecorded cash disbursements
-record the disbursements by debit to Account payable or
other appropriate account and credit to cash.
Unrecorded
cash -record collection by debit to Cash and Credit to Accounts
collections/receipts
receivable or other appropriate account.
Certificate of Deposit
Investment not unless invested within three months before
maturity.
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