Cash and Cash Equivalents Unrestricted Cash - No specific standard - PAS 1, p36 o Cash or cash equivalent is classified as current, o UNLESS, restricted to settle a liability for more than twelve months after the reporting period o Must be unrestricted in use to be reported as cash Cash items included in cash - Cash on hand - Cash in bank - Cash fund (eg. PCF, Payroll fund and Dividend fund) Cash equivalents - PAS 7, p6 o Short-term and highly liquid investments o Readily convertible to cash o So near maturity that presents insignificant risk in changes in value o ONLY those that are acquired/purchased three months before maturity Three-month BSP treasury bill Three-year BSP treasury bill purchased three months before maturity date Three-month time deposit - Equity securities cannot qualify as they do not have a maturity date o Preference shares can qualify if acquired three months before redemption date, AND if it has a specified redemption date. Classifications of investment of excess cash - If term is three months or less, such is classified as CASH EQUIVALENTS o Included under Cash and Cash Equivalents - If term is more than three months but within one year, such is classified as SHORT-TERM FINANCIAL ASSETS o Included under Current Assets and a specific title - If term is more than one year, such is classified as LONG-TERM FINANCIAL ASSETS o Included under Non-Current Assets, BUT reclassified into Current Assets when it becomes due within one year. Measurement of cash - Face value - If at foreign currency, at current exchange rate Deposits in foreign bank subject to foreign exchange restriction should be classified separately among non-current assets If bank or financial institution becomes bankrupt, should be written down to estimated realizable value. o - Financial Statement Presentation - Under Cash and Cash Equivalents o First line item o Under current assets o Details comprising the cash and cash equivalents should be disclosed in the Notes to FS Cash fund for a certain purpose - If for use in current operation OR payment of current obligation, included in Cash and Cash Equivalents - If set aside for noncurrent purposes OR payment of noncurrent obligation, classified under long-term investment - Classification o Should parallel the classification of the related liability Bank overdraft - Happens when cash in bank account has a credit balance o Usually when checks issued are in excess of deposits - Classified as current liability - Should not be offset against other bank accounts with debit balances o However, when one maintains two or more accounts in one bank, overdraft can be offset against the other account. o Can be offset if amount is not material Under IFRS, when payable on demand and often fluctuates from positive to negative as an integral part of cash management. - Not permitted in the Philippines - Not necessary to open a bank overdraft account - Illustration o First bank, overdrawn by P10,000 o Second bank, debit balance of P100,000 o Net cash balance is P90,000 o Recorded as: Current Asset: Cash in bank – Second bank – P100,000 Current Liability: Bank overdraft – First bank – P10,000 Compensating balance - Usually takes the form of minimum checking or demand deposit account balance - Results in the reduction of amount borrowed - Provides a source of fund as partial compensation for loan extended. Classification: o Part of cash IF NOT legally restricted, usually form an informal agreement o IF legally restricted, classified separately as “cash held as compensating balance” Short-term/under current assets if related loan is short-term Long-term/noncurrent investment if related loan is long-term Undelivered check - Also known as unreleased check - Drawn and recorded but not given to payee before end of reporting period. - No payment when check is pending delivery to payee at the end of reporting period. o Still subject to control of the entity o Can be canceled anytime - Adjusting entry to restore: o Cash xxx AP or appropriate account xxx - In practice, adjustment can be ignored if not very substantial and no evidence of actual cancellation of check. Postdated check delivered - Drawn, recorded, and already given to payee but bears a date subsequent to end of reporting period. - Should be reversed to restore cash balance. - Entry to reverse: o Cash xxx AP or appropriate account xxx - Reason is there is no payment until check is presented to bank for encashment or deposit Stale check - Also known as check long outstanding o Check not encashed by a payee within a relatively long period of time o Presentment must be made within a reasonable time after issue. o No specified definite period by law - In banking practice, check becomes stale if not encashed within six months - Entity may issue a stop payment order to bank for cancellation - If amount is immaterial: o Cash xxx Miscellaneous Income xxx - If amount is material: o Cash xxx AP or appropriate account xxx Accounting for cash shortage - Cash short or over account is a temporary or suspense account. - If cash count is less than book value o Cash short or over xxx Cash xxx - If cashier or cash custodian is held responsible o Due from cashier xxx Cash short or over xxx - If efforts fail to disclose cause of shortage o Loss from cash shortage xxx Cash short or over xxx Accounting for cash overage - If cash count shows cash more than the balance per book o Cash xxx Cash short or over xxx - If cash overage is treated as miscellaneous income when there is no claim o Cash short or over xxx Miscellaneous income xxx - If money is from the cashier o Cash short or over xxx Payable to cashier xxx Imprest system - A system of control of cash which requires all cash receipts be deposited intact and all cash disbursements should be made by means of check. Petty cash fund - Money set aside to pay small expenses which cannot be paid conveniently by means of check - Two methods of handling the petty cash: o Imprest fund system o Fluctuating fund system Imprest fund system - Usually followed - Accounting procedures: o Check drawn to establish the fund PCF Cash in bank o Payment of expenses out of fund (NJE) o Replenishment of petty cash payments Expenses xxx xxx xxx o o o Cash in bank xxx At the end of accounting period, adjust the unreplenished expenses to correctly state the petty cash balance (To be reversed at the beginning of the next accounting period) Expenses xxx PCF xxx An increase in the fund is recorded as: PCF xxx Cash in bank xxx A decrease in the fund is recorded as: Cash in bank xxx PCF xxx Fluctuating fund system - Accounting procedures o Establishment of the fund PCF xxx Cash in bank xxx o Payment of expenses out of the PCF Expenses xxx PCF xxx o Replenishment or increase of the fund PCF xxx Cash in bank xxx o At the end of reporting period, no adjustment is necessary since petty cash expenses are recorded outright. o Decrease of fund is reverted to general cash Cash in bank xxx PCF xxx Tranvia Company had the following balances on December 31, 2021: Cash in checking account Cash in money market account Treasury bill, purchased November 1, 2021 maturing January 31, 2022 Time deposit purchased December 1, 2021 maturing March 31, 2022 P350,000 P750,000 P3,500,000 P4,000,000 What amount should be reported as cash and cash equivalents on December 31, 2021? Pygmalion Company had the following balances on December 31, 2021: Cash in bank – current account Cash in bank – payroll account Cash on hand Cash in bank – restricted account for building construction expected to be disbursed in 2022 Time deposit, purchased December 15, 2021 and due March 15, 2022 P5,000,000 P1,000,000 P500,000 P3,000,000 P2,000,000 The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2022. What total amount should be reported as cash and cash equivalents on December 31, 2021? Thor company provided the following data on December 31, 2021: Checkbook balance Bank statement balance Check drawn on Thor’s account, payable to supplier, dated and recorded on December 31, 2021 but not mailed until January 15, 2022 Sinking fund cash P4,000,000 P5,000,000 P500,000 P2,000,000 On December 31, 2021, what amount should be reported as “cash” under current assets? Liwanag company reported an imprest petty cash fund of P50,000 with the following details: Currencies Coins Petty cash vouchers: Gasoline payments for delivery equipment Medical supplies for employees Repairs of office equipment Loans to employees A check drawn by the entity payable to the order of Grace de la Cruz, petty cash custodian, representing his salary An employee check returned by the bank for insufficiency of fund A sheet of paper with names of several employees together with contribution for a birthday gift of a co-employee. Attached to the sheet of paper is a currency of P20,000 P2,000 P3,000 P1,000 P1,500 P3,500 P15,000 P3,000 P5,000 What amount of petty cash should be reported in the statement of financial position? Timex Company reported petty cash fund which compromised: Coins and currencies Paid vouchers for expenses Customer check returned by bank marked “NSF” Check drawn to the other of petty cash custodian What amount should be reported as petty cash fund? P3,300 P3,000 P1,000 P2,700 Campbell Company had the following account balances on December 31, 2021: Petty cash fund Cash on hand Cash in bank – current account Cash in bank – payroll account Cash in bank – sinking fund Cash in bank – restricted account for plant addition and expected to be disbursed in 2022 Treasury bills P50,000 P500,000 P4,000,000 P1,200,000 P2,000,000 P1,500,000 P1,000,000 The petty cash fund included unreplenished December 2021 petty cash expenses vouchers P5,000 and employee IOU P5,000. The cash on hand included a P100,000 customer check payable to Campbell dated January 15, 2022. In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance of P200,000 in the unrestricted current bank account. The bond sinking fund is set aside to settle bonds payable due on December 31, 2022. What total amount should be reported as cash and cash equivalents on December 31, 2021?