CASH AND CASH EQUIVALENTS
CASH
It includes money and any other negotiable instruments that is payable in money and
accepted by the bank for deposit and immediate credit.
It includes currency and coins that is circulating and is legal tender (accepted by the law).
It is presented generally as current asset unless it is restricted for more than 12 months
after the reporting period. It measured at Face Value. However, estimated realizable
amount is used as a measurement in cases such as when bank where deposit is placed
goes bankrupt.
Foreign currencies are converted through the current exchange rate at the time of
conversion.



Cash on Hand
a) Undeposited collections
b) Customer’s check – a check given by a customer as their payment.
c) Manager’s check – a check given by a customer as their payment.
.However, this type of check is approved by the bank manager as a proof
that the customer has enough funds to pay.
d) Cashier’s check - a check given by a customer as their payment.
.However, this type of check is approved by the bank cashier as a proof
that the customer has enough funds to pay.
e) Traveller’s check – usually carried used by travellers abroad that is
accepted there by the bank.
f) Bank draft – an instrument written by the bank that has heavier guarantee
as this is guaranteed by the bank itself that it has fund not just from the
account but also from the whole bank. In other words, bank draft will only
lose its fund when it became bankrupt.
g) Money order – an instrument issued by an institution other than a bank
such as remittance centers (Western Union).
Cash in Bank
a) Checking account (demand deposit) – it can be demanded or withdrawn
at any time for the purpose of transactions. A document is presented to
withdraw called “check”.
b) Saving deposit – for the purpose of saving money for a period of time
Cash Fund
a) Change fund
b) Tax fund
c) Payroll fund
d) Dividend fund
Checks



Undelivered Checks – checks already prepared but not yet delivered. This is still
considered as part of cash
Post- dated Checks – the date of the check is at a later date from the date it is
given to the, let’s say, supplier. This is still part of the cash up until the date written
on the check.
Stale Checks – expired check not encashed in a long period of time. There is no
definite period for a check to be considered stale, it is just a matter of trade
practice. This is still considered as part of cash as there is no fund deducted from
the owner’s account.
Bank Overdraft
These are check drawn more than the deposited account. This is considered as a current
liability of the account owner to the bank.
When there is an overdraft, offsetting is only allowed when there are two accounts in a
same bank and one of those accounts resulted to overdraft, or the amount is immaterial.
However, this is not allowed by the Philippine government.
Restrictions
a) When the cash is not restricted, it is cash
b) When the cash is restricted for current operations, it is a cash fund. Hence,
considered as cash.
c) When the cash is restricted for non-current purposes, it is not considered as cash.
Such example is a plant expansion fund.
Compensating Balance
a) If the compensating balance is restricted is formal, it is not considered as cash.
b) If the compensating balance is informally restricted, it is considered as cash.
(if the problem is silent, it is considered as informal restriction)
CASH AND CASH EQUIVALENTS
It is a short-term and highly-liquid investment that are readily convertible into cash and so
near their maturity that they present insignificant risk of changes in value because of
changes in interest rates.

Three-month BSP Treasury Bills
- T-Bills given by Bangko Sentral ng Pilipinas



Three- month time deposit
- Time deposits are money deposited to the bank that cannot be withdrawn
for a certain period of time for interest rate purposes.
Three- month money market instrument or commercial paper
- Money market instruments are money of the customer invested by the
bank to the stock market and the money is placed to big companies.
- Commercial papers have the same concept with treasury bills. However,
they are issued by private entities and not BSP.
XXX- year BSP Treasury Bill/ commercial papers/ preference share purchased
three months before maturity.
Classification of Excess Cash Investments
3 months
More than 3 months but
less than a year
More than a year
Cash and Cash Equivalents
Short-term investments
Long-term investments
PETTY CASH FUND
It is a form of cash fund which is a money set aside to pay small business expenses which
cannot be paid conveniently by means of check.


Imprest Fund System – Imprest System happens when all cash collections are
deposited to the bank and all cash disbursements are paid through checks.
Imprest Fund System is a system where all cash disbursements or expenses are
combined together before recording it.
Fluctuating Fund System – there is a record every time there is a movement in
cash.
Accounting for Petty Cash Fund
Imprest Fund System
Establishment
Petty Cash Fund
xxx
Cash In Bank
xxx
Expenses
No Entry – recorded in petty cash
memorandum book
Replenishment
Expenses
xxx
Cash in Bank
xxx
Fluctuating Fund System
Establishment
Petty Cash Fund
xxx
Cash In Bank
xxx
Expenses
Expenses
xxx
Petty Cash Fund
xxx
Replenishment
Petty Cash Fund
xxx
Cash In Bank
xxx
Increase/ Decrease of Fund
Increase/ Decrease of Fund
Petty Cash Fund
xxx
Petty Cash Fund
xxx
Cash In Bank
xxx
Cash In Bank
xxx
End of Reporting Period (when there is no End of Reporting Period
replenishment yet)
No Entry because they are updating it
Expenses
xxx
every time there is an expense
Petty Cash Fund
xxx
Cash Short
Cash Short
Cash Shortage
xxx
Cash Shortage
xxx
Cash in Bank
xxx
Petty Cash Fund
xxx
Cash Shortage due to custodian’s fault
Receivable from Custodian
xxx
Cash Shortage
xxx
Cash Over
Petty Cash Fund
Cash Overage
Cash Shortage not due to custodian’s fault
Miscellaneous Expense
xxx
Cash Shortage
xxx
Cash Shortage not due to custodian’s fault
Miscellaneous Expense
xxx
Cash Shortage
xxx
xxx
xxx
Cash Over
Cash Over
Cash in Bank
xxx
Cash in Bank
xxx
Cash Overage
xxx
Cash Overage
xxx
Cash overage because of custodian’s Cash overage because of custodian’s
personal money
personal money
Cash Overage
xxx
Cash Overage
xxx
Payable to Custodian
xxx
Payable to Custodian
xxx
Cash overage without known reason
Cash Overage
xxx
Miscellaneous Income
xxx
Cash overage without known reason
Cash Overage
xxx
Miscellaneous Income
xxx