CASH AND
CASH
EQUIVALENTS
FINANCIAL ACCOUNTING
HAZEL M. SARMIENTO

CASH
 Includes “money and other negotiable
instrument that is payable in money and
acceptable by the bank for deposit and
immediate credit.” (e.g. checks, bank drafts
and money orders)
 There is no specific standard dealing with
cash.
 Must be unrestricted in use

CASH
 Cash items include:
1. Cash on hand – undeposited cash
collections and other cash items awaiting
deposit
2. Cash in bank – current and saving deposits
3. Cash fund – petty cash fund, payroll fund,
dividend fund

CASH EQUIVALENTS
 Short-term highly liquid investments that are
acquired three months before maturity

INVESTMENT OF EXCESS
CASH
a. three months or less – cash equivalent
b. More than three months but within one year
– short-term financial asset under current
assets
c. More than one year – noncurrent or long-
term investments and may be reclassified
as current asset

MEASUREMENT OF CASH
 At face value
 If in foreign currency, convert using current
exchange rate
 For banks or financial institutions in
bankruptcy, write down to estimated
realizable value

FS PRESENTATION
 Line item for “Cash and cash equivalents”
 Details of cash items should be disclosed in
the Notes to Financial Statements
 Cash in foreign currency should be
translated

CASH FUND FOR CERTAIN
PURPOSE
 Cash and cash equivalents – for current
operations or payment of current
obligations
 Long-term investment – for noncurrent
operations or payment of noncurrent
obligations

BANK OVERDRAFT
 A credit balance in the cash in bank account
 Classified as current liability and should not
be offset against other bank accounts with
debit balances
 Exception: When two or more accounts are
maintained with the same bank

COMPENSATING BALANCE
 A minimum bank account balance
maintained in connection with a borrowing
arrangement
 Rules:
1. Not legally restricted – part of Cash
2. Legally restricted – “Cash held as
compensating balance”
a. Current asset – related loan is short-
term
b. Noncurrent investment – related loan
is long-term

UNRELEASED CHECKS
 Checks drawn and recorded but not given to
the payee before the end of the reporting
period
 Adjusting journal entry:
Cash xx
Accounts Payable xx
(or any appropriate account)

POSTDATED CHECKS
 Checks drawn, recorded and delivered but
dated subsequent to the end of the reporting
period
 Adjusting journal entry:
Cash xx
Accounts Payable xx
(or any appropriate account)

STALE CHECKS
 Checks not encashed by the payee for more
than six months from the time of issuance
 Adjusting journal entry:
Cash xx
Miscellaneous income xx
or if amount is material,
Accounts Payable xx
(or any appropriate account)

CASH SHORTAGE
 Cash count is less than the book balance
 Adjusting journal entry:
Cash short or over xx
Cash xx
At year-end,
Due from cashier xx
or if accountability cannot be traced,
Loss from cash shortage xx
Cash short or over xx

CASH OVERAGE
 Cash count is more than the book balance
 Adjusting journal entry:
Cash xx
Cash short or over xx
At year-end,
Cash short or over xx
Miscellaneous income xx
or if due to the cashier,
Payable to cashier xx

IMPREST SYSTEM
 All cash receipts should be deposited intact
and all cash disbursements should be made
by means of check

PETTY CASH FUND
a. Imprest fund system - no journal entries are
made for payment of expenses
- requires replenishment through checks
- adjusted at the end of the accounting period
to reflect the actual fund balance
a. Fluctuating fund system – journal entries are
made for payment of expenses
- no adjustments are necessary at the end of
the accounting period