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Cash and Cash Equivalents

The document outlines the definitions, classifications, and treatments of cash and cash equivalents, emphasizing their unrestricted availability for current operations. It details various forms of cash, working funds, and cash equivalents, along with examples and measurement criteria. Additionally, it presents several problems related to cash reporting and calculations for different scenarios.

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fatimaryzabakil
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36 views3 pages

Cash and Cash Equivalents

The document outlines the definitions, classifications, and treatments of cash and cash equivalents, emphasizing their unrestricted availability for current operations. It details various forms of cash, working funds, and cash equivalents, along with examples and measurement criteria. Additionally, it presents several problems related to cash reporting and calculations for different scenarios.

Uploaded by

fatimaryzabakil
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Cash and Cash equivalents

• Standard medium of exchange


• Must be unrestricted and be immediately available for use in current operations. It is unrestricted when it is on
hand or can be withdrawn immediately

Cash on hand; Undeposited cash collections

• Bills and coins


• Customer’s checks
• Travelers checks
• Money orders
• Bank drafts

Working funds;

• Petty cash fund


• Tax fund
• Payroll fund

Cash in Banks; Demand deposits

• Checkings account
• Savings account
• Tax fund

Cash presentation- current asset in the face of the Statement of Financial Position. Presentation of cash must be parallel
to the intention for which cash is held.

Examples; Purchase of PPE next year- not cash. Settlement of liability next year- part of cash

Measurement;

• Generally, at face value (equals fair value)


• Unrestricted cash in foreign currency- convert to Peso
• Cash in closed banks- receivable at recoverable amount

Post date check received from customer Exclude from cash


Undelivered check drawn Include in cash
Postdated check drawn Include in cash
Stale checks Include in cash

Bank overdrafts- General: Liability. Exception: Offset. Offset only when, within the same bank with two accounts and a
right to offset exist

Cash equivalents- short term highly liquid investments that are readily convertible into cash, matures within 3 months (90
days) from acquisition date

Item Treatment
Treasury bills* Cash equivalents
Treasury bonds and notes Non-current asset
Commercial papers* Cash equivalent
Money market instruments* Cash equivalent
Time deposits* Cash equivalent
Equity securities Current/noncurrent asset
Redeemable preference shares* Cash equivalent
*Purchased 3 months or less from maturity

Petty cash fund

• Establishment? Increase in Balance


Petty cash fund xx
Cash in bank xx
• Disbursements- No entry
• Replenishments
Various expenses xx
Cash in bank xx
• Adjusting entries
Various expenses xx
Petty cash fund xx

Count of PCF;

Cash items xx
Noncash items xx
Total count xx

Total count < PCF = cash shortage


Total count > PCF = cash overage
Problems

1. An entity provided the following data on December 31, 2022:


Cash on hand 500,000
Cash in bank 4,000,000
Cash in sinking fund 1,500,000
Treasury bills, purchased November 1, 2022 and maturing January 31, 2023 2,500,000
Time deposit, purchased October 1, 2022 and maturing January 31, 2023 2,000,000
What amount should be reported as cash and cash equivalents on December 31, 2022?

2. An entity had the following cash balances on December 31, 2022:


Cash in bank 5,000,000
Petty cash fund, all funds were reimbursed on December 31, 2022 50,000
Money market placement or commercial papers 1,500,000
Saving deposit 800,000
Cash in bank included P500,000 of compensating balance against short-term borrowing arrangement on
December 31, 2022. The compensating balance is legally restricted as to withdrawal. What amount should be
reported as cash and cash equivalents on December 31, 2022?

3. An entity had the following account balances on December 31, 2021:


Cash on hand, including a customer check P100,000 dated January 31, 2022 500,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,000,000
Cash in bank – value added tax account 600,000
Foreign bank account unrestricted and in equivalent pesos 1,400,000
Cash in bank – restricted for plant addition expected to be disbursed in 2023 500,000
Cash in sinking fund set aside for bond payable due December 31, 2023 1,500,000
What total amount should be reported as “cash” under current assets?

4. An entity reported the following information at year-end:


• Share investments of P1,000,000 that are very actively traded in the stock market.
• Government treasury bills of P2,000,000 with a 10-year term but purchased on December 31 at which time the
bills had two months to go until maturity.
• Cash of P4,000,000 in the form of coin, currency, saving account and checking account.
• Commercial papers of P1,500,000 with term of nine months but purchased on December 31 at which time the
papers had three months to go until maturity. What total amount should be reported as cash equivalents?

5. An entity reported the following at year-end.


Cash on hand 500,000
Demand deposit 4,000,000
Three-month certificate of deposit 2,000,000
Postdated customer check 300,000
Traveler’s check 200,000
Manager’s check 100,000
Money order 150,000
What amount of should be reported as cash at year-end?

6. An entity reported the checkbook balance on December 31, 2022 at P8,000,000. In addition, the entity held
following items in the safe on that date:
Check payable to the entity, dated January 2, 2023 in payment of a sale, included in December 31 check book
balance 400,000 Check payable to the entity, deposited December 15 and included in December 31 checkbook
balance, but returned by bank on December 30 stamped “NSF’. The check was redeposited on January 2, 2022
and cleared on January 5, 2023 3,000,000 Check drawn on the entity’s account dated and recorded on December
31, 2022 but not mailed until January 15, 2023 2,500,000 Coins and currencies on hand 800,000 Postage stamps
unused 200,000 What total amount should be reported as cash on December 31, 2022?

7. An entity provided the following information on December 31, 2022:


Cash on hand 200,000
Philippine Bank current account 5,000,000
Manila Bank current account No. 1 4,000,000
Manila Bank current account No. 2 (overdraft) (500,000)
BDO account set aside for bond payable due December 31, 2024 3,000,000
Asia Bank saving account for equipment acquisition in 2023 250,000
Treasury bonds 2,000,000
Treasury bills 1,000,000
Included among the checks drawn by the entity against the Philippine Bank current account and
recorded on December 31, 2022 are:
* Check recorded and dated December 23, 2022 and delivered to payee on January 31, 2023,
P100,000.
* Check recorded December 26, 2022, dated January 30, 2023 and delivered to payee on
December 31, 2022, P150,000.
What total amount should be reported as cash and cash equivalents on December 31, 2022?

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