CASH & CASH EQUIVALENTS
CASH
- includes money and any other negotiable instrument that is payable in money and acceptable by the bank for
deposit and immediate credit
- current when it is not restricted from being exchanged or used for at least 12 months after the end of reporting
period (PAS 1)
Measurement
● in local currency – face value
● in foreign currency – face value translated to PHP using closing rate
● banks in bankruptcy – net realizable value
Composition
Category Item Definition Part of Cash Classification
Coins and Currencies Yes
Normal Customer’s Yes
Check
Cashiers’, Managers’, Yes
& Travelers’ Check
Entity as maker Yes Revert to payable /
Cash on hand other income
Undelivered, Post-
Dated, & Stale Entity as receiver No Receivable
Checks
Money Order Yes
Bank Drafts Yes
Demand (Checking) Non-interest bearing Yes
Deposit
Savings Deposit Interest bearing Yes
Escrow Deposit Interest bearing No Long-term
investment
Cash equivalent or
Short-term
Time Deposit Interest bearing No
Investment
Unrestricted ** use if Yes
Cash in Bank
silent
Compensating
balance Restricted (Formal) No Long/short term
investment
If silent No Current liability
Bank Overdraft (not
allowed here in PH)
2 or more accounts Yes Offset from other
in the same bank bank accounts
If immaterial Yes Offset from other
cash accounts
For Asset Acquisition Current Yes
or Settlement of
Non-current No Long-term
Liabilities
investment
Cash Fund
For Use in Operations Payroll, revolving, Yes
travel funds
CASH EQUIVALENTS – debt instruments acquired within 3 months or less before maturity date (also redeemable
preference shares that are mandatory); if problem is silent, cash equivalents
● Time Deposits ● Commercial Paper
● Money Market Instruments ● Treasury Bills
PETTY CASH FUND – money set aside to defray relatively small amount of cash disbursements
Imprest Fund System (if silent) Fluctuating Fund System
Establishment Petty Cash Fund xx
Cash in Bank xx
Upon Incurrence of Expenses Memo Entry only Expenses xx
Petty Cash Fund xx
Replenishment Expenses xx Petty Cash Fund xx
Cash in Bank xx Cash in Bank xx
Adjustment when there is no Expenses xx No entry
replenishment
Expenses xx
Increase in Fund Petty Cash Fund xx
Cash in Bank xx
Decrease in Fund Cash in Bank xx
Petty Cash Fund xx
Petty Cash Accounted:
● Collections of AR/Sales – only when intact;
● Coins & Currencies evidenced by invoices
● Unexpected Employee Contributions – only ● Unclaimed Salary – only when intact
when intact
● Checks for Deposits – e.g., employee checks
whether good, nsf, postdated or stale
● Unreplenished Vouchers ● Checks in payment of a Liability
● Unused Stamps – if no payment made in ● Unexpected Employee Contributions – intact or
vouchers not
Petty Cash Accountabilities:
● Collections of AR/Sales – intact or not
● Ledger Balance
● Unclaimed Salary – intact or not
● Impurities except checks issued in settlement of
cash advanced – e.g., customer checks,
company checks
Accounting for Cash Shortage/Overage – accountability (should be amount) is not equal to accounted for (actual
amount)
Cash Shortage Cash Overage
Discovery Cash Short/Over xx Cash on Hand xx
Cash on Hand xx Cash Short/Over xx
After Investigation – cashier is Due from Cashier xx Cash Short/Over xx
accountable
Cash Short/Over xx Due to Cashier xx
After Investigation – cannot be traced Loss from Shortage xx Cash Short/Over xx
Cash Short/Over xx Other Income xx
Fraudulent Activities in Cash
● Lapping – misappropriating a collection from one customer and concealing this when collection is made from
another customer
● Window Dressing – opening book of accounts beyond the close of accounting period for the purpose of showing
a better financial position and performance
● Kiting – transfer of cash from one bank to another to cover shortage in the latter bank; usually employed at the
end of the month; receiving per bank earlier than disbursing per book
Audit Considerations
● Bank Transfer Schedule – shows the date of all transfers before and after year-end; primary purpose is to help
detect kiting
● Bank Cutoff Statements – statement for the first 8-10 business days after year-end; primary purpose is to help
verify reconciling items on year-end
● Bank Confirmation/Standard Confirmation Form – requests information on deposits and loans; evidence on the
existence assertion
● Bank Reconciliation
● Proof of Cash
Bank Reconciliation – statement which brings into agreement the cash balance per book and per bank; prepared
monthly
● Adjusted Balance Method – book and bank balances are brought to a correct cash balance
● Book to Bank Method – book is reconciled to equal bank balance
● Bank to Book Method – bank is reconciled to equal book balance
Note: The above methods are not independent methods, rather inter-related.
Solution Guide for Bank Reconciliation
Unadjusted Balance per Book xx Unadjusted Balance per Bank xx
Add: Credit Memos xx Add: Deposit in Transit xx
Less: Debit Memos (xx) Less: Outstanding Checks (xx)
+/- Book Errors xx +/- Bank Errors xx
(xx) (xx)
Adjusted Balance xx Adjusted Balance xx
Note: Certified checks are deducted from outstanding checks because they are good as cash.
Constructive Guide for Bank Reconciliation
Deposit in Transit, Beg. xx Outstanding Checks, Beg. xx
Add: Deposits Made xx Add: Checks Issued xx
Less: Deposits Acknowledged (xx) Less: Checks Paid (xx)
Deposit in Transit, End xx Outstanding Checks, End xx
Proof of Cash – expanded reconciliation useful in discovering possible discrepancies in handling cash
Per Book/Balance Prior Month Receipts (+) Disbursements (-) Current Month
Unadjusted Balance XX XX XX XX
CM/DIT: Prior XX (XX)
CM/DIT: Current XX XX
DM/OC: Prior (XX) (XX)
DM/OC: Current XX (XX)
Adjusted Balance XX XX XX XX
Special Cases:
NSF Returned and (xx) (xx)
Redeposited (Bank
Side): Current
Prior Error not yet (xx)/xx (xx)/xx
corrected
