WHY IT MATTERS:

The amount of cash and cash equivalents a company holds is very important and is a large component of a company's overall
operating strategy. For instance, companies with high amounts of cash and cash equivalents are better able to get through hard
times when sales are low or expenses are particularly high. High cash reserves can also signal that the company is "saving up"
to make some significant acquisition.

However, companies with a lot of cash on hand are often takeover targets because their excess cash essentially helps buyers
finance their purchase. High cash reserves can also indicate that management has not figured out how to best deploy the cash.

It is important to note that there is an opportunity cost to holding cash; that cost is the return on equity that company could have
earned by investing the cash in a new product or expanding business.

 Cash includes legal tender, bills, coins, checks received but not deposited, and checking and savings accounts. Cash
equivalents are any short-term investment securities that have maturity periods of 90 days or less. These include bank
certificates of deposit, banker’s acceptances, Treasury bills, commercial paper, and other money market instruments.
 Cash and its equivalents differ from other current assets like marketable securities and accounts receivable, based on
their nature.

List of cash equivalents

The full list of cash equivalents includes the following items with maturity dates that are typically three months or less:

 Banker’s acceptance
 Commercial paper
 Treasury bills
 Other liquid investments that mature within 3 months.

What’s not included in cash equivalents

Investments in liquid securities such as stocks, bonds, and derivatives are not included in cash and equivalents. Even though
these assets may be easily turned into cash (typically with a three-day settlement period), they are still excluded. These assets
are listed as investments on the balance sheet.

What is included in cash and cash equivalents?

The term cash and cash equivalents includes: currency, coins, checks received but not yet deposited, checking accounts, petty
cash, savings accounts, money market accounts, and short-term, highly liquid investments with a maturity of three months or
less at the time of purchase such as U.S. treasury bills and commercial paper. The items included as cash and cash equivalents
must also be unrestricted.
The amount of cash and cash equivalents will be reported on the balance sheet as the first item in the listing of current assets.
The change in the amount of cash and cash equivalents during an accounting period is explained by the statement of cash flows.

What is a checking account?

A checking account is a bank account in which a company deposits money and can subsequently withdraw the money by writing
a check, by using a debit card, arranging for electronic transfers, etc. Except for the uncollected funds associated with recently
deposited checks, the money in a checking account is available on demand. (Hence, a bank will refer to the amounts in its
customers' checking accounts as demand deposits.)

 What effect do overdrafts have in International Financial Reporting Standards (IFRS)?

They can be subtracted from cash, rather than classified as a liability.
 Define "compensating balance".
A minimum balance that must be maintained by the firm in relation to a borrowing. Classified as current or non-current based on
related loan classification.
 List the items included in cash.
Coin and currency, petty cash, cash in bank, and negotiable instruments such as ordinary checks, cashier's checks, certified
checks, and money orders.

 Define "cash equivalents".

Treasury obligations (bills, notes, and bonds), commercial paper (very short-term corporate notes), and money market funds.

 Describe bank overdraft rules.

Overdrafts can be offset against cash in the same bank, but if the bank has insufficient cash at the same bank, it is reported as a
current liability.

 List the items that are not included in cash.

1. COD;
2. Legally restricted compensating balances;
3. Restricted cash funds;
4. Post-dated checks received;
5. Checks written but not sent;
6. Advances to employees;
7. Postage stamps.

CASH and Non-Cash Items

(dagdag po ito sa mga nabanggit na)
* Para madali nyo matutunan ito, kung makaka-encounter ka ng hindi mo talaga alam na item, itanong mo lang sa sarili mo:
“readily available ba ito pag kinailangan kong gastusin?” Yun ang lagi mong itatanong sa sarili mo para maconsider mo sya as
cash.
CASH ITEMS:
Cash – salapi. Cold cold cash…
Change Fund – barya-baryang panukli
Petty Cash Fund – gamit sa maliliit na gastusin. Kaya nga “petty”.
Current Account – bank account used by the company for collections/disbursements. Parang savings account
Payroll Account – used by the company to pay employee’s compensation (nakakahilo magreconcile nito pag malaking
kumpanya ang hawak mo, hahaha)
Traveler’s Check – checked released by the bank that can be used at any country. Minsan, ang mga “travelers” o manlalakbay,
diba hindi naman agad sila nagkakaroon ng local currency ng bansang pinupuntahan nila unless pumunta agad sila sa bank at
magpapalit. Eh papano kung nagutom sila? Di naman nila pwedeng ipambayad ang US Dollars sa China. So, para may
panggastos sila for the mean time na wala pa silang cash, maari nilang gamitin yung traveler’s check as a legal tender. Kaya
pang-“traveler” talaga sya.
Crossed Check – ito yung may dalawang diagonal parallel line na naka linya sa upper-left hand corner ng check. Cash naman
ito. Iyon nga lang, hindi sya pedeng ipapalit sa cash, pede lang sya ideposito sa bank. Eh papanong naconsider na cash to kung
hindi pede ipapalit agad na cash? Eh pede mo namang ideposito ito tapos iwithdraw mo diba? Kaya cash to.
Replenishment Check – syempre cash to.
Treasury bills:
Current – if maturity from DATE of PURCHASE is within 3 months (cash equivalents)
TIME DEPOSIT/Money Market Instruments
Current – If 3 months or less (cash equivalent)
Cashier’s Check – considered as cash ito kasi guaranteed ito ng bank, and due and demandable.
Manager’s Check – pareho lang to ng Casheir’s Check.
*eh what makes the cashier’s check and manager’s check so special compared to a regular check? Well, ang CC or MC ay
“guaranteed” ng bank. Unlike ng regular check, ang regular check (customer’s check) ay maaring tumalbog.
Unrealeased Checks – ito yung mga dapat ipangbabayad sa mga creditor pero hindi pa na-rerelease so hawak mo pa yung
cheke. Kung hawak mo pa yung cheke, e di cash mo pa yun. Sa Law, may mga rules and regulations regarding
payment/endorsement of check. Isa sa mga proof na bayad na ang debtor ay pag nasa creditor na ang check.
Deposits in Foreign Banks – dapat unrestricted sya para considered as cash. It should be measured at its spot rate or the
exchange rate at the balance sheet date.
Cash Appropriated for short term purposes – kahit na appropriated na sya, pero kung ang purpose ay for short term lang
naman, classified as cash parin sya. Tandaan nyo lang sa appropriation ang “like father like son” principle. Kung para saan ang
purpose ng appropriation (whether short or long term) ay siya rin ang appropriation.
Compensating Balance – ito yung minimum amount na dapat mo ideposito sa bank. Pag bumaba ka sa compensating balance,
magkakaroon ka ng bank charges (parang yung nangyari sa pera ko dati nung bata ako kaya naubos  heheh) as long as NOT
RESTRICTED, cash parin sya.
NON CASH items
Postage stamps – hindi ito pedeng ipambayad kay aling nena pambili ng kendi. Hindi sya cash. Prepaid expense.
Treasury bills:
Non- Current – if maturity from DATE of PURCHASE is more than 3 months (temporary investment)
TIME DEPOSIT/Money Market Instruments
Non-current – if more than 3 months (temporary investments)
Post-dated check – since “post”-dated sya, ibig sabihin, dated sya on a future date. Ang cheke, non-negotiable o hindi mo
pedeng ipapalit sa banko when the date written on the face of the check ay hindi pa ngayon (or future dated). Ibalik sa Accounts
Payable(payor) or Accounts Receivable(payee) kung nag-entry na.
NSF Check – tumalbog na cheke.
Restricted Deposits in Foreign Banks – tunog palang, hindi na cash. Restricted kasi sya, hindi readily available.
Cash Appropriated for LONG term purposes – ulit, “like father, like son”. Kung para saan ang purpose, sya rin ang
classification.
Sinking fund (or sometimes Bond Sinking Fund) – is comprised of cash and investment securities that have been
accumulated for the stated purpose of repaying a specific loan (Intermediate Accounting, Stice , Stice & Skousen). So, in short,
appropriated sya for long term purposes.
Stock Certificates – baka may makulit na prof na magsali nito eh. Hindi to cash at HINDI rin ito negotiable instrument. Ito lang
ay ang proof na may hawak kang stocks. Kasi ang “stocks” hindi yan barya barya o ginto ginto na ipinamimigay pag bumili ka sa
isang korporasyon. Ang stocks ay intangible (o, hindi intangible asset ah ginamit ko lang yung word na “intangible” as a
description, wag malito) kasi hindi ito nakikita o nahahawakan. So para may proof ka na may hawak ka ng stocks, binibigyan ka
ng issuing corporation ng Stock Certificate at dun naka-state kung ilang stocks ang hawak mo at kung magkakano.
Stale Check – ito yung checks na hindi napapalitan ng payee (o binayaran) for a long time (usually ang silent rule ay 6 months,
unless otherwise specified). Hindi ito cash kasi usually ang gagawin ng kumpanyang nag-issue nito ay mag-iissue ng “stop
payment order” sa bank. So, babalik sa cash yan ng issuing company. Hindi na ito cash on the part of the payee. Magiging
receivable ulit yung amount na yun kasi nga na-stale, “napanis” yung cheke.

Grain comp. ledger showed a balnce of P2,205,600 in its “cash” account on dec. 31,2009 . included in this balance are the ff.
items:
DAIF checks returned by bank P20,000
Saving account P750000
IOUs P1,200
postage stamps 600
bank draft 10,000
cash on hand 30,000
cash in sinking fund 500,000
customers’check dated jan.2010 5,400
travel advances 4,000
travel’s check 8,000
determine the total amt. that should be in cash balance at dec.31,2009

Sabi, “included in this cash balance”. So ibig sabihin the enumerated amounts are incorporated dun sa P2,205,600. So, dapat
alam natin kung ano ang cash at kung ano ang hindi. Isa isahin natin:
DAIF CHECKS: deduct the 20,000 from the balance. Bakit? Kasi tumalbog yung check ng customer, therefore balik sya sa
receivables dahil wala naman tayo nakolekta.
Savings Account: do nothing. It’s cash and it’s already included in the cash balance.
IOU’s: deduct the P1,200. Bakit? kasi pautang natin to sa mga tao kaya nga “I owe you”, meaning to say, somebody owes us
money, therefore must be classified as AR and not Cash.
Postage Stamp: deduct the 600. Bakit? Dahil, uulitin ko, hindi ka makakabili ng kendi sa tindahan ni aling Nena na bayad mo ay
Stamp, baka batuhin ka pa ng bote ng suka, hahaha. Prepaid Expense ang Stamps, hindi cash.
Bank Draft: do nothing. Ano ba ang bank draft? Cash equivalent yan. Para yang cashier’s check. Pay to cash. Kunyari, bibili ka
ng worth $2,000,000 na inventory. Magdadala ka ba ng cash worth 2M? or credit card? Syempre hindi. You may pay either
through a check or a bank draft. So good as cash to.
Cash on hand: obvious, do nothing.
Cash in Sinking Fund: deduct the 500,000. Bakit? Though it’s cash, but it’s restricted for long term purposes. Following the
principle of “Res Perit Domino”, meaning “thing follows it’s master”, it’s also considered as a Long Term Asset
Customers’ Check dated Jan. 2010: Syempre, deduct the 5,400. Bakit? Kasi post dated ang check. Hindi pa sya readily
convertible into cash. Therefore, still considered as an AR.
Travel Advances: deduct the 4.000. Syempre, hindi naman to cash kasi nga “advances” meaning binigay mo yung pera for travel
purposes at ibabalik sayo, thus, it’s an AR.
Traveler’s Check (not travel’s check): syempre included as cash to. Usually eto yung cheke na ginagamit ng mga nangingibang
bansa para maiwasan ang hassle ng pagpapapalit ng foreign currency.
Therefore:
2,205,600 unadjusted ending cash balance
(20,000) DAIF
(1,200) IOU
(600) Postages
(500,000) Sinking Fund
(5,400) Postdated Checks
(4,000) Travel Advances
__________
1,674,400 is the correct Cash Balance