Cash and Cash Equivalents
• Face Value
CASH
Includes money and any other negotiable
instrument that is payable in money and
acceptable by the bank for deposit and immediate
credit.
UNRESTRICTED CASH
PAS 1: Entity shall classify an asset as current
when the asset is cash or cash equivalent unless it
is restricted to settle a liability for more than twelve
months after the end of the reporting period.
Accordingly, to be reported as “cash”, an
item must be unrestricted in use
CASH ITEMS INCLUDED IN CASH
a) Cash On Hand
b) Cash In Bank
c) Cash fund
CASH EQUIVALENTS
PAS 7, paragraph 6
Cash equivalents as short-term and highly
liquid investments 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.
The standard further states that only high
liquid investments that are acquired three (3)
months before maturity can qualify as cash
equivalents.
EXAMPLES OF CASH EQUIVALENTS ARE:
a) Three-month BSP Treasury bill
b) Three-year BSP Treasury bill purchased
three months before date of maturity
c) Three-month time deposit
d) Three-month money market instrument or
commercial paper
Types of Investment of excess cash
a) Time Deposit
b) Money Market Instruments
c) Treasury Bills
Classifications of Investment of excess cash
Measurement of cash
• Cash in foreign currency is measured at
the Current Exchange Rate
* company (bank or financial institution) holding the
funds of an entity is in bankruptcy or financial
difficulty, cash should be written down to Estimated
Realizable Value If the amount recoverable is
estimated to be lower than the face value.
Financial Statement Presentation
1. First Line item under current assets, this
includes:
• Cash on hand
• Cash in bank
• PCF
• Cash equivalents (unrestricted in use for
current operations)
2. Details comprising the cash and cash
equivalents should be disclosed in the
notes to FS
Foreign Currency
• Cash in foreign currency should be
translated to Philippine Pesos using the
current exchange rate
• Deposits in foreign countries not subject to
any FOREX restriction are included in
“cash”.
• Deposit in foreign countries subject to
FOREX restriction, if material, should be
classified separately among noncurrent
assets and the restriction clearly indicated.
Cash fund for a certain purpose
Classifications of cash fund
• Should parallel the classification of the
related liability
• Ex: Sinking fund set aside to pay a bond
payable shall be classified as CA when the
bond payable is already due within one
year after the end of reporting period.
 • However, a cash fund set aside for the
acquisition of a noncurrent asset should be
classified as noncurrent regardless of the
year of disbursement.
Bank Overdraft
• Credit balance in bank account
• Classified as Current Liability
• Should not be offset against other bank
accounts with debit balances
The reason is that there is no payment until
the check can be presented to the bank for
encashment or deposit.
Stale Check or check long outstanding
• Not encashed by the payee within a
relatively long period of time
• In banking practice, a check becomes stale
if not encashed within 6 months from time
of issuance. (matter of entity policy)

Exception to the rule on overdraft

• Two or more bank accounts in one bank
and one account results in an overdraft,
such overdraft can be offset against the
other bank account with a debit balance in
order to show cash, net of bank overdraft
or bank overdraft, net of other bank
account.
• An overdraft can be offset against the other
bank account if the amount is not material.

Compensating Balance
Minimum checking or demand deposit
account balance that must be maintained in
connection with a borrowing arrangement with a
bank.

Classifications of compensating balance

Undelivered or Unreleased Check

• Merely drawn and recorded but not given to the
payee before the end of reporting period
• No payment when the check is pending delivery
to the payee at the end of reporting period.
• Adjusting entry is required to restore the cash
balance and set up liability as follows:
Cash xx
A/P xx

Postdated Check delivered

• Check drawn, recorded and already given to the
payee but it bears a date subsequent to the end of
the reporting period.
• Adjusting entry is required at reporting period
Cash xx
A/P or appropriate account xx