INTERMEDIATE ACCOUNTING 1 CASH AND CASH EQUIVALENTS- Complete Notes, Defitions and Financial Calculation Guidelines

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INTERMEDIATE ACCOUNTING 1 CASH AND CASH EQUIVALENTS Definition of cash − As contemplated in accounting, cash includes money and any other negotiable instrument that is payable in money and accep... table by the bank for deposit and immediate credit. − Cash includes checks, bank drafts, and money orders − Postdated checks received cannot be considered as cash yet because these checks are unacceptable by the bank for deposit and immediate credit or outright encashment. Unrestricted cash − PAS 1, paragraph 66, provides that an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it is restricted to settle a liability for more than twelve months after the end of the accounting period. − An item must be restricted in use to be reported as ‘cash” − The cash must be readily available in the payment of current obligations and not be subject to any restrictions, contractual or otherwise. Cash items included in cash 1. Cash on hand – This includes undeposited cash collections and other items awaiting deposit such as customer’s checks, cashier’s or manager’s checks, traveler’s checks, bank drafts and money orders. 2. Cash in bank – This includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal. 3. Cash fund – set aside for current purposes such as petty cash fund, payroll fund and dividend fund. Cash equivalents − Cash equivalents are 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 highly liquid investments that are acquired three 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. Measurement of cash − Cash is measured at face value. − Cash in foreign currency is measured at the current exchange rate [Show More]

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