Cash and Cash Equivalent

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Cash and Cash Equivalents

Cash
This includes money and other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. Examples are bills and coins, checks, bank drafts and money orders.

To be included or considered as cash, it must be unrestricted as to use, meaning, it must be readily available for use or payment of current obligations, thus, not subject to contractual or legal restrictions.

The following items are included in “cash”:
* Cash on Hand
* Cash in Bank
* Cash Fund

Cash Equivalents
According to PAS 7, cash equivalents are short-term highly liquid investments that are readily convertible into cash so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. In addition, the standard also states that only highly liquid investments acquired three months before maturity can qualify as cash equivalents. Examples are: * Three-month BSP Treasury Bill

* Three month time deposit
* Three-month money market instruments
* BSP Instruments purchased three months prior to maturity * Redeemable preference shares purchased three months prior to maturity

Valuation of Cash
* Face value
* Current exchange rate if foreign currency
* Net realizable value if cash is in bank that is under bankruptcy proceeding

Investment of Excess Cash
* If invested with terms of 3 months or less, treated as “cash and cash equivalents” * If invested with terms more than 3 months but not more than 1 year, treated as short term investments classified as other current assets * If invested with terms of more than 1 year, treated as long term investment under non-current assets, however, reclassified as current asset if maturity is within 1 year.

Cash Fund
* The classification of a certain cash fund follows the nature of the liability it is created for. * Cash funds created for current obligations are treated as current assets. Examples of such are: * Petty cash fund

* Payroll fund
* Travel fund
* Interest fund
* Dividend fund
* Tax fund

Bank Overdraft
* If problem is silent, treated as current liability
* If two or more banks accounts exist in one bank and at least one has an overdraft, the overdraft may be offset with the other bank accounts in order to get “cash net of overdraft” or “bank overdraft, net of other bank accounts”.

Compensating balance
* If problem is silent, ignore the compensating balance and treat it as part of cash. * If compensating balance is legally restricted, treat such as “cash held as compensating balance” reported as either current or non-current asset depending on the term of the loan or borrowing.

Treatment of Entity Checks
* Undelivered or unreleased checks are treated as cash
* Postdated checks are treated as cash
* Stale checks are reverted back to cash and treated a miscellaneous income if immaterial and treated as reversal of previous entry if material.

Window Dressing
It pertains to any deliberate misstatement of financial statement elements or presenting false statements. It is often accomplished by: * Recording as of the last day of an accounting period collections made subsequent to the close of the period * Recording as of the last day of an accounting period payments of accounts made subsequent to the close of the period

Lapping
It is a practice used to conceal cash shortage. It consists of misappropriating a collection from one customer and concealing this defalcation by applying a subsequent collection made from another customer.

It involves a series of postponements of the entries for the collection of receivables. This is possible when an entity has poor internal control and especially when the bookkeeper and cashier is one and the same person.

Kiting
This device used to conceal cash shortage may be utilized if an entity...
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