chap 1: cash & cash equivalents Flashcards
from the point of view of a layman, cash simply means _ ?
money
it is the standard medium of exchange in business transaction.
money
it refers to the currency and coins which are the circulation and legal tender.
money
it includes money and other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit.
money
true or false: cash includes checks, bank drafts, and money orders because these are acceptable by the bank for deposit or immediate enchashment.
true
true or false: postdated checks received cannot be considered as cash yet because the postdated checks are unacceptable by the bank for deposit and immediate credit or outright encashment.
true
true or false: there is specific standard dealing with cash.
false
“an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it’s restricted to settle a liability for more than 12 months after thw end of the reporting period.“
pas 1, paragraph 66
what are the cash items included in cash?
a. cash on hand (ie. undeposited cash collections, customer’s check, bank drafts, money orders, etc.)
b. cash in bank (ie. demand deposit or checking account wchi are unrestricted as to withdrawal.
c. cash fund set aside for current purposes (ie. petty cash fund, payroll fund, and dividend fund.)
pas 7, paragraph 6, defines 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 rate.“
cash equivalents
pas 7, paragraph 6, further states that only highly liquid investments acquired _ before maturity can qualify as cash equivalents.
3 months
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 money market instrument or commerical paper
true or false: equity securities or equity invesments cannot qualify as cash equivalents because shares do not have a maturity date.
true
true or false: preference shares with specified redemption date and acquired 3 months before redemption date can qualify as cash equivalents.
true
any cash accumulated in excess of that needed for current operations should be invested even temporarily in some type of _?
revenue earning investment
excess cash may be invested in what for the purpose if earning interest income?
time deposits, money market instruments, and treasury bills
investments in time deposit, money market instruments, and treasury bills should be properly classified as?
a. if the term is 3 months or less, the instrument is cash equivalents.
b. if the term is more than 3 months but within 1 year, investments are classified as short-term or temporary investments and current assets.
c. if the term is more than 1 year, investments are classified as non-current assets or long term investments.
however, such investments that become due within 1 year from the end of reporting period are reclassified as current.
cash is measured at?
face value
if a bank or financial institution holding the funds of an entity is in bankruptcy or financial difficulty, cash should be written down to _ if the amount recoverable is estimatec to be lower than the face value.
estimated realizable value
what are examples of cash fund?
petty cash fund, payroll fund, travel fund, etc.
if the cash fund is set aside for use in cureent operations or for the payment if current obligation, it is a _? the cash fund id included as part of cash and cash equivalents.
current asset
the classification if cash fund as current or noncurrent should parellel the _?
classfication of the related liability
true or false: noncurrent asset should be classified as noncurrent regardless of the year of disbursement.
true
when the cash in bank account has a credit balance, it is said to be a _? the credit balance in the cash in bank account results from the issuance of checks in excess of deposits.
bank overdraft
a bank overdraft is classified as _ and should not be offset against other bank accounts with debit balances.
current liability
true or false: overdrafts aren ot permitted in the Philippines.
true
when an entity maintains two or more accounts in one bank and one account results in an overdraft, it can’t 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.
false - can
true or false: an overdraft can also be offset against the other bank account if the amount is not material.
true
under ifrs, bank overdraft can be offset against other bank account when payable on demand and often fluctuates from positive to negative as an integral part of cash management.
true
it generally takes the form of minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank.
compensating balance
if the deposit is legally restricted because of a compensating balance agreement, the compensating balance is classified separately as _ under current assets if the related loan is short-term.
cash held as compensating balance
it is one that is merely drawn and recorded but not given to the payees before the end of reporting period.
undelivered or unreleased check
true or false: there is payment when the check is pending delivery to the payee at the end of reporting period.
false - there is no payment. the reason is that undelivered check is still subject to the entity’s control and may thus be canceled anytime before delivery at the discretion of the entity.
it is a check drawn, recorded, and already given to the payee but it bears a date subsequent to the end of reporting period.
postdated check delivered
a check nit enchashed by the payee within a relatively long period of time.
stale check
they provided that where the instrument is payable in demand, the presentment must be made within a reasonable time after issue.
negotiable instruments law
in banking practice, a check becomes stale if not enchased within _ from the time of issuance. thus even after _ only, the entiry may issue a _ to the bank for the cancellation if a previously issued check.
6 months, 3 months, stop payment order
true or false: clearly, the law doesn’t specify a definity period within which checks myst be presented for encashment. reference is made to usage of rrade or business practice.
true
if the amount if stale check is immaterial, it is simple accounted for as _?
miscellaneous income
if the amount is material and liability is expected to continue, the cash is _ and the _ is set up.
restored, liability
the cash or over account is only a _ or _. when financial statements are prepared, the same should be adjusted.
temporary or suspense account
whether it is cash shortage ir cash overage, the offsetting account is _?
cash short or over account
the cash overage is treated as _ if there is no claim on the same.
miscellaneous income
cash overage is properly found to be the money of the cashier, what should be established?
liability
is a system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made means of check.
imprest (fund) system
is money set aside to pay small expenses which cannot be paid conveniently by means of check.
petty cash fund
there are two methods of handling the petty cash, namely:
a. imprest fund system
b. fluctuating fund system
it is the one usually followed in handling petty cash transactions.
imprest fund system
the petty cashier generally requires a signed petty cash voucher for such payments and simply prepares memorandum entries in the _?
petty cash journal
the petty cash disbursements should be replenished only by means of check not from _?
undeposited collections
true or false: the replenishment check is not usually equal to the petty cash disbursements.
false - usually equal
is a business document or written authorisation that supports every disbursement made by an entity.
voucher (check disbursement voucher or cdv)
supporting documents (eg. purchase order, purchase invoice, delivery receipt) are attached to the voucher to form the _?
voucher package
