Chapter 1. Cash and Cash Equivalent

Question 1

Accounting Standards:

Answer 1

Philippines is the Philippine Accounting Standard (PAS) 7, Statement of Cash Flows.

Question 2

Scope of the Applicable Standard:

Answer 2

PAS 7 applies to all entities that prepare financial statements in accordance with the Philippine Financial Reporting Standards (PFRS). It covers the presentation of cash flows and defines cash and cash equivalents, but it does not apply to other aspects of cash management, which may be covered by other standards.

Question 3

Comprises cash on hand and demand deposits.

Answer 3

Cash

Question 4

Short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Typically, only investments with original maturities of three months or less qualify as cash equivalents.

Answer 4

Cash equivalent

Question 5

Funds in accounts that can be withdrawn without prior notice.

Answer 5

Demand deposits

Question 6

Recognition: Initial and Subsequent

Answer 6

• Initial Recognition: fair value. This typically corresponds to the nominal value for cash transactions.
• Subsequent Recognition: Cash and cash equivalents continue to be recognized at nominal value.

Question 7

Measurement: Initial and Subsequent

Answer 7

• Initial Measurement: Cash is measured at its nominal value upon recognition. Cash equivalents are measured at their fair value at the acquisition date.
• Subsequent Measurement: Both cash and cash equivalents are measured at nominal value after initial recognition due to their immediate availability and minimal risk of value changes.

Question 8

Initial Recognition of Cash:

Answer 8

Dr. Cash
Cr. Relevant Account (e.g., Accounts Receivable, Sales)

Question 9

• Purchase of Cash Equivalents:

Answer 9

Dr. Cash Equivalents
Cr. Cash

Question 10

• Sale of Cash Equivalents:

Answer 10

Dr. Cash
Cr. Cash Equivalents

Question 11

Presentation

Answer 11

a single line item in the current assets section of the balance sheet. They are also included in the statement of cash flows, categorized into operating, investing, and financing activities based on their nature and the transactions involved.

Question 12

Disclosure:
Entities must disclose:

Answer 12

• The components of cash and cash equivalents.
• The accounting policies adopted for determining the composition of cash and cash equivalents.
• If applicable, restrictions on the use of cash and cash equivalents.
• Reconciliation of the amounts in the statement of cash flows with the equivalent items reported in the balance sheet.

Question 13

Entities may also disclose additional information such as:

Answer 13

• Details of significant cash and cash equivalent balances that are not available for use by the entity.
• The entity’s policy on managing liquidity risk related to cash and cash equivalents.