Chapter 2: Cash and Cash Equivalents

_____, ______, and ______ are all considered cash because they are accepted by the bank for deposit or quick encashment.

According to accounting, it is the "money and any other negotiable instrument that is payable in money and acceptable by the bank for bank deposit and instant credit."

Cash belongs to a broad category of _______.

In IAS 32, a _________ is any contract that gives rise to a financial asset of one entity and a financial liability or equity to another.

From the point of view (POV) of the ____, the instrument is a financial asset.

From the POV of the _____, the instrument represents a financial liability or a component of shareholder equity.

___________ are also a type of financial assets and are a financial instrument that possesses the following characteristics:

a. Its value changes in response to changes in specified interest rate, commodity price, financial instrument price, foreign exchange rate, price index, credit rating or credit index, or other variables.
b. It requires no initial net investment, or initial net investment smaller than that required in similar contracts.
c. It is settled at a future date.
d. Some examples of this are options and warrants that enable holders to acquire equity shares of other entities.

What are the characteristics of deravatives?

Examples of Cash items

Undeposited cash collections and other cash items awaiting deposit

Includes demand deposit or checking account which are unrestricted as to withdrawal

Working funds set aside for current purposes

Examples of Cash On Hand

Examples of Cash in Bank

Examples of Cash Funds

_________ is the most significant financial asset because of its liquidity and, therefore, is the first item to appear in the statement of financial position.

Money is recognized at face value and must be considered "cash" under the current asset classification if:

When do we recognize financial assets?

Since it is used as a medium of exchange, cash ordinarily refers to ______ and ______ that are in circulation.

_______________ are highly liquid financial instrument that are so near their maturity and there is insignificant risk of change in value due to interest rates.

Examples of cash equivalents are:

Are all short-term placements of cash considered as cash equivalents?

________ cannot qualify as cash equivalents because shares do not have a maturity date.

They are classified either as equity investments at fair value through profit or loss or equity investments at fair value through comprehensive income.

___________ is a relatively small amount of cash fund primarily maintained to facilitate minor disbursements that will not normally require approval from top management.

Under the ______________, the head cashier or employee provides a fixed amount of cash in advance to the petty cashier for the expenditures in a particular period. At the end of the period, the petty cashier submits to the head cashier the statement of expenditures incurred by the entity.

Two systems of handling petty cash fund:

Advantages of using the imprest system in petty cash accounting include:

Under this system, numerous money columns are included in a columnar petty cash book to record daily spending. It has two sides: one for debit and one for credit. Particulars of cash receipts and expenses are written together in a single column known as particulars column and another column is used for writing dates of both debit and credit.

Common cash fraud problems

It is the practice of keeping the books open after the accounting period has ended in order to portray a superior financial situation and performance.

It is normally carried out in the following manner:

• The collections made after the end of the accounting period are booked as of the last day of the period.
• The payments of accounts made after the end of the accounting period are recorded as of the last day of the accounting period.

It entails misappropriating a payment of one customer and concealing the theft by applying the payment received from a different consumer to the account of the former customer whose collections were stolen.

It is an unauthorized cash transfer from one bank to another to cover
cash shortages. It is most used at the conclusion of the month. It occurs when a check is drawn on the first bank (but not recorded) and then deposited in a second bank to cover the later bank's shortage.

What are the different types of bank accounts that can be maintain by an entity for control purposes?

Cash is deposited in and disbursed from this account as all transactions are cycled through it.

It is used to make a specific amount of cash available for a limited purpose. This act as a clearing account for a large volume of checks or for a specific type of checks.

It is frequently used by large, multi-location companies to make collections in cities within areas of heaviest customer billing.

A ___________ is the process of noting the differences between the bank statement and the book of accounts

What are the reconciling items and treatment?

Also called Undeposited Collection

These are the cash that is physically in the company's care, but we now aim to put them in the company's bank account.

Already Added in the book but has not yet been added to the bank, therefore, it is not shown in the current bank statement.

What is the effect of deposit in transit?

How to correct Deposit in transit?

A check is used to pay debts. When it is drawn, it reduces the amount of cash in the company's bank account.

Are considered cash disbursements as these represent the cash in the company's bank that will be used to pay debts on the account.

These are the cash already deducted from the company's books but not yet deducted from the bank.

How to correct outstanding checks?

What is the effect of outstanding checks?

Represents the cash on account that is added to the bank but not yet added to the books

Specifics of Credit memos:

What is the effect of Credit memos?

How to correct credit memos?

Represents the cash on account that is deducted from the bank but not yet deducted from the book.

Specifics of Debit memos:

What is the effect of debit memos?

How to correct debit memos?

________ are not immediately detected. Most of the time, it is noticed upon the issuance of bank reconciliation.

1. If it is the bank who made the error, the ______ should be adjusted
2. If it is the company who made the error, the ______ should be adjusted

What type of errors is this:

correct amount is 5,325 but recorded as 3,525.

What type of errors is this:

correct amount is 5,325 but recorded as 53,255

What type of errors is this:

correct amount is 5,325 but recorded as 532.

What type of errors is this:

correct amount is 5,325 but recorded as 5,355.

What type of errors is this:

an amount that should have been charged to another company but was charged to our company.

What are the types of errors?

1. Understated disbursement results in an _______ cash balance.
2. Overstated disbursement results in an _______ cash balance.

1. Understated receipts result in an ________ cash balance.
2. Overstated receipts result in an _______ cash balance.

1. If the result is an overstated cash balance, then ______ to correct
2. If the result is an understated cash balance, then ______ to correct.