CASH AND CASH EQUIVALENTS
Ang Cash and Cash Equivalents (CCE) ay current asset at ang pinakauna sa lahat ng mga line items sa Balance Sheet o Statement of Financial Position ng lahat ng entity. Bakit? Kasi ang CCE ay highly liquid o madaling maincovert sa cash (cash equivalents).
Ano nga ba ang cash? Sa isang ordinaryong mamayan ng lipunan (Ang lalim!), ang cash ay literal na pera, perang ginagamit upang makabili ng mga parodukto o serbisyo sa merkado. Ngunit sa mundo ng Accounting, ang cash ay mayroong masa malawak at ispesyal na kahulugan, “Cash includes money and any other negotiable instrument that is payable in money and acceptable by bank for deposit and immediate payment.”
When cash is cash?
Ang labo ng tanong ko no?! Pero kailan nga ba nagiging cash ang isang cash? Sa totoo lang, wala pong specific na STANDARD with regards to dealing with cash. Pero may isang guidance na nasususlat sa PAS 1, paragraph 66, at ang sabi ng lolo nyo, “an entity shall classify an asset as current when the asste is cash and cash equivalent unless it is restricted from being exchanged or used to settle a liability for atleast twelve (12) months after the reporting period.” Ayan sagana na sa highlights ang statement na yan. Sa madaling salita, cash ay dapat unrestricted upang matawag na cash.
Mga kasama sa lipi ng cash:
- Cash on hand
a) Undeposited cash collections or undeposited negotiable checks – ito yung mga checks na binayad ng mga customers on account (Acrrued income) na hindi naidedeposito sa bangko.
b) Cashier’s or Manager’s check – A manager’s check is a check you bought from the bank at the value you asked the bank for. And since you bought it from the bank, you have paid cash up front for it. The manager’s check can be named to a person or firm you want it to be named for, and the receiving bank will ask for the persons identity before cashing or depositing it. But the main thing is, you have paid or lost your money to the bank.
c) Traveler’s checks – Checks issued by a financial institution which functions as cash but is protected against loss or theft. Traveler’s checks are useful when traveling, especially in case of overseas travel when not all credit and debit cards carried by a person will be accepted. A charge or commission is usually incurred when a person exchanges cash for traveler’s checks, though some issuers provide them free of charge.
d) Bank drafts – mga cheke na natanggap ng entity sa customer o kung kaninumang may receivable.
e) Money orders –katulad ng bank drafts pero sa post offices o iba pang money remittance company nakukuha. Ang pinaka magandang halimbawa ay ang remittance sa LBC, Western Union at iba pa.
f) Foreign currencies – converted na dapat sa peso value.
2. Cash in bank
a) Demand deposit – kasama rito ang checking account and savings account, provided na unrestricted ito as to withdrawals.
3. Cash fund
a) Petty cash fund – cash na nasa kamay ng petty cash custodian (kadalasang nasa opisina) na ginagamit sa mga minor expenditures.
b) Payroll fund – cash na nakalaan para sa salaries and wages.
c) Dividend fund
d) Other short-term funds for current operations
When cash equivalents are cash equivalents?
Ito na naman ang pamatay na tanong ko. Bago natin sagutin yan alamin muna natin ang definition ng cash equivalents ayon sa PAS, paragraph 6, “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.” Ayon pa sa naturang standard, “only highly liquid investments that are acquired three (3) months before maturity can qualify as cash equivalents.”
In short, lahat ng mga naacquire na short-term investments 3 months before the maturityay included sa cash equivalents. Note that word ACQUIRED or purchased o binili before the maturity. Therefore date of purchase ang basis natin, kaya if ever na may tresury bill that was acquired 1 year ago kahit pa 3 months na lang ang remaining period before it matures hindi pa rin maaaring maiclassify as cash equivalents.
Since it was bought 3 months before the maturity kaya insignificant or I must say immaterial na ang changes in value dahil sa changes in interest rates.
Mga kasama sa lipi ng cash equivalents:
- Three-month BSP treasury bill
- Three-month time deposit
- Three-month money market instrument or commercial paper
Valuation of Cash in the Balance Sheet:
- Cash is generally valued at face value
- Cash in foreign currency is valued in Philippine peso using the current exchange rate as of the balance sheet date
- Cash in bank or financial intitutions having financial difficulty or in bankruptcy should be shown at its estimated realizable value or recoverable value.
Bank overdraft
Ang bank overdraft ay nangyayari kapag ang cash in bank account ay may credit balance. Paano ito nangyayari, kapag sobra ang issuance ng checks sa deposits. If you will look at it logically, imposibleng magkaroon ng ganitong scenario. Kaya nga hindi ito permitted sa Philippines, pero for the purpose of accounting discussions ating tatalakayin ang proper treatment of this.
Ang overdraft ay classified as current liability, kung iisa lang ang bank account ng entity sa isang bangko. Pero, maaring ioffset ang credit balance kung may iba pang account ang entity sa iisang bangko.
Compensating balance
Ganito lang yan, as part of the loan agreement or contract, ang entity ay kailangang mag-maintain o magiwan ng amount of cash sa checking or savings account nya sa isang bangko, compensating balance ang tawag sa naturang amount of cash.
Halimbawa, Harry Potter Company borrows P 100,000 from Percy Jackson Bank and agrees to maintain 2%, which is P 2,000 minimum compensating balance in a demand deposit account.
Yung P 2,000 ay ang compensating balance.
Kaya ang total cash na nautang ng Harry Potter Company ay P 98,000 na lamang.
How to disclose compensating balance?
Ang disclosure ng compensating balance ay depende kung ito ay Legally restricted or Unrestricted
- Legally restricted compensating balance
a) If the compensating balance is against a short-term borrowing arrangements, it should be stated separately as “cash held as compensating balance” under current assets.
b) If the compensating balance is againts a long-term borrowings, it should be classified as Non-current Investments, syempre under Non-current assets.
2. Unrestricted
a) If the compensating balance is not legally restricted as to withdrawal by the borrower, it should be included as part of cash items on deposit.
Note that in the absence of any information, in other words, if the problem is silent, the compensating balance is not legally restricted or unrestricted.
Undelivered or unreleased checks.
Kapag nadraw na ang checks pero hindi pa naibibigay sa payees, ang nasabing mga checks ay undelivered o unreleased. Wala pang nangyayaring bayaran or settlement ng liability if the checks are undelivered at the end of the reporting period.
Let’s put it this way, Katniss Everdeen Company recorded a check of P 50,000 in payment of accounts payable on December 20, 2012 but mailed to creditors on January 2, 2013.
Ang entry nung December 20, 2012:
Accounts payable P 50,000
Cash P 50,000
Pero dahil sa January 2, 2013 pa nya nadeliver, technically may liability pa sya as of the end of reporting period o December 31, 2012, kailangang ireverse ang naunang entry.
Cash P 50,000
Accounts payable P 50,000.
Stale checks or checks long outstanding
In banking practice, checks become stale if not encashed within six months from the time of issuance. Ibig sabihin after six months hindi na maaaring maiencash ang checks na nairelease. (Sayang naman!)
Pero the time frame may vary according to the entity’s policy. Given the fact that the checks are said to be stale the accounting entries are as follows:
If the stale check is immaterial, it is simply accounted for as miscellaneous income.
Cash P 50,000
Miscellaneous income P 50,000
If the amount is material and the liability is expected to continue, the cash and the liability accounts are restored.
Cash P 50,000
Accounts payable P 50,000
Accounting Chef 