Cash and Cash Equivalents
Money standard medium of exchange in business
transactions. It refers to the currency and coins which are in
circulation and legal tender.
Cash includes money and any other negotiable instrument
that is payable in money and acceptable by the bank for
deposit and immediate credit.
It includes checks, bank drafts, and money orders because
these are acceptable by the bank for deposit or immediate
PAS 1, paragraph 66, which provides that an entity shall
classify an asset as current when the asset is cash or cash
equivalent unless it is restricted to settle a liability for more
than twelve months after the end of the reporting period.
“Cash” must be unrestricted in use.
Cash items included in cash
a. Cash on hand – includes undeposited cash
collections and other cash items awaiting deposit
such as customer’s checks, cashiers/manager’s
checks, traveler’s checks, bank drafts and money
b. Cash in bank – includes demand deposit or checking
account and saving deposit which are unrestricted
as to withdrawal.
c. Cash fund – set aside for current purposes such as
petty cash fund, payroll fund, and dividend fund.
PAS 7, paragraph 6 cash equivalents as short-term and
highly liquid investments that re readily convertible into cash
and so near their maturity that they present insignificant risk
of changes in value because of changes in interest rates.
The standard further states that only highly liquid
investments that are acquired three months before maturity
can qualify as cash equivalents.
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 time deposit
d. Three-month money market instrument or
Equity securities cannot qualify as cash equivalents
because shares do not have a maturity date.
Preference shares with specified redemption date and
acquired three months before redemption date can qualify
as cash equivalents.
Thus, a BSP treasury bill that was purchased one year ago
cannot qualify as cash equivalent even if the remaining
maturity is three months/less.
Investment of excess cash
Classifications of investment of excess cash
Investments in time deposit, money market instruments and
treasury bills should be classified as follows:
a. If the terms is three months or less, such instruments
are classified as cash equivalents and therefore
included in the caption “cash and cash equivalents”
b. If the terms is more than three months but within one
year, such investments are classified as short-term
financial assets or temporary investments and
presented separately as current assets.
c. If the term is more than one year, such investments
are classified as noncurrent or long-term
Measurement of cash
Cash is measured at face value.
Cash in foreign currency is measured at the current
Financial statement presentation
Cash and cash equivalents should be known as the first
line item under current assets.
Cash in foreign currency should be translated to Philippine
pesos using the current exchange rate.