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LEARNING OBJECTIVES
• TO UNDERSTAND THE CONCEPT OF CASH
• TO UNDERSTAND THE CONCEPT OF CASH EQUIVALENTS
• TO IDENTIFY ITEMS CONSIDERED AS CASH
• TO IDENTIFY ITEMS CONSIDERED AS CASH EQUIVALENTS
• TO UNDERSTAND THE OMPREST SYSTEMS OF INTERNAL
CONTROL
• TO KNOW ACCOUNTING FOR PETTY CASH FUND
CASH INCLUDES MONEY AND ANY OTHER NEGOTIABLE
INSTRUMENT THAT IS PAYABLE IN MONEY AND ACCEPTABLE BY
BANK FOR DEPOSIT AND IMMEDIATE CREDIT.
MEASUREMENT OF CASH
CASH IS MEASURED AT FACE VALUE.
BANK OVERDRAFT
WHEN THE CASH IN BANK ACCOUNT HAS A CREDIT BALANCE, IT
IS SAID TO BE AN OVERDRAFT.
A BANK OVERDRAFT IS CLASSIFIED AS A CURRENT LIABILITY AND
SHOULD NOT BE OFFSET AGAINST OTHER BANK ACCOUNTS
WITH DEBIT BALANCES.
COMPENSATING BALANCE
A COMPENSATING BALANCE 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.
CLASSIFICATION OF COMPENSATING BALANCE
IF THE DEPOSIT IS NOT LEGALLY RESTRICTED AS TO
WITHDRAWAL BECAUSE OF AN INFORMAL COMPENSATING
BALANCE AGREEMENT, THE COMPENSATING BALANCE IS PART
OF CASH.
IF THE DEPOSIT IS LEGALLY RESTRICTED BECAUSE OF A FORMAL
COMPENSATING BALANCE AGREEMENT, THE COMPENSATING
BALANCE IS CLASSIFIED SEPARATELY AS “CASH HELD AS
COMPENSATING BALANCE” UNDER CURRENT ASSETS IF THE
RELATED LOAN IS SHORT-TERM.
IF THE RELATED LOAN IS LONG-TERM, THE COMPENSATING
BALANCE IS CLASSIFIED AS NONCURRENT INVESTMENT
UNDELIVERED OR UNRELEASED CHECK
AN UNDELIVERED OR UNRELEASED CHECK IS ONE THAT IS
MERELY DRAWN AND RECORDED BUT NOT GIVEN TO THE PAYEE
BEFORE THE END OF REPORTING PERIOD.
ACCORDINGLY, AN ADJUSTING ENTRY IS REQUIRED TO RESTORE
THE CASH BALANCE AND SET UP THE LIABILITY.
CASH XXX
CASH SHORT OR OVER XXX
CASH XXX
MISCELLANEOUS INCOME XXX