Cash and Cash Equivalents

Question 1

PAS 1, par 66

Answer 1

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 12 months after the end of the reporting period.

Question 2

Cash Items included in cash

Answer 2

Cash on hand
Cash on bank (unrestricted)
Cash fund (current purposes)

Question 3

PAS 7, par 6

Answer 3

Defines cash equivalents as short-term and highly liquid investments that are readily convertible into cash and so near maturity that there is insignificant risks of changes in value brought by changes in interest rates.

3 months before maturity

Question 4

Cash fund for a certain purpose

Answer 4

If cash is for use in current operations it is a current asset included as part of cash and cash equivalents.

Question 5

Bank Overdraft

Answer 5

Can be offset to another account with a debit balance if the other account is in the same bank.
Can be offset to debit accounts in another bank if the amount of the overdraft is immaterial.
Bank overdrafts can be offset against other bank accounts if IFRS allows.

Question 5

Classification of Cash Fund

Answer 5

The classification of a cash fund as a current or noncurrent should parallel the classification of related liability.

Question 6

Compensating Balance

Answer 6

If the deposit is not legally restricted as to withdrawal because of an informal compensating balance agreement, the compensating balance is part of cash.

Question 7

Undelivered or unreleased check

Answer 7

Drawn and recorded but not given to the payee before the end of the reporting period.

Question 8

Postdated checks

Answer 8

Drawn, recorded, still on hand, part of cash.
Drawn, recorded, and delivered, but bears a date subsequent to the end of the reporting period,a cash equivalent.
Post dated checks received are NOT yet cash equivalents.

Question 9

Outstanding check or Stale check

Answer 9

Not encashed by payee, still part of cash.
In banking practice, checks become stale if not encashed within 6 months.

Question 10

Cash shortage

Answer 10

Cash per ledger is greater than cash per bank. Or cash count is lesser than the balance per book.

Question 11

Cash overage

Answer 11

Cash per ledger is more than cash per bank. Or cash count is more than the balance per bok.

Question 12

Imprest system

Answer 12

A system of control of cash which requires that all cash receipts should be deposited intact and all cash disbursements should be made by means of check.

Question 13

Petty cash fund

Answer 13

Money set aside to pay small expenses that cannot be paid conveniently with check.