CASH chapter accounting part 2.docx

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Accounting & Financial Management
AFM 291
Richard Ennis

CASH WHAT IS CASH - most liquid asset is standard form of exchange and basis of measuring and accounting for all other items. - it is important to differentiate cash and cash equivalents or short term investments (such as money-market funds and certificates of deposits) because they have restrictions and penalties on early withdrawals - certain items present classification problems: postdated cheques, petty cash is included in cash, travel advances or small supplies may be treated as prepaid expense REPORTING CASH as: 1) restricted cash 2) cash in foreign currencies 3) bank overdrafts 4) cash equivalents RESTRICTED CASH - petty cash, special payroll or dividend accounts are set for different purposes. If they are immaterial, they are included in the balance, otherwise shown separately under current assets or long term assets (depending on when usable) - compensating balances: minimum proportion of demand deposits required to be held by the corporation as a rule by the lending corporation CASH IN FOREIGN CURRENCIES - if no restrictions in transferring money from other country to canadian company, its reported in cash converted to CAD - otherwise if there are restrictions, its included in restricted cash BANK OVERDRAFTS - if cheque issued is more than the amount in the bank but the cheque is issued and honored - put it in current liabilities, usually just added to A/P, but if material its disclosed seperately - bank overdrafts shouldnt offset cash account. Unless the bank has the right to obtain overdraft transfer from the other account EX: Cash = 120 (100 scotia+20TD) I issue overdraft cheque of $30 from TD then my cash will be $100, and overdraft liability: $10 because TD cant access Scotia funds but if: Cash = 120 (100 in 1 scotia account+20 in another) Another $30 cheque from 2nd account means Cash will just be $90 CASH EQUIVALENTS - short term highly liquid inv
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