CASH
Cash:
- Most liquid asset
- Standard medium of exchange
- Basis for measuring and accounting for all items
- Current asset
- Coin, currency, money orders, checks, savings accounts, bank drafts, available
funds on deposit
Cash Equivalents:
- Readily convertible to cash
- Near their maturity that they present insignificant risk of changes in interest rates
- Treasury bills, commercial paper, money market funds
Restricted Cash:
- Companies segregate restricted cash from “regular cash” for reporting purposes
- Classify restricted cash either in current asset or long-term asset, depending on the
date of the disbursement
- For long term, examples include plant expansion, retirement of long-term debt,
and compensating balances (minimum balance in the bank)
Bank Overdraft:
- When a company writes a check for more than the amount in its cash account
- Reported as a current liability
- Offset against cash account only when available cash is present in another account
in the same bank on which the overdraft occurred
Item Classification Comment
Cash Cash If unrestricted, report as
cash. If restricted, report
as current/long term asset
Petty cash Cash Report as cash
Short term paper Cash equivalent 3 months or less
Short term paper Temporary investment 3-12 months
Postdated checks/ IOU’s Receivables Assumed to be collectible
Travel advances Receivables from employees/deducted
from salary. If not, then
prepaid expense
Postage on hand (stamps) Prepaid expense Also called office supplies
Bank overdraft Current liability If right of offset exists,
reduce cash
Compensating balances Cash separately classified
as a deposit maintained as
compensating balance
Classify as either current
or noncurrent.
