Wiley GAAP 2008

Concepts, Rules, and Examples

Cash

To be included as cash in the balance sheet, funds must be represented by coins, currency, undeposited checks, money orders, drafts, and demand deposits that are immediately available without restriction. Cash that is restricted as to use would not be included with cash unless the restrictions on it expire within the year (or the operating cycle, if longer). Thus, cash contractually required to be held in a sinking fund is classified as a current asset if it will be used to retire the current portion of long‐term debt. However, if material, it would be reported on a separate line rather than included with cash. Cash in a demand deposit account that is being held for the retirement of long‐term debts that do not mature currently is excluded from current assets and shown as a noncurrent investment. Cash in transit to the reporting entity (e.g., checks already mailed by the customer) cannot be included in cash because it is not under the control of the reporting entity.

It has long been common to see the caption “Cash and Cash Equivalents” in the balance sheet. That caption includes other forms of near‐cash as well as demand deposits and liquid, short‐term securities. Cash equivalents must be available upon demand in order to justify inclusion. However, a current joint FASB‐IASB project, addressing financial statement presentation, might restore the prominence of “cash,” excluding equivalents, by dispensing with the concept of cash and equivalents. ...