Thursday, May 31, 2012

Summary of Cash Related Items

Cash and cash equivalents can mean many different things for a company. Companies must segregate and analyze cash that is unavailable for payment of liabilities in the long-term assets section.

If the cash equivalent item cannot be quickly converted to a exchangeable currency, a company can separately classify it as a cash, an investment, temporary investment, receivable,  current liability, or prepaid expense.

The chart below summarizes the classification of cash-related items.

Classification of Cash Related Items 

If not restricted, report as cash.
If restricted, identify and classify as current and noncurrent assets
Short-Term Note
Cash Equivalents
These are investments with maturity of less than three months
Petty Cash
Report as cash on balance sheet
Short- Term Paper
Temporary Investments
These are generally investments with maturity of 3-12 months
Postdated Checks
Accounts Receivables
Assumed to be collectible
Prepaid Expense
Could be classified as office supplies inventory
Travel Advances
Will be collected by employees and deducted from their pay
Bank Overdrafts
Current Liability
Offset and Reduce Cash
Compensating balances
Cash will be classified as a deposit maintained as compensating balance
Classify as a current or noncurrent liability in the balance sheet.

Additional Accounting Definitions:

What are cash equivalent?

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