Monday, June 12, 2017

Cash and Cash Equivalents

The Tax Lady-Helping you understand the components of the line item cash and cash equivalents on the balance sheet.

Definition of Terms:

Cash - Currency (bills and coins) on hand and balances in checking and savings accounts acceptable by the bank and available for immediate withdrawal. 

Cash Equivalents - These are short-term, highly liquid investments that are readily convertible to cash and are so near their maturity that they present insignificant risk of changes in value due to fluctuations in interest rates; a highly liquid debt instrument with maturities of less than three months.

Cash in Bank – This includes demand deposit or checking account and savings deposit which are unrestricted as to withdrawal.

Cash Fund – Cash set aside for a specific purpose.

Cash on Hand – This includes undeposited cash collections and other items awaiting deposit such as checks, bank drafts and money orders.

Compensating Balance – A minimum credit balance that a bank or a financial institution may require a borrower to keep on deposit as a condition for granting a loan. (it is a common requirement for establishing a line of credit in a bank.)