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Reporting Cash
¾ Many companies combine cash with cash equivalents. Cash equivalents are highly
liquid investments that can be converted into a specific amount of cash. These
equivalents include short-term deposits, short-term investments (treasury bills and
money market funds), and short-term notes.
¾ Some companies may be in a cash deficit position. This can happen when the
company is in an overdraft position. A bank overdraft occurs when a cheque is
written for more than the amount in the bank account.
¾ A company may also have cash that is restricted for a special purpose (plant
expansion). If it can be used within the next year, the amount should be recorded as a
current asset; otherwise they are recorded as a noncurrent asset.
¾ Banks commonly require borrowers to maintain minimum cash balances. These are
called compensating balances, which are a form of restricted funds.
Using the Information in the Financial Statements
¾ The cash flow statement provides information about where cash came from and what
it is used for.
¾ A managemHQWUHSRUWLVWRDFNQRZOHGJHPDQDJHPHQW¶VUHVSRQVLELOLW\IRU± among
other items ± the development of internal controls over the financial reporting
process.
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Document Summary

Many companies combine cash with cash equivalents. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash. These equivalents include short-term deposits, short-term investments (treasury bills and money market funds), and short-term notes. Some companies may be in a cash deficit position. This can happen when the company is in an overdraft position. A bank overdraft occurs when a cheque is written for more than the amount in the bank account. A company may also have cash that is restricted for a special purpose (plant expansion). If it can be used within the next year, the amount should be recorded as a current asset; otherwise they are recorded as a noncurrent asset. Banks commonly require borrowers to maintain minimum cash balances. These are called compensating balances, which are a form of restricted funds. The cash flow statement provides information about where cash came from and what it is used for.

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