MGAB01H3 Lecture : Reporting Cash
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MGAB01H3 Full Course Notes
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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.