BU387 Chapter Notes - Chapter 7: Book Value, Debits And Credits, Effective Interest Rate
Document Summary
Restricted cash is separately disclosed and reported in the current assets secion or is classiied separately in the long-term assets secion, depending on the date of availability or of the expected disbursements. It should not be classiied in current assets if there are restricions that prevent it from being used for current purposes, unless the restricted cash ofsets a current liability. Cash that is classiied in the long-term secion has oten been set aside for investment or inancing purposes, such as for a plant expansion, long-term debt reirement, or as collateral for a loan. Compensaing balances are minimum balances deined as the porion of any demand deposit that a corporaion keeps as support for its exising or maturing obligaions with a lending insituion. By requiring a compensaing balance, the bank gets an efecive interest rate on its loan that is higher than the stated rate because it can use the restricted amount that must remain on deposit.
