Textbook Problem

What are the components of cash? What items may be confused with cash, but normally are categorized under other balance sheet captions?

To determine

List the components of cash and state the items that is confused with cash, but generally classified under other balance sheet captions.

Explanation of Solution

Cash:

Cash is the most liquid asset and it is the source used to engage in the day-to-day transactions of business, payment made to employees, taking advantage of opportunities available in business and meeting the debt obligations of company. Components of cash are as follows;

• Bank drafts,
• Checks and money orders,
• Coins and currency,
• Undeposited credit card sales receipt,
• Unrestricted funds on deposit with bank.

Items generally classified under other balance sheet captions:

• Travel advances,
• Bank overdrafts,
• Post-dated checks,
• Crypto currencies,
• Compensating balances,
• Certificates of deposit,
• Sinking funds

Items that are immediately available to make payment for current debts and items that are not bound by legal or contractual restrictions are categorized as cash on the balance sheet. Those items which fail to meet any of these criteria are recorded elsewhere within the assets or liabilities (during a bank overdraft) section on the balance sheet.