Cash is the most liquid asset. It is the standard medium of exchange for business transactions (except in bartering transactions). As well, since cash is currency, it is the basis for measuring and accounting for all business transactions and the related items that appear on the financial statements of a business.
Cash: Cash consists of currency on hand and demand deposits at banks or other institutions and are available for the business's immediate use. Negotiable instruments such as money orders, certified cheques, cashier's cheques, personal cheques and bank drafts are also usually considered to be cash.
Cash Equivalents: Cash equivalents are "short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity date that they present insignificant risk of changes in value because of changes in interest rates" (FAS ASC 305-10-20). That is, cash equivalents are items that can be converted into cash quickly, but with some restrictuion or penalties. Cash equivalents typically include money-market funds, certificates of deposits (CDs), similar types of deposits, and short-term paper. Generally, only investments with original maturity of less than three months are considered to be cash equivalents, and investments in the equity of another firm can never be considered a cash equivalent.
Cash in Foreign Currencies: Cash in foreign currencies is converted into their U.S. dollar amount at teh exchange rate on the date of the balance sheet. If there are restrictions on the transfer of funds out of a foreign country, this cash will be listed as restricted. If the restrictions are so severe, foreign currency may not qualify for recognition as an asset.
Restricted Cash: restricted cash is cash on hand that cannot be used by the firm. For example, cash that has been pledged as security or collateral for a liability is considered restricted if the firm would violate the credit agreement by using the cash. The foreign currency case above serves as another example.
Bank Overdrafts: Bank overdrafts occur when cheques are written for more than the amount of cash that the business had in their bank account. Bank overdrafts are current liabilities. If material, bank overdrafts should be reported as a seperate item. If not material, a bank overdraft can be aggregated with other accounts payable.
Accounting Series Release No. 148, “Amendments to Regulations S-X and Related Interpretations and Guidelines Regarding the Disclosure of Compensating Balances and Short-Term Borrowing Arrangements"© BrainMass Inc. brainmass.com April 6, 2020, 5:09 am ad1c9bdddf