Cash on the Balance Sheet
remind of the following points:
1. Cash is the first asset listed on the balance sheet because it is the most liquid.
2. Funds placed in highly liquid investments such as Treasury bills, money market
funds, and commercial paper are called cash equivalents. Since these investments
can be sold quickly and easily, funds in these investments can be accessed as
easily as cash held in a bank. Therefore, they are considered "equivalent" to cash.
3. Readers of the financial statements normally assume that a company may use its
cash at any time for any purpose. If this is not true, the amount of funds not
available for withdrawal must be disclosed in the notes to the financial statements.
For example, any compensating balance required by a bank as part of a loan
agreement or line of credit must be disclosed. Likewise, multinational companies
must disclose any limits that foreign governments set on the amount of cash that
may be taken out of deposit in foreign banks.