★ Must-know
📌 Cash includes more than notes and coins, whereas temporary investments are not classified as cash and provide an opportunity to earn interest.
Further detail
📌 A cheque is generally classified as cash, whereas a post-dated cheque is not classified as cash because it cannot be used until its future date.
Cash is immediately liquid; temporary investments seek interest.
📌 An asset is reported as cash only when it is readily available for payment of current obligations and free from contractual restrictions limiting its use to satisfy debts. — Keiso et al., 2015
1. Which characteristic best defines cash in a business?
2. Which item is classified as cash rather than a temporary investment?
3. When may an asset be reported as cash for purposes of paying current obligations?
What is cash in business terms?
A universally accepted medium of exchange that is 100% liquid.
Why is a post-dated cheque not classified as cash?
Because it cannot be used until its future date.
When is an asset reported as cash according to Keiso et al., 2015?
Only when it is readily available for current obligations and free from contractual restrictions.
Why can cash appear as a non-current asset?
Because contractual restrictions prevent its use for current obligations.
Cash classification label
Medium of exchange, 100% liquid
Cash includes
Notes, coins, and most cheque payments
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