☞ CASH: the MOST LIQUID ASSET 💰 yet it can have some issues! ⚠️ ⬎
💦 Cash is the most liquid asset in the balance sheet, then what you can find as “Cash and Cash Equivalents” is what’s immediately available for payments but still can have some points to keep an eye on
⟳ Cash Equivalents are assets that can be easily converted into cash: in fact, besides currency, checking account, saving account, banknotes and coins, there can be highly liquid investments that last 3 months or less
💸 These Cash Equivalents are, for instance, Treasury Bills, which is money lent to government, or commercial papers, money market accounts, etc.: they are very liquid instruments but, of course, not cash itself
🔒 Another issue to consider is “Restricted Cash”: the company can “lock up” money for some purposes (like salaries that have to be paid in some days, dividend funds, future capital expenditure, retirement of long-term debt, etc.).
Sometimes some Cash is required to be “Restricted”: this is the case of required minimum balance in the bank, for example when there is an outstanding loan.
Either if it’s a company decision to held money or a legal requirement, Restricted Cash is reported separately from cash in the balance sheet and its destination is disclosed in the financial statement notes
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