Introduction to Financial Statement Presentation

What you’ll learn to do: Present cash and cash equivalents on the financial statements

In most textbooks and examples on the web, you’ll see a simple trial balance listed as follows:

Adjusted Trial Balance
Accounts Debits Credits
Cash $22,900
Prepaid Insurance 4,000
Fixed Assets 44,000
Notes Payable $ 40,000
Common Stock 25,000
Retained Earnings 48,350
Dividends 22,000
Sales Revenue 150,000
Automobile Expense 26,500
Insurance Expense 20,000
Salaries Expense 122,500
Supplied Expense 1,450
Totals Single line $263,350
Double line
Single line $263,350
Double line

“Cash” is at the top of the list, right where it should be, but this is not a very good representation of what a real trial balance looks like.

In accounting, what we call cash includes coins; currency; undeposited negotiable instruments such as checks, bank drafts, and money orders; amounts in checking and savings accounts; and demand certificates of deposit. A certificate of deposit (CD) is an interest-bearing deposit that can be withdrawn from a bank at will (demand CD) or at a fixed maturity date (time CD). Only demand CDs that may be withdrawn at any time without prior notice or penalty are included in cash. Cash does not include postage stamps, IOUs, time CDs, or notes receivable.

In addition, the correct terminology is “cash and cash equivalents” because actual currency and coin is usually a tiny, tiny portion of what we call cash.

For instance, in most businesses, every account that can be reconciled has its own GL account. For example, here is a portion of an adjusted trial balance for My Company that only shows the cash accounts:

My Company
Adjusted Trial Balance
For the month ended September 30, 20XX
Reference No. Accounts Adjusted trial balance
Debits Credits
1010 Petty Cash 100.00
1011 First Bank Checking 26,745.00
1012 First Bank Payroll (Imprest)
1025 Western Credit Union Savings 16,489.55
1030 First Bank CDs 43,896.66
1045 TIAA Money Market 87,355.40
1050 Baker Bank U.S. Govt. Securities 198,200.00

Notice there’s really only $100 in what we think of normally as cash. Generally Accepted Accounting Principles (GAAP) prescribes what we consider to be cash and cash equivalents on the financial statements. It also gives us guidance on how to report those amounts, including disclosures we are required to include. That’s what we’ll cover in this section as we finish up accounting for cash.