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:
|Notes Payable||$ 40,000|
|Totals||Single line $263,350
|Single line $263,350
“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 A certificate of deposit (CD) is an interest-bearing deposit that can be withdrawn from a bank at will (demand CD) or at a fixed maturity date (time CD). Only demand CDs that may be withdrawn at any time without prior notice or penalty are included in cash.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:
|Reference No.||Accounts||Adjusted trial balance|
|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.