FAR, Financial Accounting and Reporting
Sources for Cash and Cash Equivalents
Last reviewed
The standards and authorities behind PocketCPA's FAR lessons on Cash and Cash Equivalents. The topic rests on ASC 305 / 230.
About this topic
Cash sits at the top of the balance sheet and looks like the one number nobody could get wrong. It is not. Cash is a steady source of exam points and of real-world misstatement, because the hard part is never counting it. The hard part is deciding what counts.
Why the examiner keeps coming back to it. Both questions have exact answers, which makes them cheap to test and cheap to score. Almost every rule below moves a balance, so the entry that carries it is shown beside it.
Key points
- Cash equivalents are short-term, highly liquid investments with original maturities of three months or less.
- A bank reconciliation adjusts both the bank balance and the book balance to arrive at the true cash figure.
- NSF checks reduce the book balance; bank collections and credits increase it.
- Restricted cash is reported separately and included in the total reconciled by the statement of cash flows.
What the lessons cover
- What is cash, and what is a cash equivalent (ASC 305-10-20; ASC 230-10-20)
- Restricted cash and compensating balances (ASC 305-10-50; ASC 210-10-45)
- The bank reconciliation
- Petty cash and the imprest system
- Items that look like cash but are not
Authoritative references
- ASC 305-10-20 and ASC 230-10-20, the definitions of cash and cash equivalent.
- ASC 305-10-50, disclosure of restricted cash and compensating balances.
- ASC 210-10-45, the balance sheet classification of restricted cash and compensating balances.
- ASC 210-20-45-1, offsetting permitted only where a right of setoff exists.
- ASC 230-10-45-4, restricted cash included in the reconciled totals on the statement of cash flows.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.