Professor Adams' Lecture Materials

LO7-02: Explain the possible restrictions on cash and their implications for classification in the balance sheet.

1. What is an example of a formal restriction on cash?

A restriction says that cash has to be spent in a certain way. An example of a formal restriction of cash is when a bank lends money and says that the borrower has to maintain a minimum cash balance.

2. What is an example of an informal restriction on cash?

An example of an informal restriction on cash is when managers say they are putting money aside for a specific purpose.

3. What disclosures are required when there are restrictions on cash?

Any restrictions on cash need to be disclosed in the notes to the financial statements (example).

Comedian Kevin Hart explains his philosophy on cash management.

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