Cash equivalents

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

The accountant has two concerns in reporting on cash equivalents: measurement of income and disclosure of the amount on the balance sheet date. The carrying value is the original amount invested plus accrued income.
Depending on the amount of detail needed or desired for the report, highly liquid savings accounts or money market fund holdings can be combined with cash into a single item on the balance sheet. Because their carrying value is determined differently, significant investments in marketable equity securities should not be combined with cash and cash equivalents.
If the Sample Company transfers $10,000 from the First National Bank checking account to a savings account at First Federal Savings and Loan, this entry would be recorded:
Cash Equivalents Journal Entry
At the balance sheet date, if 3 percent interest has been earned, this entry would be made:
Cash Equivalents Journal Entry

Example

Presented below are two approaches to disclosing cash equivalents. Xerox Corporation chooses to segregate them from cash:
Cash Equivalents Example
On the other hand, Tyson Fresh Meats, Inc. combines them in a single line item:
Cash Equivalents Example

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