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:
At the balance sheet date, if 3 percent interest has been earned, this entry would be made:
Presented below are two approaches to disclosing cash equivalents. Xerox Corporation chooses to segregate them from cash:
On the other hand, Tyson Fresh Meats, Inc. combines them in a single line item:
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.