When reporting on cash equivalents, accountants must consider:

The carrying value is the original amount invested plus accrued income.

Depending on the amount of detail needed or desired for a financial report, highly liquid savings accounts or money market fund holdings can be combined with cash into a single item on the balance sheet.

Since their carrying value is determined differently, significant investments in marketable equity securities should not be combined with cash and cash equivalents.

If Sample Limited 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:
Transfer To Savings Account Journal Entry
At the balance sheet date, if 3% interest has been earned, the following entry would be made:
Interest Income Journal Entry

Example

Two ways to disclose cash equivalents are shown below.

In the first example, Xerox Corporation has chosen to separate cash equivalents from cash.
Separate Entries For Cash and Cash Equivalents
On the other hand, in this example, Tyson Fresh Meats, Inc. has combined cash and cash equivalents in a single item.
Combined Entry For Cash and Cash Equivalents

Frequently Asked Questions

Is there a difference between the definition of cash equivalents and cash?

Cash equivalents are highly liquid investments that can be converted into cash easily. However, cash is currency on hand or in banks, including notes and coins, checking accounts, savings accounts, money market funds, etc.

What is the purpose of adjusting entries?

Adjusting Entries are used to adjust Financial Statements for transactions that occur after the balance sheet date.

Is the carrying value of cash and cash equivalents adjusted for interest?

As of 2016, no authoritative guidance has been issued on this topic. However, in 2014 the AICPA formed a task force to consider changes to ASC 860. The task force's final recommendation was not to make any changes.

What is the purpose of Adjusting Entries for cash and cash equivalents?

Adjusting Entries are used to adjust Financial Statements for transactions or other events that occur after the balance sheet date.

What is the adjusted carrying value of cash and cash equivalents with accrued interest?

The adjusted carrying value is equal to the carrying value plus interest earned. As of 2016, no authoritative guidance has been issued on this topic.

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