Accounting Standards Codification 305 (ASC 305) was released to address the more specific topic of cash and what equivalents can be considered cash on a company’s balance sheet. The FASB has defined this to increase awareness of the liquidity of a company as when recessions loom or business is slow, the ability for a company to be liquid is very important. The items that make up the “cash” line item of a balance sheet thus must fit into a certain definition.
Definition of Cash under ASC 305
All of the following criteria must be met in order for an investment to be classified as a Cash Equivalents in GAAP financials:
- Short term
- Highly liquid
- Convertible to known amounts of cash
- So near their present maturity that it is negligible risk of changes in value due to interest rates
+Petty Cash and Expense
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