Restricted Cash and Compensating Balances

Running Head : Restricted Cash and Compensating Balances

Name

University

Course

Tutor

Date

Restricted cash is basically defined as monies that are set aside to be used either in part or in whole for purposes or reasons that have been bound through agreed contracts . These monies are a component of restricted assets and they are usually not used for current or day to day operations of the institution . In the contrary , income accruing from other assets and which are conditionally used according to grantors or donors ' specifications are referred

to as restricted funds (Humphrey Pulley , 1997 ,

.22

The management may have the intention of using restricted cash for specific reasons such as future expansion , debt payment or for retirement of bonds . Other forms include cash accounts specifically restricted for various purposes e .g . the payroll accounts , dividend funds and the regular petty cash . Restricted cash can as well comprise of funds that could be internally allocated from endowments that are externally restricted . A good example of this is research funds in universities provided to undertake specific projects in research , with internally acceptable transfers that utilize these endowed resources under externally executed restrictions . Restricted cash is separately reported either in the non-current or the current section of the balance sheet assets . The type of reporting depends on the cash disbursement or availability date accordingly (Humphrey , 1997 ,

.34

Compensating balance on the other hand refers to a certain minimum amount of money that a bank 's customer is required by the...