Restricted cash

Cash the company cannot spend is still cash it holds. Reporting has to serve both facts at once.

Restriction can come from a contract, such as a bond agreement requiring a sinking fund. It can come from a regulator, such as a deposit an insurer must maintain. It can also come from management designating cash for a plant expansion. The first two bind. The third does not, and a self-imposed designation is disclosure rather than a change in nature.

Classification follows when the restriction lifts, not when the cash was received. Cash restricted for a debt payment due in eight months is current. Cash restricted until a plant opens in four years is noncurrent, and sits with long-term investments rather than in current assets.

The 2016 amendment changed the cash flow presentation. Restricted cash is included in the beginning and ending totals the statement reconciles. Moving cash into or out of restriction is no longer an investing activity producing phantom flows. The entity must reconcile those totals back to the balance sheet lines, which is what makes the restricted portion visible.

For a reader, the risk is a current ratio built on cash that cannot pay a supplier. The reconciliation disclosure is where to find the amount to strip out before computing anything about short-term solvency.

ASC 230-10-45-4 places applicable restricted amounts in the statement's combined opening and closing population. ASC 230-10-50-7 requires information about the nature of the restrictions. Those rules do not define restricted cash, so the contract, law, and account evidence still control the restriction conclusion.