Question

A company with a complex Balance Sheet may have cash in several accounts, e.g. Petty cash...

A company with a complex Balance Sheet may have cash in several accounts, e.g.

Petty cash

Cash

Cash Equivalents

Marketable Securities (short-term investments)

Investments (long-term investments)

Why would a company need so many accounts for Cash? Why wouldn't they list all cash in a single account?

Business   Accounting   
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Answer #1

Ans

All these cash accounts are not cash in real form and have different uses.

For example,

Petty cash is small cash balances which are earmarked separately because it is a control account needed to protect main cash balances.

Cash Equivalents include bank accounts and marketable securities but can be converted into cash very fast.

Long term Investments are those investments that are held for investment purposes and not for trading and convert into cash.

If we club them all, then financial information will not give a true and fair view as per accounting principles.

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