What is limited cash?
Limited cash is cash that is not available for immediate use and may not be used for any purpose until there is a certain event or chain of events. During this period of restrictions, cash may be held on a certain type of interest account, allowing money to generate some additional income. This approach can be used in a number of settings, including the fulfillment of a substantial customer order or as a strategy to manage long -term debt. This is sometimes used when the debt structure involves making payment balloons on a loan or even earning a money in honor of debt liabilities such as bonds. This means that if the company has to deal with a bond problem at the end of five years, the money will be regularly placed on an account entry. Once the five years is higher, all money is released for the explicit purpose of settlement with bond holders. Depending on how much limited cash has been spared over the years, the spol may beEl still able to solve the problem of bonds without affecting other assets.
Other limited cash applications include delivery of an item with a high price of the customer. In this scenario, the client performs some kind of deposit or advances for this large ticket item, while the delivery date is set at a specific time in the future. Identifying this future delivery date allows the manufacturer to create the time to create an item to match the specifications agreed with the customer. This deposit is considered to be limited cash and is placed in an interest account until the item is delivered and accepted by the customer. At this point, cash is no longer limited and can be used for any of its business backs.
Limited cash is charged in the company's financial records, usually as a line item in the company's balance sheet. If cash is expected to be released in one calendar year,It is usually listed as a current asset. If the cash remains limited to a period of more than twelve months, the funds are usually taken into account as unprecedented assets. Some accounting methods require the location of limited cash in the test balance account that is reflected separately from other accounts or line items found in the balance sheet.