Final answer:
The determination of cash as a deposit depends on its treatment by a financial institution and the transaction's intent. Deposits are considered liabilities for banks, which must be returned to customers upon request. The concept of liquidity also plays a role, differentiating between physical cash and money held in accounts.
Step-by-step explanation:
When a taxpayer receives cash, whether it constitutes a deposit depends on the intent of the transaction and its treatment within a financial institution. Specifically, when bank customers deposit money into a checking account, savings account, or a certificate of deposit, the bank records these as liabilities. This is because the bank is obligated to return these funds upon the customer's request. Therefore, funds held by the bank in the form of deposits are not the bank's money to use freely; they are owed back to the depositors. This is exemplified by the Safe and Secure Bank scenario, holding $10 million in deposits, which is viewed as a liability on the bank's balance sheet.
In contrast, cash received that is not intended for immediate deposit into a financial account may serve different purposes, such as revenue, gift, or loan repayment, and would not be considered a deposit. Measures of money by economists often consider liquidity, or how quickly an asset can be used to purchase goods or services. Cash on hand is very liquid, while money in savings accounts is less so, as it requires additional steps to access, highlighting a difference between physical cash and a deposit.