Final answer:
The statement is true; petty cash and change funds are classified as current assets and are part of cash on a company's balance sheet. They are highly liquid and can be used immediately for transactions, consistent with the definition of cash as a quickly accessible financial asset.
Step-by-step explanation:
The statement that petty cash and change funds are classified as current assets and included as part of cash is True. Petty cash and change funds are highly liquid assets that businesses use for small, everyday expenses or to provide customers with change in transactions.
They are immediately available for use and therefore serve as money outside of banks. Just like the money in your wallet or the cash drawer at a shop, these funds are considered to be currency in circulation and are readily available for purchases and payments.
Liquidity is a crucial aspect when classifying assets as cash. By definition, liquidity refers to how quickly and easily a financial asset can be used to buy a good or service.
Cash, petty cash, and change funds are examples of very liquid assets, as they can be utilized directly without the need for converting them into another form, such as withdrawing money from a bank account.
In accounting, it is common practice to classify both petty cash and change funds under cash in the current assets section of the balance sheet.
This reflects the reality that they are immediately accessible resources that can be utilized to carry out transactions, typical of their function in day-to-day business operations.