Question

Which is a true statement? Cash and cash equivalents are normally listed as a single cash amount on the balance sheet. Cash and cash equivalents must be listed separately to obtain a line of credit. Cash equivalents are listed separately from cash on the balance sheet. Cash equivalents are listed under compensating balance on the balance sheet.

Answer 1

Cash and cash equivalents are normally listed as a single cash amount on the balance sheet.

Step-by-step explanation:

A balance sheet is prepared to show the worth of a business at the end of every financial period. It shows the value of assets and how the assets are financed. Assets are listed on one side, while equity and liabilities are indicated on the opposite side.

In preparing the balance sheet, assets are listed in order of their liquidity. The most liquid asset appears at the top. Liquidity is the ease of converting to cash. Naturally, cash will appear on top as it is the most liquid asset. In practice, cash and cash equivalents are listed together. Cash equivalents are liquid assets that can be converted to cash in less than ninety days. They include short term maturing investments and checks.