Restricted Cash
Code: 1120Account Information
| Financial Statement | Statement of Financial Position |
| Normal Balance | Debit |
Definition
Cash balances and bank deposits that are subject to legal, contractual or regulatory restrictions limiting their use for the entity’s general purposes. The account includes blocked bank balances, cash margins held against letters of guarantee or credit facilities, restricted balances held in escrow accounts, statutory deposits, and cash designated for specific obligations or purposes.
Sub-accounts
📐 IFRS vs US GAAP Accounting Treatment
IFRS: Restricted cash is recognized as a separate asset from cash and cash equivalents when unavailable for use for more than 3 months. There must be a legal or contractual condition preventing use.
IFRS: Measured at face value (deposited amount). Not discounted or revalued. GAAP: Measured at face value, with accrued interest disclosed.
IFRS: Disclose nature of restrictions, amount, and remaining period. GAAP: Disclose reconciliation between balance sheet cash and cash flow statement cash, and nature of restrictions.
Example: A company has a bank guarantee deposit of SAR 500,000 for 12 months for a project. Under IFRS, shown as "Restricted Cash" under non-current assets. Under GAAP, shown as current or non-current based on release date with separate disclosure.
GAAP: Restricted cash is recognized as a separate asset when legal or contractual restrictions exist.
GAAP: Measured at face value, with accrued interest disclosed.
GAAP: Disclose reconciliation between balance sheet cash and cash flow statement cash, and nature of restrictions.
Example: A company has a bank guarantee deposit of SAR 500,000 for 12 months. Under GAAP, shown as current or non-current based on release date with separate disclosure.
IFRS: Restricted cash is disclosed separately in the statement of cash flows or notes and is not included in cash and cash equivalents if the restriction is for a period exceeding three months. GAAP: ASC 230 requires the disclosure of restricted cash in the statement of cash flows or notes with a reconciliation between the cash on the balance sheet and the cash on the statement.
❓ Frequently Asked Questions
A: Restricted cash is cash that is not available for immediate use in the company's operations due to legal or contractual restrictions. It includes security deposits, guarantee letters, escrow accounts, and statutory deposits for banks.
A: Restricted cash is presented as a separate line item within current assets (if restricted for less than one year) or within non-current assets (if restricted for more than one year). It is not combined with cash and cash equivalents because it is not available for immediate use.
A: Under IFRS, restricted cash that does not meet the definition of cash (e.g., term deposits as security) is not included in the cash and cash equivalents line on the cash flow statement. Under US GAAP, restricted cash is presented with unrestricted cash on the cash flow statement with separate disclosure.
A: Restricted cash is a broader concept that includes security deposits as well as other types of trapped cash. Security deposits are a specific type of restricted cash paid as collateral for a lease or service contract.
A: Restricted cash should be disclosed in the notes to the financial statements if the amount is material, with an explanation of the reasons for restriction, expected restriction period, and the beneficiary party.