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Reporting entities are required to disclose (1) the nature of restrictions on cash balances and (2) how the statement of cash flows reconciles to the balance sheet when the balance sheet includes more than one line item of cash, cash equivalents, and restricted cash. A reporting entity should also consider the significance of its restricted cash balances and whether its definition should be disclosed as a significant accounting policy pursuant to ASC 235-10-50.
Nature of restrictions
ASC 230-10-50-7 requires a reporting entity to disclose information about the nature of restrictions on its cash and cash equivalents, but does not provide additional detail on what is required to be included in the disclosure. This disclosure could be similar to those already required by S-X 5-02(1) for public companies. While the guidance does not detail what is meant by the “nature of restrictions,” it includes sample disclosures that discuss the expected duration of the restriction, its purpose and terms, and the amount of cash subject to the restriction. The sample disclosures should not be considered a checklist of items to be disclosed. Reporting entities have flexibility to disclose relevant information about the nature of the restrictions based on their facts.
Reconciliation of the statement of cash flows to the balance sheet
If cash, cash equivalents, restricted cash, and restricted and other segregated cash and cash equivalents are presented in multiple line items on the balance sheet, reporting entities are required to present on the face of the statement of cash flows or disclose in the footnotes (in either a narrative or tabular format) a reconciliation of the total amount in the cash flow statement to the amounts presented in the balance sheet. The total should sum to the end-of-period total amount of cash, cash equivalents, restricted cash, and restricted and other segregated cash and cash equivalents shown on the statement of cash flows. This is consistent with the requirement in ASC 230-10-50-8 for cash and cash equivalents to agree to similarly-titled line items on the balance sheet.
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