Restricted Cash
Categories: Accounting, Banking
You have a budget. Look at you go.
You set aside $900 for rent, $300 for food, $400 for student loans, and $50 for Netflix. And you don’t touch any of that money, because it doesn’t belong to you. It belongs to your bills.
Companies have this setup, too. They have to put aside money for rent, loans, and equipment. In the company world, this is called “restricted cash”...cash that’s set aside for a specific purpose.
Restricted cash is put on a different line than cash and liquid equivalents on a company’s balance sheet, financial statement, and other docs. This keeps companies solvent, i.e. able to pay their debts and long-term costs.
Restricted cash is what keeps companies going. They need cash to make big equipment purchases, to take out loans (hello, collateral), and pay back loans (hi, again). No touching.