A company holds a compensating balance of $50,000 that it is legally restricted from using. The compensating balance relates to a long-term loan. Where should this amount be reported?

A company holds a compensating balance of

Multiple choice — select the best answer

AAs part of cash and cash equivalents
BAs a non-current asset (other assets) on the balance sheet
CNetted against the related long-term debt
DDisclosed in notes only, with no balance sheet reclassification

✓ Correct answer: B. As a non-current asset (other assets) on the balance sheet Legally restricted compensating balances related to long-term borrowing arrangements should be classified as non-current assets (often under 'Other Assets'), not as cash. They cannot be used freely, so they do not meet the definition of cash or cash equivalents.

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Topic: Assets & Liabilities

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A company holds a compensating balance of $50,000 that it is legally restricted from using. The compensating balance relates to a long-term loan. Where should this amount be reported?

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