Unrestricted Cash

Unrestricted cash is the portion of a company’s cash and cash equivalents that is available for any purpose. It appears on the balance sheet as part of “cash and cash equivalents” and is classified as a current asset because it’s readily accessible to meet short-term obligations.

Key takeaways

• Unrestricted cash can be spent freely to pay bills, vendors, or satisfy short-term liabilities.
• Restricted cash is set aside for a specific purpose (e.g., collateral for a loan) and is not available for general use.
• Cash and cash equivalents include currency, bank deposits, short-term investments, and certain marketable securities with maturities of 90 days or less.
• Unrestricted cash = total cash and cash equivalents − restricted cash.

What qualifies as cash and cash equivalents

Cash and cash equivalents generally include:
* Currency, coins, and bank account balances (demand deposits, savings)
Short-term, highly liquid investments (e.g., certificates of deposit with short maturities)
Marketable securities that can be quickly converted to cash (e.g., Treasury bills maturing in 90 days or less)

These items are treated as current assets because they can be converted to cash quickly and used to meet near-term obligations.

Why unrestricted cash matters

Liquidity is critical for meeting current liabilities (debts and bills due within roughly 90 days). Unrestricted cash contributes to working capital — the difference between current assets and current liabilities — and helps ensure a company can:
* Pay suppliers and employees
Service short-term debt
Fund operating needs or opportunistic investments

Assessing unrestricted cash gives creditors, investors, and management insight into a company’s immediate financial flexibility.

Unrestricted cash vs. restricted cash

• Restricted cash is cash that is contractually or legally required to be held for a specific purpose (e.g., collateral for a loan, escrow, or a reserve for litigation).
• Restricted cash is usually disclosed separately on the balance sheet or in the notes. If the restriction expires within one year, it’s shown as a current asset; if it remains beyond one year, it’s shown as a noncurrent asset.
• Unrestricted cash is not encumbered and is included in the “cash and cash equivalents” line item without restriction.

Example

XYZ Corporation reports:
* Total cash and cash equivalents: $1,050,000
* Restricted cash (required by a bank covenant): $400,000

Unrestricted cash = $1,050,000 − $400,000 = $650,000

If XYZ has $300,000 in accounts payable and $100,000 in short-term debt, the $650,000 of unrestricted cash is sufficient to cover these current liabilities.

Financial reporting

Companies must disclose restricted cash and the reasons for restrictions in their financial statements (often in the notes). Unrestricted cash is generally included in the cash and cash equivalents line item on the balance sheet and is used in liquidity analyses and working capital calculations.

Bottom line

Unrestricted cash reflects a company’s immediately available liquidity and is a key indicator of its ability to meet short-term obligations and operate without needing to liquidate other assets or secure additional financing.