How to present restricted cash in the cash flow statement:

This is a very pertinent and a common question that all of us face very often as most of the companies are holding restricted balances like restricted cash resulting from a legally binding lending agreement, funds held in escrow account, etc.

Restricted cash?refers to?money?that is held for a specific purpose, meaning it's not available for immediate use or general business use.

The question here is whether such restricted cash balance can be presented as cash and cash equivalents in the cash flow statement.

The answer is “NO”.

Such restricted cash balances are not available for immediate use and hence does not satisfy the definition of cash and cash equivalent. It must be presented either in Investing activities, operating activities or in the financing activities, depending on what it is held for. For example, changes in restricted cash related to the repayments of borrowings is to be presented in financing activities.