what is restricted cash 
restricted cash in contrast to unrestricted cash is not freely available for a company to spend or invest restricted cash refers to money that is held for a specific purpose and thus not available to the company for immediate or general business use restricted cash appears as a separate item from the cash and cash equivalents listing on a company s balance sheet the reason for the cash being restricted is usually disclosed in the accompanying notes to the financial statements cash can be restricted for a number of reasons including debt reduction and capital investments investopedia michela buttignolunderstanding restricted cashrestricted cash is held aside by companies and is earmarked for a specific purpose restricted cash could be set aside for a particular purchase or to repay a loan or debt cash that has been deemed restricted cannot be used for other purposes restricted cash is classified as either a current asset which is used up within one year or a non current asset which are long term assets as a result if the restricted cash is expected to be used in the short term it is classified as a current asset if it is not expected to be used within a one year time frame it is classified as a non current asset since funds are separated on the balance sheet income statement restricted cash typically appears on a company s balance sheet as either other restricted cash or as other assets special considerationsthere are a number of variables to the handling of restricted cash for example it may or may not be held in a separate bank account designated for the purpose for which the cash is restricted regardless of whether the cash is held in a special bank account or not restricted cash is still included in a company s financial statements as a cash asset in the event that the restricted cash is not spent as intended it may then become unrestricted cash that a company can transfer to a general cash account or spend for general business purposes for example a company may hold restricted cash for the purpose of making a large capital expenditure such as a factory upgrade but later decide against making the expenditure the cash designated as restricted for that purpose is then freed up for the company to spend or invest elsewhere examples of restricted cashalthough there are various reasons companies can restrict a portion of their cash below are two of the most frequent uses for restricted cash companies often hold restricted cash for capital expenditures or as part of an agreement with a third party companies also frequently set aside cash designated as restricted in planning for a major investment expenditure such as a new building lenders sometimes require a company to hold restricted cash as partial collateral against a loan or line of credit a bank or other lender may require the company to set up a designated restricted cash account in which the company must maintain a minimum balance sometimes referred to as a compensating balance equal to a specified percentage of the credit extended by the bank this is a fairly common practice in situations in which a bank grants a business loan to the owner of a new small business 