# Unrestricted Cash: What It Is, How It Works, and Example

![Unrestricted Cash](https://www.investopedia.com/thmb/6ZFvJ80kPrhBQiywNZyxMYXh-Ik=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Unrestricted-Cash-3-2-bc1682ae7dd2495abdb095a864eabf8f.jpg)

*Companies can use unrestricted cash to pay salaries, buy materials and supplies, or make new investments. — Investopedia / Matthew Collins*

> **Definition**
>
> A company’s unrestricted cash can be spent for any reason because no creditors have a claim against it.

## What Is Unrestricted Cash?

Companies must often maintain a certain level of cash on their [balance sheets](https://www.investopedia.com/terms/b/balancesheet.asp) to satisfy debt [covenants](https://www.investopedia.com/terms/c/covenant.asp) in case the company [defaults](https://www.investopedia.com/terms/d/default2.asp) or goes into nonpayment of their credit obligations. The remaining cash that exceeds the covenant requirements is referred to as unrestricted cash.

Unrestricted cash is a part of an organization's liquid funds, meaning it's easily accessible. Unrestricted cash is important since it shows how much cash a company has to meet its short-term bills and credit obligations.

### Key Takeaways

*   Unrestricted cash is listed as a current asset on the balance sheet because it can be used to satisfy its short-term obligations or current liabilities.
*   Cash might sometimes be restricted if the money is required to be held aside to secure a bank loan or credit facility.
*   Cash and cash equivalents can include currency notes, short-term investments, and some marketable securities.  
    

## Understanding Unrestricted Cash

Unrestricted cash is listed on a company's balance sheet. However, it is typically listed as [cash and cash equivalents](https://www.investopedia.com/terms/c/cashandcashequivalents.asp). Unrestricted cash or cash and cash equivalents represent the money that an organization can spend today, meaning the money is readily available—or liquid. Unrestricted cash is considered a [current asset](https://www.investopedia.com/terms/c/currentassets.asp) on the balance sheet since it can be readily accessed and spent in the short term.

[Liquidity](https://www.investopedia.com/terms/l/liquidity.asp) is critical to companies since having enough cash available can help a company meet its short-term debt obligations and pay its vendors and suppliers. These short-term debt obligations and bills that are due within 90 days are called [current liabilities](https://www.investopedia.com/terms/c/currentliabilities.asp). Unrestricted cash helps companies ensure that they have enough current assets to cover their current liabilities, called [working capital](https://www.investopedia.com/terms/w/workingcapital.asp).

Cash and cash equivalents include the following liquid assets:

*   Currency notes, coins, and all cash being held in a bank account, such as a demand deposit account or a savings account
*   Cash equivalents are short-term investments that can easily be converted into cash. For example, a [certificate of deposit](https://www.investopedia.com/terms/c/callable-certificate-of-deposit.asp) might be considered a cash equivalent.
*   Some [marketable securities](https://www.investopedia.com/terms/m/marketablesecurities.asp), such as U.S. [Treasury bills](https://www.investopedia.com/terms/t/treasurybill.asp), might be considered cash equivalents if they can be easily liquidated and have a maturity date of 90 days or less.

When companies report their [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp), unrestricted cash must be listed in the cash and cash equivalents line item of a company's balance sheet.

## Unrestricted Cash vs. Restricted Cash

[Restricted cash](https://www.investopedia.com/terms/r/restricted-cash.asp) is cash held by a company that is not readily available to be spent or used by the company. Cash might be restricted if the money is required to be held aside to secure a bank loan or credit facility.

Sometimes financial institutions impose credit covenants, which include requirements and restrictions. The cash pledged as collateral for a loan helps protect the bank in the event the company goes bankrupt or defaults on the loan.

Restricted cash is typically listed as a separate line item on the balance sheet. The description or details explaining why the cash is restricted is usually found in the notes section of a company's financial statements.

If the restricted cash is for a short-term pledge, meaning it's due to expire in less than one year, the line item would be located under current assets. However, if the restricted cash must be held for more than one year, it would be listed under long-term assets—called [noncurrent assets](https://www.investopedia.com/terms/n/noncurrent-assets.asp). Conversely, unrestricted cash is listed as a current asset and can be used for any purpose since it has not been pledged to secure an obligation.

## Example of Unrestricted Cash

For example, XYZ Corporation manufactures machinery and borrowed $1 million from the local bank. The bank required a debt covenant in which XYZ must hold $400,000 in cash on hand at all times.

Below is a portion of the balance sheet for XYZ corporation.

*   The $400,000 in cash specified by the debt covenant is listed as restricted cash.
*   Cash & cash equivalents total $650,000, which is unrestricted and can be used for any purpose.

Despite $400,000 being held as restricted cash, XYZ has more than enough unrestricted cash to cover the $300,000 in [accounts payable](https://www.investopedia.com/terms/a/accountspayable.asp) (money owed to suppliers) and $100,000 in short-term debt obligations.