Cash at Beginning of Period is the opening balance of cash and cash equivalents reported on the balance sheet at the start of a financial period. It provides the baseline for measuring net changes in cash over the period.
Why is Cash at Beginning of Period Important?
Cash at Beginning of Period is important because it:
Establishes Baseline: Serves as the starting point for the cash flow statement, ensuring accurate reconciliation of cash flows.
Supports Trend Analysis: Enables comparison of opening balances over multiple periods to identify shifts in liquidity management.
Guides Budgeting: Helps management plan cash requirements and allocations based on available starting resources.
How is Cash at Beginning of Period Calculated?
Cash at Beginning of Period is the same as the previous period’s ending cash balance:
Cash at Beginning ofPeriod= Cash atEndof Prior Period
Where Cash at End of Prior Period includes only cash on hand, demand deposits, and highly liquid investments with maturities of three months or less.
Additional Considerations
Reconciliation: Must match the ending cash balance from the prior period’s cash flow statement to ensure consistency.
Components: Includes all items classified as cash and cash equivalents (physical currency, bank deposits, short-term marketable securities).
Effect of Currency Translation: For multinational companies, opening balances are translated at beginning-of-period exchange rates, with subsequent forex effects shown separately in the cash flow statement.