Cash and cash equivalents and other bank balances under Schedule III

Cash looks like the one note nobody can get wrong — a bank statement, a cash book, a closing balance. Yet cash and cash equivalents under Schedule III is where the format and the accounting standard pull in different directions: Schedule III lists margin money and long deposits inside the cash note, while AS 3 says they are not cash equivalents. Add fixed deposits of every tenure and an overdrawn bank account, and the line needs real classification work. This guide sets out the Division I format, the five separate disclosures, how ICAI resolves the conflict with "other bank balances", the fixed deposit split, and a worked note. It is part of our Schedule III guide; Ind AS companies follow Division II, which has its own face lines for cash and other bank balances and is not covered here.

Cash and cash equivalents in Schedule III: the prescribed format

On the face of the Division I Balance Sheet, "Cash and cash equivalents" is item (d) under current assets. Note Q of Part I then prescribes:

Earmarked balances are bank accounts the company cannot use freely because a law or an arrangement ties them to a purpose. The Companies Act creates several: the Unpaid Dividend Account under section 124 (unpaid dividend transferred within seven days after thirty days from declaration), the separate bank account for private placement application money under section 42, and the Unspent Corporate Social Responsibility Account under section 135(6). Other examples are accounts held under an escrow or trust arrangement. Separately, AS 3 (paragraphs 45 and 46) asks for the amount of significant cash and cash equivalent balances not available for use, with a commentary by management — balances held abroad under exchange controls are its example, which overlaps with the repatriation disclosure.

Why "cash and bank balances": the AS 3 conflict

AS 3, Cash Flow Statements (paragraph 5), defines cash as cash on hand and demand deposits with banks, and cash equivalents as short-term, highly liquid investments readily convertible into known amounts of cash and subject to an insignificant risk of changes in value. Paragraph 6 adds that an investment normally qualifies only when it has a short maturity of, say, three months or less from the date of acquisition.

That definition does not fit everything Note Q places under the caption. ICAI's Guidance Note on Division I (Revised January 2022), paragraph 6.4, uses this exact line as its example of a conflict between Schedule III and the Accounting Standards. Deposits with a long original maturity are not cash equivalents, and balances held as margin money or security are neither demand deposits nor readily available for use. Because paragraph 1 of the General Instructions lets the Accounting Standards prevail and allows changes to heads and sub-heads, the Guidance Note says the conflict should be resolved by:

• changing the face caption from "Cash and cash equivalents" to "Cash and bank balances"; and
• showing two sub-headings: "Cash and cash equivalents", containing only items that meet the AS 3 definition, and "Other bank balances", containing the rest.

Paragraph 8.8.4 says other bank balances comprise items such as margin money or security balances and bank deposits with more than three months maturity, and that deposits with more than twelve months maturity are separately disclosed within that sub-head. The non-current portion of each of these balances is classified under other non-current assets with separate disclosure. Previous-year figures are presented on the same basis (paragraph 6.5).

This ties to the current asset definition in the General Instructions: an asset is current if it is cash or a cash equivalent "unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date". A margin money deposit locked against a guarantee running beyond the next twelve months fails that test. For the operating-cycle and twelve-month tests generally, see current and non-current classification under Schedule III.

Fixed deposits classification under Schedule III

Read the deposit receipt for two dates — the date of placement and the maturity date — and then any lien. Neither Schedule III nor the Guidance Note says whether "more than twelve months maturity" means the original or the remaining term; reading paragraph 8.8.4 as referring to the original term (the common practice) gives this split:

Two practical points. First, the three-month test is from the date of acquisition, not the balance sheet date: a one-year deposit maturing on 30 April 2026 is not a cash equivalent at 31 March 2026 just because it matures in a month. Second, a deposit with an auto-renewal instruction is classified on its current term; the next renewal does not change this year's maturity date. Interest accrued on deposits is usually shown under other current assets rather than added to the deposit. Deposits with banks are not investments in this format — keep them out of the investments note; deposits with companies or other bodies are a different matter.

Negative bank balances: overdrafts go to short-term borrowings

A bank ledger with a credit balance in the trial balance is a liability, and its place depends on why it is in credit:

• Overdraft or cash credit — the bank has lent the money. It is a loan repayable on demand from banks under short-term borrowings (Note F), with the security disclosed. See borrowings under Schedule III.
• Book overdraft — the bank statement shows a positive balance, but cheques issued and not yet presented push the books into credit. Firms usually show this under other current liabilities rather than borrowings, because no money has been lent; the bank reconciliation is the evidence for the call.

Either way, the credit balance is not deducted from the debit balances of other bank accounts. Indian AS 3 has no provision, unlike Ind AS 7, for treating overdrafts as a component of cash and cash equivalents, so the usual reading is that the overdraft stays out of the cash flow statement's cash too. Credit balances in bank and cash ledgers are among the ledger errors hiding in a Tally trial balance; a negative cash ledger is an error to correct, not a liability to present.

Worked example: the cash and bank balances note

Example Pvt Ltd has these balances at 31 March 2026 (figures illustrative):

• Cash on hand ₹1,85,400 and cheques received on 30 and 31 March, deposited on 2 April, ₹2,10,000.
• Current accounts with two banks ₹15,55,800, and a Kotak overdraft account overdrawn by ₹3,60,000.
• Unpaid dividend account ₹42,000.
• FD A ₹5,00,000 placed 15 February 2026 for 60 days. FD B ₹10,00,000 placed 1 October 2025 for one year. FD C ₹8,00,000 placed 1 July 2024 for three years, maturing 1 July 2027. FD D ₹6,00,000 placed 1 April 2025 for eighteen months, maturing 1 October 2026.
• A ₹4,00,000 deposit under lien as margin money for a bank guarantee that expires in September 2026.

The rest of the picture:

• FD C matures more than twelve months after the year end, so ₹8,00,000 goes to other non-current assets as "bank deposits with more than twelve months maturity" (previous year ₹8,00,000).
• FD D has an original term of more than twelve months but matures within twelve months of 31 March 2026, so it sits in other bank balances (current) and keeps its separate "more than twelve months maturity" disclosure. Had it been on the balance sheet a year earlier, it would have been in other non-current assets.
• The overdraft of ₹3,60,000 is in short-term borrowings — loans repayable on demand from banks.
• No repatriation restrictions; a one-line statement says so if the company has foreign balances.

If the company prepares a cash flow statement, closing cash and cash equivalents is ₹24,51,200 (previous year ₹11,87,700), reconciled to the note as AS 3 paragraph 42 requires, and the composition policy is disclosed (paragraph 43). Placing FD B and FD D are investing outflows — AS 3 (paragraph 5.5) puts investments not included in cash equivalents in investing activities — and other movements in other bank balances, such as a change in margin money, are usually shown there too. One person companies, small companies and dormant companies may omit the cash flow statement under the proviso to section 2(40); the note format above still applies to them.

Before you sign: cash and bank tie-outs

• Every bank account in the trial balance agrees to the bank statement or confirmation through a reconciliation, and every deposit to its receipt or the bank's certificate.
• Each deposit classified on its original maturity, remaining maturity and lien — not on the ledger group it sits in.
• Earmarked accounts and margin money shown separately; the margin money ties to the guarantees disclosed in contingent liabilities and commitments.
• Overdrafts and cash credit in short-term borrowings; no netting against bank balances in the asset.
• Cash on hand supported by a year-end count; an unusually large balance followed up.
• The cash flow statement's closing figure agrees to the AS 3 sub-head, not to the total cash and bank balances.
• Previous-year figures re-presented in the same layout, including any reclassification of deposits.

The note sits early in the order of notes — see notes to accounts under Schedule III — and readers check it against the cash flow first, so a mismatch is quickly visible.

Frequently asked questions

Sources

• Companies Act, 2013 — Schedule III, Division I, General Instruction 1 for preparation of financial statements; Part I, General Instructions 1 and 6 (Notes F and Q) for preparation of the Balance Sheet, and sections 2(40), 42, 124 and 135(6) (India Code, amended text)
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022), paras 6.4, 6.5, 7.1.6 and 8.8.4
• Companies (Accounting Standards) Rules, 2021 — AS 3, Cash Flow Statements, paras 5, 5.5, 6 and 42–46 (ICAI, Accounting Standards Volume III)

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