Unrestricted Cash

Unrestricted cash refers to monetary reserves that are not tied to a particular use. Unrestricted cash can be used for any purpose since it is not earmarked for a specific use and is extremely liquid. Often, in order to satisfy debt covenants, firms will have to maintain a certain level of cash on their balance sheets — the amount that exceeds the requirements is referred to as unrestricted cash.

Unrestricted cash is a part of an organization's liquid funds. An organization's liquid funds include restricted cash, unrestricted cash, cash equivalents, unrestricted short-term (ST) investments, plus net short-term borrowing capacity.

Cash and cash equivalents represent the money that an organization can spend now, as they are assets readily available for use. In order to spend more than that, a company will have to take on a higher level of liabilities through borrowing, such as through loans or accounts receivable. For some organizations with a varying pattern of cash flow, such as non-profits, unrestricted cash can keep operations active even when funding sources dry up.

For example, XYZ Corporation makes widgets. They recently issued debt to raise capital for a new widget press. The debt covenant surrounding the new issue specifies that XYZ Corporation has to keep $300 million in cash on hand at all times. The cash specified by the debt covenant is restricted cash. Cash XYZ Corporation has on the books beyond the $300 million and beyond what is committed to other projects is unrestricted cash.