Restricted cash is a designation placed on a certain amount of cash, which is intended to keep those funds from being used for general operating activities. Instead, the designated funds are reserved for a specific purpose, such as paying for a constructed asset, a dividend payment, a bond payment, or an anticipated payout resulting from a lawsuit.
The amount of any cash restrictions and the reasons for them are stated either in the financial statements of an organization, or in the accompanying footnotes. If restricted funds are to be used within one year, they are classified as current assets. Otherwise, they are classified as long-term assets.