Which of the following is NOT an acceptable method to demonstrate the traceability of cash and cash equivalents?

The best approach to understanding why one method is not acceptable for demonstrating the traceability of cash and cash equivalents involves recognizing the purpose and effectiveness of each option.

Separate reporting of cash components in the statement of net assets, as highlighted in the correct answer, serves a direct purpose: it clearly delineates cash and cash equivalents on the balance sheet. This method enhances transparency by allowing users of the financial statements to see precisely what cash is available for use versus what might be restricted. This separation supports the traceability of cash because it clearly identifies and categorizes the funds, making it easier for stakeholders to understand the entity's liquidity.

In contrast, other methods may not provide the same level of clarity or direct evidence of cash traceability. For example, parenthetic disclosures in various statements focus more on informational notes rather than the direct presentation of the cash balances themselves. While they provide useful context, they can lack the immediacy and clarity that separate reporting offers. Reconciliation provided in the notes, while informative, primarily serves to clarify differences between reported amounts and actual amounts without clearly delineating available versus restricted cash.

Therefore, the reasoning behind the accepted method being preferable lies in its straightforward approach to presenting readily accessible liquid assets, which is paramount for demonstrating the trace