Q I am considering putting some key spreadsheets containing our business accounts into iCloud. But what if I accidentally trash them using my iPad: can I use Time Machine to restore them?
A Mountain Lion added Time Machine backups for documents stored in iCloud, and in Yosemite this has been translated into iCloud Drive, as detailed here, so you should be able to restore damaged or deleted documents from those backups.

When I checked this feature in Mavericks, some of the items stored in iCloud’s Time Machine backup were files of length 0 bytes, which questioned how reliable and robust this system was then. This no longer appears to be the case with Yosemite and iCloud Drive, and may be one of the features which has been fixed by that combination.
You should also consider how long you could be without such critical items, in the event that iCloud or your Internet connection were to suffer outage.
Comments A belt-and-braces solution would be to move these documents to iCloud, but periodically Save As to your local disk on your Mac. Such local backups would be wise after you have made major changes which would be difficult or costly to reproduce. If your Mac is also running Time Machine or another backup system, then you should have duplicated belt and braces, rather than relying wholly on a remote trouser-security service.
Updated from the original, which was first published in MacUser volume 30 issue 04, 2014.