Business, Legal & Accounting Glossary
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash equivalents (also known as “cash and equivalents”) are investments securities that are for short-term investing, and they have high credit quality and are highly liquid.
Cash equivalents are investments that are so liquid and so safe that they are nearly the same as cash. Statement of Financial Accounting Standards 95 provides definitions and examples of cash equivalents. Cash equivalents are short-term, highly liquid investments that (1) are readily convertible into cash, and (2) are so near their maturity date (usually three months or less from time of purchase) that they contain negligible interest-rate risk. Cash equivalents include both treasury bills and money market funds. Commercial paper, which are securities issued by large corporations as an alternative to acquiring short-term loans, are also considered cash equivalents. Because cash equivalents are so near to cash, they are usually lumped together with cash at the very top of the left side of the balance sheet. In other words, cash equivalents represent the most current of current assets.
They are one of the three main asset classes, alongside stocks and bonds.
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This glossary post was last updated: 26th April, 2020 | 23 Views.