Cash Equivalents

Usually the most liquid of all assets. The quickest of quick assets, the most current of current assets.

What are cash and equivalents?

Cash includes legal tender, bills, coins, checks received but not deposited, and checking and saving accounts. Cash equivalents are any short-term investment securities that have maturity periods of 90 days or less. These include bank certificates of deposit, banker’s acceptances, treasury bills, commercial paper and other money market instruments.

Cash and its equivalents differ from other current assets like marketable securities and accounts receivable, based on their nature. However, certain marketable securities may classify as a cash equivalent, depending on the accounting policy of a firm.

List of cash equivalents

The full list of cash equivalents includes the following items with maturity dates that are typically three months or less:

  • Banker acceptancs
  • Commercial paper
  • Treasury bills
  • Other liquid investments that mature within 3 months.

Companies may elect to classify some types of their marketable securities as cash equivalents. This depends on the liquidity of the investment, and what the company intends to do with such products. Typically, this will be disclosed in the footnote’s of a company’s financial statements.

Working capital

Cash and cash equivalents are part of the current assets section of the balance sheet and contribute to a company’s net working capital.  Net working capital is equal to current asset less current liabilities.

More learning

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