Question

What is cash equivalent?

Answer 1

Cash equivalents are the most liquid current assets found on a business's balance sheet. Cash equivalents are short-term commitments "with temporarily idle cash and easily convertible into a known cash amount". An investmentnormally counts to be a cash equivalent when it has a short maturity period of 90 days or less, and can be included in the cash and cash equivalents balance from the date of acquisition when it carries an insignificant riskof changes in the asset value; with more than 90 days maturity, the asset is not considered as cash and cash equivalents. Equity investments mostly are excluded from cash equivalents, unless they are essentially cash equivalents, for instance, if the preferred shares acquired within a short maturity period and with specified recovery date.

Answer 2

Cash equivalents are short-term investment securities; they are of high credit value and are highly liquid.

• Cash equivalents are any instruments for short-term investment with maturity terms of 90 days or less.
• Cash equivalents, also known as cash and equivalents, together with stocks and bonds are one of the three major asset classes in financial investment.
• Examples of cash equivalents are the commercial paper, marketable securities., money market funds and short-term government bonds