In short
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near maturity that interest rate changes pose little risk: generally those with an original maturity to the holder of three months or less.
Key takeaways
- Examples: Treasury bills, commercial paper and money market funds bought within three months of maturity.
- Equity securities are not cash equivalents.
- The statement of cash flows explains the change in cash and cash equivalents (including restricted cash).
Where it's tested
FAR: Cash, Receivables & Bad Debts — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which item is properly included in cash and cash equivalents?