What are cash and cash like equivalents? What are some examples of them?

Expert Solution

Cash and cash equivalents are current assets of a Company. Thought these terms are used together always, they both are not one and the same. The difference between them is.

Cash - Cash is the money on hand. This money may be in the form of coins, notes, etc. This also includes foreign currencies.
Example of cash is the physical cash on hand.

Cash equivalents - Any investment that can be easily converted into cash with less risk, then it is called as cash equivalents. These investments should be for a short period and risk free.
This includes cash at bank, risk free short term investments like T-bills, government securities, bonds etc.

It is to be noted that though the equity shares invested can be converted into cash within a short period of time, It will not be treated as cash equivalent. This is because, the risk factor is more when it comes to equity investments.

jeff jeffy answered 1 year ago

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