What are Cash and Cash Equivalents?

Meaning and Definition of Cash and Cash Equivalents :

Cash and cash equivalents are related to the detail on the balance sheet that summarises the value of a business’s assets that are cash or can be transformed into cash instantly. These comprise marketable securities, bank accounts, short-term government bonds, commercial paper and Treasury bills with a maturity date of 3 months or less. Marketable bonds and money market holdings are estimated cash equivalents as they are liquid and not directed to substantial variations in the state.

As mentioned earlier :

  • The cash flow report depicts the outflows and inflows of cash and cash equivalents of different actions of the firm during a distinct time
  • According to the Accounting Standard -3, ‘Cash’ includes funds in hand and demand securities with the banks (financial institutions) and ‘Cash equivalents’ involves short-term extremely liquid financing that are easily changeable into established values of cash and which are subjected to a petty peril to differences in the value
  • Financing usually fits as cash equivalents when it has a low maturity, 3 months or less from the date of purchase
  • Investments in shares are discharged from cash equivalents unless they are in real cash equivalents.

You Might Also Read: What is Cash Flow Statement?

The above mentioned is the concept, that is elucidated in detail about the Cash and Cash Equivalents for the class 12 Commerce students. To know more, stay tuned to BYJU’S.

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