Definition
The financial accounting term cash and cash equivalents refer to a company's assets that can be quickly turned into cash; these will be the company's most liquid holdings. Cash and cash equivalents appear in the current assets portion of the company's balance sheet.
Explanation
Current assets are those that can be turned into cash in less than 12 months. The balance sheet account cash and cash equivalents includes coin and currency, money market funds, certificates of deposit, as well as savings deposits and checking accounts with banks. Generally, these assets can be turned into cash in less than three months. For this reason, this account can also include Treasury Bills, short-term bonds, and some commercial paper holdings.
Marketable securities may also be classified as a cash equivalent. To qualify, an investment must have an insignificant risk that its value will change over time. For example, preferred stock that is near its redemption date has very little risk that its value will change; therefore, it may be classified in this category. Since the price of common stocks is relatively volatile, it is classified as a short term investment.
Related Terms
- The financial accounting term short-term investments refers to securities the company has purchased that can, and will be, sold in less than twelve months. Also known as temporary investments, short-term investments typically include marketable equity and debt securities as well as short-term paper.
Moneyzine EditorSeptember 21st, 2023 - The financial accounting term preferred stock refers to a class of equities issued by corporations that contains special preferences, or features, that are not present in common stock. Preferred stock dividends are typically paid before those of common stocks; however, they usually don't have the voting rights common shareholders enjoy.Moneyzine EditorSeptember 21st, 2023
The financial accounting term current assets is generally defined as cash and other assets that can be converted into cash within one year or one operating cycle, whichever is longer. Current assets are a subcategory of assets, which appear on a company's balance sheet.Moneyzine EditorJanuary 12th, 2024
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.Moneyzine EditorJanuary 8th, 2024
