What are the conditions for cash equivalents?
Cash equivalents should be highly liquid and easily sold on the market. The buyers of these investments should be easily accessible. The dollar amounts of cash equivalents must be known. Therefore, all cash equivalents must have a known market price and should not be subject to meaningful price fluctuations.
Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition.
The assets considered as cash equivalents are those that can generally be liquidated in less than 90 days, or 3 months, under U.S. GAAP and IFRS. The two primary criteria for classification as a cash equivalent are as follows: Readily Convertible into Cash On-Hand with Relatively Known Value (i.e. Low-Risk)
- Treasury bills.
- Treasury notes.
- Commercial paper.
- Certificates of deposit.
- Money market funds.
- Cash management pools.
Answer and Explanation:
A cash equivalent must be readily convertible to a known amount of cash, but it also needs to be near enough to maturity that its value is unlikely to change.
Answer is option "b" Highly sensitive to interest rate changes.
Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal.
Cash equivalents are short-term, highly liquid investments that have both of the following characteristics: Readily convertible to known amounts of cash. So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Cash and equivalents do not include investments in liquid securities like bonds, stocks, and derivatives. Even though such assets can be quickly converted to cash (usually within three days), they are nonetheless excluded.
Restricted cash refers to money that is held for a specific purpose and thus not available to the company for immediate or general business use. Restricted cash appears as a separate item from the cash and cash equivalents listing on a company's balance sheet.
Which of the following options is considered cash and cash equivalents?
- Money Orders.
- Travelers Checks.
- Cashiers and Certified Checks.
- ACH Payments and Wire Transfers.
- Debit and Credit Cards.
Answer and Explanation: A b) six-month Treasury bill would not be reported on the balance sheet as a cash equivalent.
To audit “Cash and Cash equivalents”, you will need to get a clear idea about the bank accounts, types of bank accounts, number of bank accounts, purpose of each bank account, banking facilities arrangements and agreements, overdraft facilities, bank guarantees, Authorized signatories, Authorization matrix, bank ...
These are issued by the government and have a maturity of less than a year. These are not considered as cash equivalent because although they are considered to be close to cash, they are not as liquid as cash equivalents. Therefore, the correct answer is d. money market fund securities.
Cash typically includes coins, currency, funds on deposit with a bank, checks, and money orders. Items like postdated checks, certificates of deposit, IOUs, stamps, and travel advances are not classified as cash.
Answer. Cash equivalents are considered relatively risky compared to stocks. The false statement about cash equivalents is B. Cash equivalents are short-term, highly liquid investments that are easily convertible into cash.
Cash and cash equivalents
Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.
Cash equivalents are short-term investment securities with assets; they have a high credit rating and are extremely liquid. Cash equivalents, also known as "cash and equivalents," are one of the three main asset classes in financial investment along with stocks and bonds.
Cash-equivalent transactions are, for the most part, regarded as cash advances, a type of transaction that includes ATM withdrawals and loading amounts onto gift cards and other prepaid cards.
Cash equivalents can be reported at their fair value, together with cash on the balance sheet. Fair value will be their cost at acquisition plus accrued interest to the date of the balance sheet.
Are US Treasury bills considered a cash equivalent?
Items commonly considered cash equivalents are Local Government Investment Pool (LGIP) deposits, treasury bills, commercial paper, short-term deposits in financial institutions, and money market funds.
Cash and cash equivalents are calculated simply by adding up all of a company's current assets that can reasonably be converted into cash within a period of 90 or fewer days. As for which assets to include, there are generally accepted accounting rules about this.
Inventory. Inventory that a company has in stock is not considered a cash equivalent because it might not be readily converted to cash. Also, the value of inventory is not guaranteed, meaning there's no certainty in the amount that'll be received for liquidating the inventory.
Is Petty Cash a Cash Equivalent? No. Petty cash is actual cash money: bills and coins. Cash equivalents are highly liquid securities and other assets that can be easily converted into cash: money market funds, commercial paper, or short-term debt, like Treasury bills.
They include such things as balances in savings accounts and money market funds, short-term certificates of deposit, and short-term government securities (e.g., treasury bills). Another example of a cash equivalent is short-term commercial paper (negotiable notes receivable issued by other companies).
